“Technology is nothing. What's important is that you have a faith in people, that they're basically good and smart, and if you give them tools, they'll do wonderful things with them.” – Said Steve Jobs
Mad Hedge Technology Letter
March 6, 2024
Fiat Lux
Featured Trade:
(CYBER SECURITY IS STILL GROWTH)
(CRWD), (PANW)
Since starting the company, CrowdStrike (CRWD) has brought cybersecurity to the cloud.
They have pioneered AI for cybersecurity, and quickly become the de-facto security platform that disrupts, displaces, and consolidates other vendors.
This stock has been really good to Mad Hedge Tech Letter followers, and we recently took profits in a successful in-the-money bull call spread in CRWD.
Money will flow into enterprise protection as the stakes get higher with hackers looking to strike gold.
When talking about the threat landscape, CrowdStrike pioneered commercial threat intelligence that governments and companies of all sizes depend on.
It's CrowdStrike that delivers billions of new threat detections every month to stop breaches.
It's CrowdStrike that is the search bar of security, where security analysts complete millions of queries daily.
What took hackers hours, has shrunk to minutes and seconds. Attack speeds will only accelerate.
The cloud is increasingly under attack and CRWD exists to protect businesses against these attacks.
CRWD tracked a 75% year-over-year increase in cloud intrusion attempts.
The cloud is today's battleground for cyberattacks.
Generative AI is an adversary force multiplier and the last few years have seen the onboarding of this new force multiplier.
Gen AI puts advanced cybercrime tradecraft in the hands of attackers of all skill levels. Gen AI will dramatically grow the adversary population.
CRWD collects trillions of threat signals daily, creating one of the world's largest and fastest-growing cyberthreat datasets.
From day one, CRWD has been an AI company, training the industry's most effective and accurate AI models to prevent attacks based on data mode.
Embedded in the Falcon platform is a virtuous data cycle where CRWD collects cybersecurity's very best threat intelligence data, builds, and trains robust preventative and generative models, and protects CRWD customers with community immunity.
In today's environment of heightened cyberattacks, the latest SEC breach disclosure regulation only increases the pressure on companies and their boards.
One of the best of breeds and its superior performance are a critical reason to why the share price has moved up in the last few years.
Let’s look at the numbers behind the business model.
Moving to the P&L, total revenue grew 33% year over year to reach $845.3 million.
Subscription revenue grew 33% over Q4 of last year to reach $795.9 million. Professional services revenue was $49.4 million, representing 26% year-over-year growth.
Subscription customers were five or more, six or more, and seven or more modules growing to 64%, 43%, and 27% of subscription customers, respectively.
CRWD is landing bigger with new customers on average adopting 4.9 modules out of the gate, an increase over last year. CRWD’s gross retention rate remained high at 98%.
CRWD is knocking it out of the park.
It’s hard to maintain growth company status in the head of major macro headwinds.
Many enterprise businesses are pulling back spend, but cybersecurity hasn’t been curtailed as of yet.
Tech companies are becoming more efficient and cybercrime hasn’t felt the pain of leaner software budgets.
This bodes well for the future of cyber security and the main players in the industry.
“The biggest risk is not taking any risk.” – Said CEO of Facebook Mark Zuckerberg
Mad Hedge Technology Letter
March 4, 2024
Fiat Lux
Featured Trade:
(MIDDLE MANAGERS ON THE CHOPPING BLOCK)
(NVDA), (SMCI)
Sure, the narrative out there is that generative AI will transform the technology sector and the companies that coalesce around it.
That doesn’t always mean it will be great for everyone.
Many jobs can be mundane and boring.
AI is supposed to solve all that by unlocking time for these workers to do other tasks.
However, one trend that is picking up speed that could turn into a runaway freight train is the evolution of AI destroying most of the human job market.
It’s happening faster than people think.
If everyone loses their jobs except for a handful of CEOs running a company with AI, who will pay rent to small or corporate landlords?
Who will partake in a trip to a sports bar when these patrons lack salaries that are replaced by AI.
The next battleground of AI job removal is now reaching up to the middle manager echelon.
Confidence among middle-managers dropped to its worst-ever reading in February, pushing a broader index of US employee sentiment down to a record low.
The group’s confidence is now similar to that of entry-level workers, which fell last month to the lowest in seven years.
Decades after automation began taking and transforming manufacturing jobs, artificial intelligence is coming for the corporate management.
The list of white-collar layoffs is growing almost daily and includes jobs cuts at Google, Duolingo and UPS in recent weeks.
While the total number of jobs directly lost to generative AI remains low, some of these companies and others have linked cuts to new productivity-boosting technologies such as machine learning and other AI applications.
Generative AI could soon upend a much bigger share of white-collar jobs, including middle and high-level managers,
Generative AI speeds up routine tasks or make predictions by recognizing data patterns.
It has the power to create content and synthesize ideas—in essence, the kind of knowledge work millions of people now do behind computers.
Across all ranks, employee confidence fell to 45.1%, the lowest in data back to 2016.
Middle managers have to both direct more junior employees and answer to the senior ranks, making the position uniquely prone to burnout in the corporate ladder.
Tech firms like Meta and Google zoned in on those positions for cuts last year.
In announcing the job cuts, the companies cited similar themes around productivity and efficiency.
At some big tech firms, that can be gauged by how many people work under you, providing an incentive to overdo the staffing levels.
Companies that did just that are increasingly reducing staff and driving confidence down with it.
Although highly positive for revenue estimates, human workers will need to adjust to a modern cutthroat working environment where they need to do more and get paid less in technology.
The ironic thing about this is that the very technology they lusted over is the same technology putting the same workers out of a job.
Better be careful what you wish!
At a stock market level, this is highly positive and will lead to higher shares in tech companies like Nvidia and Super Micro computers.
Remember that wages are usually the highest expense and reducing them will almost always result in higher share prices.
It’s good that low confidence doesn’t affect the execution or existence of AI.
This is significantly bullish tech stocks short and long term and I expect every quarterly earnings transcript to talk about reducing staffing levels and higher efficiency.
“The way to build billion dollar companies is to first build something people love.” – Said CEO of OpenAI Sam Altman
Mad Hedge Technology Letter
March 1, 2024
Fiat Lux
Featured Trade:
(ROBOT-AS-A-SERVICE)
(ROK), (TER), (ZBRA), (NVDA)
We need to look to the future to better understand what is next after software-as-a-service (SaaS).
Technology never keeps still and evolves.
Even giant Google who invest countless numbers of dollars and man-hours into AI are facing short-term pressure on their AI trajectory.
I do believe the next iteration and extension of technology services will be accretive to the tech ecosystem and help boost stock shares and that piece of technology will come in the form of Robotics-as-a-Service (RaaS).
The RaaS market size is expected to grow by US$8.23 billion from 2024 to 2030 at 34.12%.
Like a number of other shared services, RaaS is becoming increasingly popular due to its convenience and flexibility, as well as being cost-effective and easy to implement.
Remember that human workers get sick, like to take days off, shout to the rafters about promotions, better pay, and more benefits.
Robots don’t do that.
RaaS also allows a company to have the benefits of robotic process automation by leasing robotic devices and accessing a cloud-based subscription service.
You will own nothing and be happy.
By not having to purchase the equipment outright, organizations can avoid the downsides of ownership and maintain their bottom line.
Cloud computing solutions are already in place for many organizations, so the foundation for RaaS has been perfectly set for the model’s increased use.
As adopting smart robotic technologies requires companies to part with a significant chunk of their financial resources, a RaaS solution also means companies have no need to invest in costly infrastructure.
Remote services and IoT are major growth, but lack of awareness and acceptance pose challenges
A major driver of the market is going to be the increased remote services provided by vendors in the market.
Companies are moving away from the physical approach of providing break-and-fix services to incorporate services that are predictive and proactive by combining the remote service platform with the Internet of Things.
The reason why uptake won’t be higher is because in some settings that require a personal touch like healthcare, companies will be hesitant to adopt robots because customers could feel alienated.
We are still in the early innings.
As the tech ecosystem advances, the integration of robots into this industry is inevitable.
Yes, they will be relied on to perform mundane tasks at first like Amazon’s warehouse robots who move around large amounts of packages.
We need to start somewhere.
In the future, robots will increasingly start to reach further up the value-added chain to offer some quite impressive set of skills to contribute to the labor force.
Rome wasn’t built in one day.
Some stocks to be on the lookout in the RaaS space are:
Rockwell Automation (ROK) is a leader in industrial-grade technology. Its systems, components, and software help manufacturers develop smarter and more efficient machines.
Zebra Technologies (ZBRA) is a longtime player in the automation space. The firm develops mobile computing devices to help employees of a company work more efficiently.
Teradyne (TER) is a developer of industrial equipment that helps automate repetitive tasks.
Intuitive Surgical (ISRG) is a pioneer of robotic-assisted surgery. Its da Vinci system made its commercial debut in 2000 and has since expanded across the globe.
Lastly, a second derivative play powering these robots will be Nvidia (NVDA) chips.
“If you're competitor focused, you have to wait until there is a competitor doing something” – Said Founder of Amazon Jeff Bezos