Mad Hedge Technology Letter
March 27, 2024
Fiat Lux
Featured Trade:
(TAIWAN IS ON THE MAP)
(AAPL), (TSM)
I know it’s not the sexiest choice but there is a chip company in Taiwan that readers need to look at.
This company has investments all over the world and is the leader in what they do.
They are also involved in AI which lately has been the ticket to riches.
Taiwan Semiconductor Manufacturing Company (TSM) may not seem like a glamorous AI stock, but it's as critical to the AI future.
To understand TSMC's role in AI, you need to understand how we get to end consumer-facing products like ChatGPT, Bard, and other generative AI applications.
For AI to be effective, it must be trained using lots of data -- quantities that must be stored in specialized data centers.
Data centers rely on graphic processing units (GPUs), which are essentially the brains of AI computing systems.
TSMC and the semiconductors it manufactures for its client companies are crucial in this process. These GPUs rely heavily on TSMC's best-in-class manufacturing processes.
This AI knock-on effect hasn't impacted TSMC's financials yet, but management said they expect sales of its AI-related semiconductors to grow at a compound annual rate of 50% for at least the next few years.
By 2027, AI-related semiconductors are expected to be responsible for a large part of the company's revenue.
TSMC will absolutely be additive to the AI ecosystem.
Let’s talk about their products.
TSMC's 3nm fabrication process accounted for 15% of the company's revenue in 2023.
Only one of TSMC's customers used it at the time:
Apple (AAPL).
The three-nanometer product is where it’s at.
Wasn’t it just a year or 2 ago we were at 7 nanometers?
As more customers adopt the manufacturing process, 3nm process nodes will account for a considerably larger share of TSMC's revenue.
This year TSMC's N3-series nodes — including N3B and N3E — will account for over 20% of the foundry's revenue in 2024.
Apple currently exclusively uses TSMC's N3B to make its A17 Pro system-on-chip (SoC) for smartphones, as well as the M3-series processors for iMac desktops and MacBook laptops.
AMD is preparing to launch its new Zen 5-based processors made on 3nm- and 4nm-class process technologies later this year.
Apple's new iPhone 16 series will be equipped with the A18-series processor, and the upcoming M4-series processors for Mac PCs will also be produced using TSMC's 3nm technology.
This marks the first time Intel has entrusted TSMC with the full range of chips for its mainstream consumer platform, the report notes.
This collaboration highlights TSMC's expanding role in serving Intel, which also happens to be the company's rival in the foundry market.
With three major customers using TSMC's 3nm family of process technologies, this company needs to be on readers’ radar.
More companies are expected to adopt TSMC's N3 nodes in 2025, including performance-enhanced N3P, and the report suggests 3nm will account for over 30% of TSMC earnings in 2025.
It’s easy to see with the mushrooming of business for TSMC, how they are a highly sought-after stock.
It also explains why the stock has been on a tear.
It was only just last May they were trading at $82 per share and fast forward to today at the stock sits at $136 per share.
Holding this stock long term has borne fruit and every big should be bought.
They will continue to be the best at what they do.
Mad Hedge Technology Letter
March 25, 2024
Fiat Lux
Featured Trade:
(REGULATIONS REGULATE TECH)
(AAPL), (GOOGL), (META)
I’m not saying the time is up for big tech.
The Magnificent 7 are still by and far great companies who print money.
They dominate in a way that was unfathomable just a generation ago.
Trillion-dollar companies are now commonplace in tech and we have pushed into valuations of over 2 and pushing towards $3 trillion.
Success like this easily could make them easy targets and that is what has become of them in Europe as Apple (AAPL), Google (GOOGL), and Meta (META) are in the firing line under the sweeping new Digital Markets Act tech legislation.
Apple has already been slapped on the wrist quite hard with a $2 billion fee after the European Commission said it found that Apple had applied restrictions on app developers that prevented them from informing iOS users about alternative and cheaper music subscription services available outside of the app.
In a third inquiry, the commission said it is investigating whether Apple has complied with its DMA obligations to ensure that users can easily uninstall apps on iOS and change default settings. The probe also focuses on whether Apple is actively prompting users with choices to allow them to change default services on iOS, such as for the web browser or search engine.
The fourth probe targets Alphabet, as the European Commission looks into whether the firm’s display of Google search results to choosing its own products over other services.
The fifth and final investigation focuses on Meta and its so-called pay and consent model. Last year, Meta introduced an ad-free subscription model for Facebook and Instagram in Europe. The commission is looking into whether offering the subscription model without ads or making users consent to terms and conditions for the free service is in violation of the DMA.
If any company is found to have infringed the DMA, the commission can impose fines of up to 10% of the tech firms’ total worldwide turnover. These penalties can increase to 20% in case of repeated infringement.
Preferring one’s own product from companies like Apple, Amazon, and Google is not a shocking phenomenon. Business can be a dirty game and self-selecting ones products because they own the platform they are sold on is almost common knowledge to the average consumers.
Organizational bodies like the European Commission have an incentive to fine American tech companies that do business in Europe.
Europe has no alternative apps and aren’t competitive in the tech space.
The desperate reach of European bureaucracy has decided to just steal the money in the form of tech fines instead.
One big takeaway that sticks out like a sore thumb is the clear trend to the low-hanging fruit being plucked.
The incremental dollar will be harder to earn for big tech as regulatory commissions around the world zone in on their anti-competitive practices.
I doubt that fines will get so big to the point that these tech firms will go bankrupt, but this could set the stage for a slew of earnings misses which could knock down the share prices.
I still believe these stocks are buys, but only after they are beaten down and repriced.
I wouldn’t go chasing here with regulatory issues rearing its ugly head and revenue forecasts disappointing.
If I had to choose one to avoid then it would be Apple.
“Great achievers are driven, not so much by the pursuit of success, but by the fear of failure.” – Said Co-Founder of Oracle Larry Ellison
Mad Hedge Technology Letter
March 22, 2024
Fiat Lux
Featured Trade:
(REDDIT HAS SOME JUICE)
(RDDT), (META)
Readers who missed out on stocks like social media platforms like Facebook (META) now have a chance to grab a pillar of social media in American society.
Reddit (RDDT) went public yesterday and jumped 48% by the end of the trading day cementing its place as a top player of social media stocks in Silicon Valley.
The valuation now is $8 billion and we are just getting started as tech IPOs reverse from its recent dormant activity.
The strong showing by Reddit, along with AI-focused semiconductor connectivity company Astera Labs whose shares have gained 78% since its IPO Tuesday, provides a promising backdrop for other IPO candidates such as Microsoft-backed data security startup Rubrik and health-care payments company Waystar Technologies.
Reddit’s most loyal users were able to buy 8% of the shares at the IPO price, an opportunity typically reserved for institutional investors, and saw a total return in the aggregate of about $29 million by day’s end.
Reddit’s more than two-year slog to listing reflects the ups and downs of the market, beginning with its initial confidential filing in 2021 when IPOs on US exchanges set an all-time record of $339 billion.
Reddit’s listing pushes the total raised by IPOs via US exchanges this year to about $8.8 billion. That’s an increase of around 152% at this point in 2023.
One benefit of Reddit’s slow route to the public market is that enthusiasm for the AI revolution has continued to mount.
The potential of AI was at the center of Reddit’s proposed value proposition to investors, as companies eye the record-setting rallies in stocks like chipmaker Nvidia Corp.
Pay for growth, and for Reddit, which accelerated growth in the past six months, it just makes a strong case that it should be at a premium multiple.
Reddit said it’s in the early stages of allowing third parties to license access to data on the platform, including to coach up artificial intelligence models.
The company said that in January it entered into data licensing arrangements with an aggregate contract value of $203 million and terms ranging from two to three years. It expects a minimum of $66.4 million of revenue from those agreements this year, according to the filings.
Reddit also has announced a deal with Google, allowing Google’s AI products to use Reddit data to improve their technology. Large language models often need vast troves of human-generated content to improve.
Founded in 2005, Reddit averaged 73.1 million daily active unique visitors in the fourth quarter, according to its filings. The company reported a net loss of $91 million on revenue of $804 million in 2023, compared with a net loss of about $159 million on revenue of $667 million a year earlier.
It’s clear to me that there is a solid road map to monetizing Reddit’s platform whether it is licensing in-house data for AI large language models.
Reddit is an extremely rich and diverse social platform in which contributors discuss many topics.
As long as the over 73 million subscribers maintain their engagement, it’s easy to see how the tech company maintains its growth trajectory.
I do believe that subscriber growth will continue and the low-hanging fruit is that 100 million subscriber numbers.
Over time, this platform is a gold mine for AI algorithms to integrate with and that shouldn’t be diminished.
I would invest long-term only on big dips.
Mad Hedge Technology Letter
March 20, 2024
Fiat Lux
Featured Trade:
(A NEW SET OF CHIPS ARE COMING)
(NVDA)
The accolades keep raining down on Nvidia (NVDA) CEO Jensen Huang. I even heard one person say he is the new Steve Jobs.
Those are quite lofty compliments for a guy who has been under the radar for quite a long time. However, he can’t hide anymore as NVDA’s share price has skyrocketed and the valuation today stands at over $2.2 trillion.
NVDA should be at the heart and core of every tech portfolio. They are critical to the facilitation of AI in the present and the future. So when he talks publicly, people listen and that’s what just happened.
Jensen Huang described what he sees ahead for artificial intelligence and Nvidia. He believes it is something so vast and transformative that computing and how we use it will never be the same.
Huang gave the keynote address on Monday to open Nvidia's GTC 2024 conference. Huang focused on what he insisted was the coming transformative influence that his company's Blackwell program of chips and related systems would have on technology and artificial intelligence at the first level and the entire economy beyond.
The audience at the SAP Center in San Jose was waiting for his every word.
Huang focused on Nvidia's new generation of chips and the two factors that make AI work: the training (or programming) that enables the semiconductors to receive data, recognize and organize it, and send it back out to a client in usable form; and the brute computing power to make it all happen.
Nvidia's influence on artificial intelligence is already substantial, thanks to its H100 GPU chips and related products which power most AI applications now.
The Blackwell platform, expected to be available toward the end of 2024, will use a new series of chips, the B200 family, combined with new components and software to get the most out of the chips.
The goal is to let a user pack more training onto chips so these chips and the components built around them can recognize data more quickly.
The chips are supposed to access more inference — the capacity to know how to analyze the data to produce usable conclusions to queries and questions.
Blackwell is supposed to offer 4 times the capacity of Nvidia's wildly popular A100 chip to program the training aspects in the chips themselves and 30 times the inference output.
Add more of these chips into the system, and you can gather more data and translate it into more usable information almost instantaneously.
Nvidia is developing other equally fast components into the platform system so that the information flows in and out swiftly and, as importantly, smoothly, all the while using a lot less power.
Many can see how these cut across a slew of industries by making them more productive and efficient. The head and brains of an operation for most corporations will be an algorithm facilitated by an Nvidia chip.
The demand for these products will be out of the roof coming from industries like logistics, industrial, transport, consumer products, finance, and so on.
Nvidia will supercharge business everywhere.
I will keep tabs on how the Blackwell platform performs, but it is hard to envision it failing because Nvidia’s reputation precedes itself.
This also could trigger another leg to the bull market in tech stocks.
“Economies of scale are a good thing. If we didn't have them, we'd still be living in tents and eating buffalo.” – Said JP Morgan CEO Jamie Dimon
