“There are seven billion people in the world. And I think phones are the first time most people will have access to a modern computing device. With Android, we want to enable that for people.” – Said CEO of Alphabet Sundar Pichai
Mad Hedge Technology Letter
December 15, 2023
Fiat Lux
Featured Trade:
(A TECH COMPANY MOST PEOPLE HAVEN’T HEARD OF)
(SMCI), (PLTR)
It won’t be the case that only 1 or 2 AI stocks hit pay dirt.
There will be more winners.
Most importantly, companies need to get a set at the table whether it be hardware, software, or chips.
There are different ways to play AI and for example, Palantir is a good bet through the software side of it as it gobbles up government contracts that are indeed lucrative, but also highly stable.
Palantir (PLTR) has become one of the top stocks mentioned in conversations I’ve had and I don’t believe it’s going away.
The company has long used AI in its Gotham and Foundry platforms, and its Artificial Intelligence Platform (AIP) has produced eye-popping productivity gains.
But Palantir is currently expensive and management likes to issue new stock like there is no tomorrow.
One stock that could garner attention is Super Micro Computer (SMCI).
It’s a dark horse AI stock that few know about.
Super Micro stands out as a "rack-scale" IT solutions provider, designing servers, switches, storage systems, and software with global support services.
Since this approach combines hardware and software, it provides a competitive advantage over peers who focus primarily on either hardware or software.
Despite a market cap of only $14 billion, Super Micro has built a customer base in more than 100 countries. And so large is its operation that it requires more than 6 million square feet of manufacturing space globally.
A demand surge led to more need to attract talent through stock-based compensation.
Thus, that expense came to $57 million in fiscal Q1, up from $11 million in the year-ago quarter.
Super Micro maintained its fiscal 2024 revenue guidance of $10 billion to $11 billion.
This amounts to a 47% increase which definitely bolsters this tech stock as a prototypical growth stock that investors love.
The stock has skyrocketed by 210% over the last 12 months. And despite that surge, the stock sells at a P/E ratio of 24.
Considering the rapid growth expected, Super Micro's gains are not likely to stop anytime soon.
Thanks to a lack of name recognition, investors are only now seeing the potential for this AI stock.
Consequently, investors can buy a fast-growing stock at a low price.
This means that if they missed the opportunity to buy Palantir more cheaply, Super Micro gives them a second chance. Moreover, with its ability to combine hardware and software, it appears to have a competitive advantage in the AI space.
I’m not saying that investing in something like Nvidia won’t work.
There is room for other chip suppliers and Super Micro Computer is one of them.
The stock has really surged in the past year, but I would be inclined to add on big drawdowns.
Entry points are few and far between for SMCI.
This is just the early stages of AI and to get into one of the better names at a cheaper price is a good long-term strategy.
Mad Hedge Technology Letter
December 13, 2023
Fiat Lux
Featured Trade:
(RIVIAN SPEEDS UP)
(RIVN), (TSLA)
One company I am quite bullish on is EV maker Rivian (RIVN).
They make great cars, but they also lose money by the fistful.
How bad is it?
Rivian lost $1.19 a share in Q3, less than feared, while revenue jumped 149% $1.34 billion.
The EV startup produced 16,304 vehicles and delivered 15,564 vehicles in the third quarter. Meanwhile, Rivian booked a loss of $30,648 per vehicle delivered in Q3, down from a loss of $139,277 per unit delivered a year ago.
Going from losing $140,000 to $30,000 is a big jump and these are eye-popping losses.
The more important takeaway is that big investors are sticking with RIVN as the cash burn improves.
The real hard work is reducing the loss for each car to zero because many variables are working against RIVN.
Then there is the competition and by that I mean Tesla’s Cybertruck.
RIVN shares surged the day after Tesla began initial deliveries of its Cybertruck.
The company also announced it will allow more customers beyond — Amazon (AMZN), which remains a key buyer — to purchase its commercial electric vans.
Rivian raised its 2023 production guidance to 54,000 electric vehicles, up from 52,000 in August.
The company tied the hike to "progress experienced on our production lines, the ramp of in-house motor line and the supply chain outlook."
Tesla offers three trims of the Cybertruck, with the rear-wheel drive version starting at $60,990 with a 250-mile range. The base model will be available in 2025, according to Tesla's website.
The all-wheel drive version has a starting price of $79,990 with 340 miles of range. Tesla is also offering a top-end trim, called the Cyberbeast, starting at $99,990 with a 320-mile range. Both the all-wheel drive version and the Cyberbeast have 2024 deliveries.
Four years ago, Tesla announced the price would start at $39,900 with Chief Executive Elon Musk previously saying he wanted to price the base model under $50,000.
Originally, Tesla and Musk stated the tri-motor Cybertruck would have 500 miles of range with the dual-motor model managing 300 miles and the base rear-wheel version getting 250 miles per charge.
Tesla’s Cybertruck has an eccentric design that could turn off a lot of buyers and funnel them into interest for a RIVN.
Not only is the design extreme, but Musk is asking for more than the $50,000 he first quoted.
RIVN is cheap, to begin with, but it will be able to compete with Tesla’s Cybertruck in price and quality.
Supply-chain issues have hampered the entire industry. Rivian has also had problems of its own complicate its launch.
Rivian is not likely to be profitable for a while it scales out manufacturing.
RIVN burns around $1 billion in cash per quarter, and yet the company is still nowhere near hitting the mass production rates which would achieve a more competitive cost structure.
Another painful bottleneck is the sizable increases in the cost of key metals, including lithium, nickel, aluminum, and cobalt.
Even though they lose $4 billion per year, investors are patient with this company.
Patience stems from the fact that RIVNs are great cars and surely will improve the product.
If RIVNs start to fall in quality then I would expect a massive exodus from the shares which will hit the price of shares.
Until that narrative is broken, I believe RIVN will be bought on dips.
Mad Hedge Technology Letter
December 11, 2023
Fiat Lux
Featured Trade:
(DIGITAL MARKETING REBOUND)
(PINS), (SNAP)
In prior years, big social media companies were the class of the tech industry.
It’s not so much like that today but they still have highly profitable models and a lot of juice left in the tank.
I do believe big social media companies will still do well in 2024 because they have proved themselves through the test of time.
However, now that media has fragmented, smaller social media stocks that are tailored to a certain niche are due to overperform in 2024.
This is happening at a time when cord-cutting is accelerating and the lowering of interest rates next year could serve as a catalyst to higher share prices for the likes of Snap and Pinterest.
Then there is the wider trend of potential beneficiaries from a recovery in the digital advertising market.
As marketing clients look to redeploy their dollars following post-pandemic cutbacks, stocks such as Snap and Pinterest could be next in line for a payday.
For Pinterest, I have been highly bullish on them ever since Elliot Management scooped them up and revamped management.
Snap is in the sweet spot catering to a growing demographic who are seeing their earning power rise as they come of age.
Still, the industry faces risks given an uncertain economic backdrop.
I anticipate higher ad sales of online retail platforms that will jump 20% versus last year. Moreover, online ad growth should accelerate meaningfully in 2024.
I believe the media will obtain about $17 billion in political ads next year when many U.S. campaigns will be in full swing.
It’s hard not to see social media stocks winning out in a presidential election year in one of the most polarizing contests in recent memory.
More and more consumers spend most of their days online and most of those funds likely will be spent on digital platforms where these consumers station eyeballs.
And worldwide, ad spending is expected to jump 8.2% next year, a sharp acceleration from the 4.4% gain anticipated this year.
Marketers spend money on platforms in direct proportion to the number of users that they attract.
Digital platforms, which include search, social, commerce, retail media, and digital video platforms, will account for about 64% of all advertising in 2023.
Digital platform-focused companies are expected to collectively grow 11%, led in large part by retail media, which will account for about $42 billion in advertising revenue in 2023, up 20% over 2022.
Traditional television, both national and local, will experience declines over the year.
The setup is boding nicely for these smaller social media stocks and that is not to say stocks like Meta and Google will perform poorly.
Realistically, the Nasdaq can’t move higher without the Magnificent 7, but based on pure percentage gains, I do believe Snap and Pinterest have a good chance to beat out the heavyweights next year.
There is a high likelihood that tech will lead this next bull market because they are the largest winner from the lowering of interest rates.
Not only will tech IPOs be back in vogue, but the prototypical tech zombie firms that burn cash will pop up again showing that investors reserve large amounts of capital for potential tech growth companies.
Part of the capital allocation will be to Snap and Pins which are solid companies with a great brand image.
I believe 2024 will be a year where investors pile into these 2 stocks much like how investors piled into Uber in 2023.
Mad Hedge Technology Letter
December 8, 2023
Fiat Lux
Featured Trade:
(SOUTH ASIA PARTNERS)
(NVDA), (AAPL)
Big developments happening in the tech sector abroad and investors should take notice.
The CEO of technology giant Nvidia Jensen Huang said he believes that Malaysia will become a potential hub for artificial intelligence “manufacturing.”
This is big news for South Asia and this is the first stage of Silicon Valley looking to harness the power of South Asia to progress its narrative and developmental footprint.
It’s essential they find some low-cost countries to partner with because it’s not always sensible to manufacture in the United States because of cost restrictions.
Take AI, the need for large-scale servers is intense, and opting for a better cost-efficient place is a good strategy.
Huang mentioned that Malaysian conglomerate YTL Corp. could play an important role in setting up AI data centers.
Malaysia “is a very important hub for SEA’s computing infrastructure. It requires access to land, facilities, power, which is extraordinarily important,” he said. “I think YTL could play a great role in that.”
Malaysia’s expertise in packaging, assembly, and other aspects of manufacturing makes it well-suited for the manufacturing of artificial intelligence.
Nvidia is working with 80 AI startups in the country.
In Malaysia, the data center infrastructure layer of computing, which is one of the most important parts of the AI and the cloud, is very successful.
Southeast Asia will likely be a hub for AI computing because countries need their own AI data centers to refine and transform data into valuable information. Old data processing centers were designed to hold data files and run applications. AI requires the use of each place's culture, language, values, literature, and common sense.
The prospects of Southeast Asia are highly positive as it attempts to turn into an important technology hub. It’s already experienced in packaging, assembly, and battery manufacturing. It has rounded out to perform well throughout the entire technological supply chain.
The smart move here is to decouple from China as geopolitics threaten to spin out of control.
Also, consider that Chinese demographics are one of the grimmest in the world.
China simply isn’t producing young workers anymore and wages have skyrocketed.
It doesn’t make sense to build factories there anymore.
India will have a big role to play in the advancement of Silicon Valley production in the next generation.
Apple will shift a quarter of its iPhone production to India in the next two to three years.
The decision will translate into more than 50 million iPhones a year being built in India.
The iPhone production in India lagged seriously behind China but that changed with the iPhone 14, which began manufacturing in the same month as in China.
In 2023, Apple built more iPhone 15 units in India than any other model and it marked the first time it managed to release a model made in India on launch day.
Foxconn is currently building a plant in Karnataka state that should open for business in April 2024.
As Silicon Valley marches on, they will have an interest in partnering in other parts of the world to fine-tune their business models.
Expect a heavy dose of South Asia for the next generation because that is where the low-hanging fruit is.
India will come into its own in the next few years, and Malaysia certainly is a good value player.
The most important takeaway is the accretive effect they will have on American technology companies.
In the short term, I believe NVDA is a better stock player than Apple, although Apple is a great long-term investment.
Mad Hedge Technology Letter
December 6, 2023
Fiat Lux
Featured Trade:
(POSITIVE SIGNS FOR 2024)
(AMZN), (APPL), (GOOGL), (MSFT), (TSLA), (META), (NVDA)
