Mad Hedge Technology Letter
December 22, 2023
Fiat Lux
Featured Trade:
(THE FUTURE IS HERE)
(NO CODE)
The future is here.
No code or low code will bring a raft of new innovative tech companies to market, and we are in the early innings of this transformative development.
What is no code?
No-code is an approach to designing and using applications that requires zero coding or knowledge of programming languages.
This type of software hits us at a perfect time when the home office is beginning to become ubiquitous.
The self-service movement that empowers business users will support the creation, manipulation, and employment of data-driven applications.
If we turn back the pages of history, companies need an army of software programmers to develop even the measliest application.
That was then and this is now.
Fast forward to today and automated technology doesn’t only include cutting-edge industries like automotive cars, but also software on laptops that can be rejigged by individual entrepreneurs.
That’s right, one person with no coding experience will be able to design, develop, and offer a real-life application with meaningful business value without the help of expert programmers.
The research data backs up my thesis with research firms projecting a 23% increase in the global market for this type of technology.
During the pandemic, low-code/no-code tools saw steady growth due to their effectiveness in addressing some of tech’s most complicated challenges.
The essential need to digitize workflows and enhance customer and employee experiences will be a boost to the efficiency of commercial and operational teams.
No-code platforms have evolved from just facilitating mundane tasks to making it possible for a broader range of business employees to truly own their automation and build new software applications with no coding while increasing organizational capacity.
A few risks that larger companies might consider is that even for remote developers building new applications, governance is paramount.
IT staff will need to install guardrails in place and have those built into low-code/no-code platforms to maintain consistent levels of security across the organization.
Cybersecurity solutions need to be integrated into this workflow by training every employee at the organization on security behavior and using compartmentalization and limited access to prevent opportunities for mistakes.
Hard landings are hard to recover from and some can be crippling to the business model.
For no-code companies, harmonizing workflows is a key requirement for success.
In a low-code/no-code organization, departments should be able to work without silos and communicate freely across functions.
Elevated performance enabled by low-code/no-code tools will mean that the number of useful apps hurling toward the marketplace will be more and merrier than ever before.
Higher performance will no doubt usher in a new renaissance of efficiency and even better performance.
This also puts a 3 or even 4-day workweek squarely in play.
Many of the best tech minds in the world have supported the concept of working smarter instead of working harder.
A low code/no-code standard will allow for these achievements to take place.
The cratering of costs to start and run a tech firm is affected too.
Deploying startup capital to pay for other expenses will make it easier for successful incubation.
This will ultimately mean that this new type of tech company will need to embrace the fusion of IT and business staff, empowering them with composable applications to speed up the time to market for new solutions.
Low-code/no-code, APIs, and other tools are enabling companies to integrate new applications into their existing tech stack in a more seamless manner with a lift-and-shift approach vs. a rip-and-replace.
At the entrepreneur level, individuals will be able to harness the technology to build $100 million companies with a snap of the fingers when it wasn’t possible to do it before.
This is finally a chance for the little guy to recapture their moxie in the vast and sometimes overwhelming business world.
Mad Hedge Technology Letter
December 20, 2023
Fiat Lux
Featured Trade:
(FUTURE OF AI PATENTS AND LAW)
(CHINA), (NEURALINK)
The world is rapidly shifting into a new paradigm where not only do people invent, but people also build artificial intelligence that can invent.
This will have massive ramifications for the business world and the tech industry which is the avant-garde of the business world.
Recent decisions from South Africa and Australia that an artificial intelligence machine can be listed as an inventor on a patent could spur these two locales into being one of the most competitive tech scenes in the world.
The U.S. and Europe will need to figure out what it means to be an inventor.
Registering A.I. as an inventor could potentially mean that multinational corporations won’t shoulder the blame if some sort of insidious experiment with A.I. goes horribly wrong crushing half of mankind.
It also opens up the possibility of some “A.I. invented” app triggering 1000X growth delivering prosperity to half of mankind.
The wide range of possibilities is enough to keep one up at night, and the deeper knock-on effect is that A.I. is now prime for game time.
The rapid acceleration of not only the quantity of A.I., but the increasing quality of A.I. means that countries will need to make some high-stakes business decisions on where A.I. fits into the law and patent system.
Courts in the U.S. and U.K. are expected to issue rulings later this year, and policymakers are gathering information on how to deal with the rising use of AI.
Another piece to the puzzle is how China will treat A.I. and the knock-on effects on American consumers and American businesses.
This sub-sector has been identified as one of the “must-win technologies of the future” by the U.S. administration.
China also leads in AI as it relates to facial recognition and has a database of 1.3 billion citizens to pull data from.
China is pursuing a centrally controlled strategy with hyperlocal implementation. Values and goals are set from above, and resources are made available.
At the local level of municipalities, cities, and provinces, regional administrations compete for the new AI clusters.
The result is a national and regional administrative state that works closely with research, investors, and industry to build a successful AI ecosystem.
In either case, American companies need a verdict and the initial framework of how to treat A.I. in terms of who owns the patents and what that means, or they risk falling behind places like China which is hell-bent on being the first A.I. superpower.
Imagine if all companies were protected from anything negative that AI manufactured and not only with social media.
One could understand how investors could win out big time if a flood of capital nosedived into controversial projects that became money generators.
Big tech has the capital and connections in Washington to advance the initiative.
Another project that comes to mind that would benefit from AI law is Elon Musk-supported Neuralink.
Elon Musk wants everyone to get brain surgery. Specifically, he wants everyone to get a brain implant — the brain-machine interface created by his company, Neuralink. He says it will be able to solve any number of medical conditions — including paralysis, anxiety, and addiction.
A project like this is high risk — a lot could go wrong with it.
But what if the law was set up to just allow investors to write off the externalities and fiscal costs of a failed project?
These rulings also have massive consequences in where the new Silicon Valley migrates to and if the rules are favorable in South Africa, what’s stopping Facebook from exploring an opening of a Cape Town subsidiary?
Not much is the answer.
The issue of inventorship is just a small part of the dilemma over how to deal with AI, such as what types of AI software are eligible for a patent and who owns the massive amounts of data required to “teach” the machines.
A decision clarifying which AI inventions are eligible for patenting would be impactful.
Ultimately, AI is a high-stake game that gets more important by the day and so far there has been nothing detrimental that will affect the fortunes of big tech and their quest for higher share prices.
“You may think using Google's great, but I still think it's terrible.” – Said Co-Founder of Google Larry Page
Mad Hedge Technology Letter
December 18, 2023
Fiat Lux
Featured Trade:
(THE TRUTH ABOUT AUTOMATION AND WALL STREET JOBS)
(AAPL), (GOOGL), (FB), (AMZN), (NFLX)
Automation is taking place at warp speed displacing employees from all walks of life.
According to a recent report, the U.S. financial industry will depose 200,000 workers in the next decade because of automating efficiencies.
Yes, humans are going the way of the dodo bird and banking will effectively become algorithms working for a handful of executives and engineers.
The x-factor in this equation is the direct capital of $150 billion annually that banks spend on technological development in-house which is higher than any other industry.
Welcome to the world of lower costs, shedding wage bills, and boosting performance rates.
We forget to realize that employee compensation eats up 50% of bank expenses.
The 200,000 job trimmings would result in 10% of the U.S. bank jobs getting axed.
The hyped-up “golden age of banking” should deliver extraordinary savings and premium services to the customer at no extra cost.
Mobile and online banking has delivered functionality that no generation of customers has ever seen.
The most gutted part of banking jobs will naturally occur in the call centers because they are the low-hanging fruit for automated chatbots.
A few years ago, chatbots were suboptimal, even spewing out arbitrary profanity, but they have slowly crawled up in performance metrics to the point where some customers are unaware they are communicating with an artificially engineered algorithm.
The wholesale integration of automating the back-office staff isn’t the end of it, the front office will experience a 30% drop in numbers sullying the predated ideology that front-office staff are irreplaceable heavy hitters.
Front-office staff have already felt the brunt of downsizing with purges carried out in 2023 representing a fifth year of decline.
Front-office traders and brokers are being replaced by software engineers as banks follow the wider trend of every company transitioning into a tech company.
The infusion of artificial intelligence will lower mortgage processing costs by 20% and the accumulation of hordes of data will advance the marketing effort into a smart, hybrid cloud-based, and hyper-targeted strategy.
Historically, a strong labor market and low unemployment boosts wage growth, but national income allocated to workers has dipped from about 63% in 2000 to 56% in 2023.
Causes stem from the deceleration in union membership and outsourcing has snatched away negotiating power amongst workers and the implemented mass automation has poured fat on the fire.
I was recently in Budapest, Hungary on a business trip, and on a main thoroughfare, a J.P. Morgan and Blackrock office stood a stone’s throw away from each other employing an army of local English proficient Hungarians for 30% of the cost of American bankers.
Banks simply possess wider optionality to outsource to an emerging nation or to automate hard-to-fill positions now.
In this race to zero, companies can easily rebuff requests for higher salaries and if they threaten to walk off the job, a robot can just pick up the slack.
Automation is getting that good now!
The last two human bank hiring waves are a distant memory.
The most recent spike occurred 7 years after the dot com crash of 2001 until the sub-prime crisis of 2008 adding around half a million jobs on top of the 1.5 million that existed then.
The longest and most dramatic rise in human bankers was from 1935 to 1985, a 50-year boom that delivered over 1.2 million bankers to the U.S. workforce.
This type of human hiring will likely never be seen again in the U.S. financial industry.
Recomposing banks through automation is crucial to surviving as fintech companies are chomping at the bit and even tech companies like Amazon and Apple have started tinkering with new financial products.
The brutal truth out there is sadly; don’t tell your kid to get into banking, because they will most likely be feeding on scraps at that point.
WALL STREET IS LEANER THAN EVER
“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.
