“Most entrepreneurial ideas will sound crazy, stupid and uneconomic, and then they’ll turn out to be right.” – Said CEO of Netflix Reed Hastings
Mad Hedge Technology Letter
November 27, 2023
Fiat Lux
Featured Trade:
(5 STOCK FOR THE UPCOMING A.I. BOOM)
(NVDA), (AMBA), (MBLY), (AI), (AYX)
There has been non-stop talk about how artificial intelligence is reimagining the tech sector.
The highest quality artificial intelligence chatbot to ever grace the earth is exciting tech executives around the world.
My personal discussions with people in the know is that every tech company is now forming a work group and assembling its best engineers to figure out how to get their hands on something similar.
That being said, here are five companies that will benefit asymmetrically as this chatbot tech goes from fringe to mainstream.
Buckle up with your cowboy hat, because this type of technology will become pervasive in no time.
Since the cutting-edge chatbot was launched, there has been a massive re-rating of A.I. stocks because of the legitimacy of the technology.
It appears that chatbot AI will finally live up to the hype.
In November 2023, OpenAI Chat introduced GPT and has since shown that the software can be used in everything from writing stock reports to resignation emails to messages for dating apps
Nvidia (NVDA) famously known for designing and manufacturing graphics chips is the first stock that goes off the top of my head to benefit from this new AI craze.
The company's technology is being used for various AI integrations from self-driving cars to robots.
Nvidia's CEO Jensen Huang is one of the best leaders in Silicon Valley.
Recent forecasts estimate that a boom in Chat GPT usage could bring Nvidia revenue of between $5 billion and $14 billion over the next 12 months.
The success of Chat GPT brings Nvidia a potentially significant boost in demand for computing power.
New Nvidia chips are benefiting from the large computing requirements of AI tools such as ChatGPT.
Ambarella (AMBA) is another chip company powering the AI market. It develops semiconductors used in everything from in-car entertainment consoles to cell phones.
AMBA chips are also specifically used in self-driving cars, and the company recently partnered with German auto parts maker Continental for a joint autonomous driving project.
Mobileye (MBLY) was spun off from Intel and focuses on autonomous driving technology and driver assistance systems, which include chips and cameras. Volkswagen, Ford, and GM are among the company's customers.
Mobileye SuperVision is the top AI product at MBLY and is the most advanced driver-assist system on the market, providing “hands-off” navigation capabilities of an autonomous vehicle and designed to handle standard driving functions on various road types, while still always requiring the driver's full attention and eyes on the road.
C3.ai (AI) is a provider of software solutions in the field of artificial intelligence and owes its recent share price increase to the success of Chat GPT. Upon the announcement alone, shares rose about 28% when it was announced that Chat GPT would be integrated into its product range.
Alteryx software (AYX) is best known for data and analytics. The company is also involved in automation and specializes in artificial intelligence integration, albeit to a much lesser extent than competitors like Google and Meta.
There are rosy days ahead for AI stocks that will ride on the coattails of the most important trend in Silicon Valley.
“Live as if you were to die tomorrow.” – Said Indian revolutionary Mahatma Gandhi
Mad Hedge Technology Letter
November 22, 2023
Fiat Lux
Featured Trade:
(YEN COULD DRAG DOWN TECH STOCKS)
(FXY), ($COMPQ), (WEWKQ), (SOFTBANK)
The Japanese yen has helped boost tech stocks ($COMPQ).
Institutional money is borrowing Japanese yen (FXY) by the bucketful because Japanese interest rates have been anchored at 0% and betting big on tech stocks.
The strategy has worked like clockwork and Japanese stocks have also felt the wind at its sails.
What now?
Lurking in the shadows is a potentially catastrophic problem called Japanese tech company Softbank.
Softbank reported a "shocking" Q2-2 loss, revealing, in particular, how dangerously exposed they are to a Japanese yen devaluation.
Selling in Softbank stock would trigger panic selling in Japanese Banks. The contagion risk here is crystal clear.
JGB yields will spike following the US Treasury yields overnight trend. This will put even further pressure on banks' liquidity with a risk of exacerbating the sell-off.
What's important to understand here is the risk of Softbank triggering a $226 billion (the total amount of Softbank balance sheet liabilities) credit event right now.
To begin with, with a BB rating from S&P, Softbank has a pitiful credit rating tying its hands.
Now Softbank has liabilities mostly in US dollars while on the hook to repay $48 billion in the next 12 months.
Days before WeWork (WEWKQ) filed for bankruptcy, Softbank paid $1.5 billion to WeWork bank lenders.
In total, Softbank had to write off more than $14 billion in US dollars on that terrible WeWork investment while the Japanese yen crashed.
Now here the big problem is that Softbank doesn't disclose the amount of "off-balance-sheet" guarantees they issued either directly or through the Vision Fund.
Lastly, things might turn quite bad for Masayoshi Son personally, because 35% of his personal shares in Softbank are already pledged to financial institutions.
It doesn't take much to figure out what financial institutions will do if Softbank stock starts crashing, right?
The Japanese government will need to bail out not only Softbank but also the Japanese banks.
This tinderbox could explode anytime and the Yen would then become the focus.
If the Japanese government finally does embark on an interest hiking cycle then under this scenario, the Bank of Japan would be forced to raise the cost of capital on investors and households.
The global and Japanese financial system isn’t ready to take away the low-interest carry trade and it’s hard to quantify the unintended consequences.
Large parts of the Japanese system could go under water and the Japanese yen would greatly strengthen.
I specifically am worried about all the adjustable loans taken out by the Japanese consumer.
Loan defaults would surge.
If the Japanese government is forced to save Softbank and the Japanese financial system then expect another tidal wave of inflation as the purchasing power of the Japanese yen is even more devalued.
The string of abysmal tech investments by Softbank is threatening to accelerate the financial death spiral in Japan.
In my view, this would ice the tech rally momentarily, but not derail it long-term.
In all honesty, Softbank did deliver ample liquidity to many poorly run Silicon Valley tech companies and this fortified tech stocks during the bull run.
Now Softbank cannot throw around the cash they used to and tech stocks have concentrated into a group of 7 outperformers.
In the short term, the tech bull run continues in just a few narrow names but 2024 could trigger a broader run in secondary tech names as well.
Mad Hedge Technology Letter
November 20, 2023
Fiat Lux
Featured Trade:
(MICROSOFT HITS A HOME RUN)
(MSFT), (OPENAI)
After the smoke clears, it is obvious to the naked eye that the winner of the Sam Altman firing is Sam Altman and Microsoft.
Sam Altman is the former OpenAI CEO and the face of AI.
The board at OpenAI just gave away the company to Microsoft.
The event is still reverberating around the world and is a shocker for anyone and everyone involved in technology.
It is similar to if Elon Musk is fired by the board of Tesla.
Something of this magnitude has a lot of unintended consequences and from first glance, it appears that the board of directors overplayed their hand.
The only reason why the board got its way is because of the government structure in place that allows the power of management.
The best NFL teams don’t fire their franchise quarterback or lose them for nothing.
In an ironic twist, OpenAI's biggest investor Microsoft said it is hiring Sam Altman to lead a new advanced artificial-intelligence research team, after his bid to return to OpenAI with the board that fired him declining to agree to the proposed terms of his reinstatement.
OpenAI has been relegated to second-tier status and Altman has been promoted to the big show.
Microsoft Chief Executive Satya Nadella posted on X late Sunday that Altman and Greg Brockman, OpenAI’s president and cofounder who resigned Friday in protest over Altman’s ouster, will lead its team alongside unspecified colleagues.
Altman was blindsided by the firing which shows there was something horribly wrong with the relationship between the board and Altman. It sure smells like a power struggle.
Altman was the key to the company’s close relationship with Microsoft, which became highly dependent on its technology and remains OpenAI’s largest investor with a 49% stake.
Ultimately, Altman’s insistence that the current board resigns was rebuffed.
It would have made no sense for him to go back for anything less than that plus a big salary hike.
Among all the investors, Microsoft might be the most deeply intertwined in the fate of OpenAI, and the startup’s turmoil has been a liability.
Beyond being OpenAI’s largest backer, Microsoft has reoriented its business around the startup’s AI software.
The first takeaway is that this is great for Microsoft’s stock because of the boost it will deliver to its AI business.
MSFT shares would have sold off by 10% if Altman left completely.
MSFT now has the best of breed working directly for them after becoming frustrated by the lack of insight into OpenAI.
A lack of a board seat made the transparency even blurrier.
Opportunistically, expect a mass exodus of OpenAI’s best to join Microsoft’s new AI division.
Most of the employees are already demanding for the board to resign and this situation is on the verge of erupting into a toxic mess.
Poaching is the oldest game in town and MSFT will aggressively look to add to its staff. OpenAI will be a shell of its former self soon because MSFT has the resources to pull it off. Everyone jumping ship will be granted a massive pay rise and restricted stock.
Even if MSFT needs to write down its initial AI investment into OpenAI, it pales in comparison to the potential and bottom-line boost that Altman could muster for the Washington company.
Free agents of this caliber don’t usually jump ship for free and this is a major coup for Microsoft, Altman, and anyone else that follows him to MSFT.
Half the value of OpenAI is wrapped up in Altman himself.
He is now tasked to bring what he did from OpenAI and then develop it, and this time around he has unlimited resources to deploy.
This is another win for the Magnificent 7.
I am highly bullish on MSFT.
MSFT HITS A HOME RUN WITH ALTMAN
“In our business, things look like a failure until they're not.” – Said Microsoft CEO Satya Nadella
Mad Hedge Technology Letter
November 17, 2023
Fiat Lux
Featured Trade:
(CATCHING OPTIMAL ENTRY POINTS IN TECH)
(AMAT), (SMIC)
