Mad Hedge Technology Letter
October 18, 2023
Fiat Lux
Featured Trade:
(THE MORAL HIGH GROUND MANIFESTO)
(ABNB), (META), (VENTURE CAPITALISM)
Venture capitalist Marc Andreessen posted a manifesto, calling for “techno-optimism” and delivered quite a few bizarre ideas all under the idea that “we are being lied to.”
He starts out his rant by playing the victim as a man whose net worth has surged to around $2 billion and he also doesn’t tell us who is lying to us.
He articulates to his audience that “we are told that technology takes our jobs, reduces our wages, increases inequality, threatens our health, ruins the environment, degrades our society, corrupts our children, impairs our humanity, threatens our future, and is ever on the verge of ruining everything.”
That is quite the doomsday prognosis of technology and sounds like someone who spends too much time watching TikTok videos.
I believe that most US consumers have some idea that technology can be divided into the good, the bad, and the ugly.
Painting the concept of technology as all bad or all good is an attempt to play up the drama of his blog which isn’t quite dramatic.
One of the biggest takeaways from his blog is that Mr. Horowitz has minimal opportunities to communicate with normal American people and because of that, he doesn’t understand what is considered common sense.
Living in a bubble can be dangerous and group think becomes entrenches with the same narrow opinions swiftly rotating through a tight knit circle.
Laughably, Horowitz tries to take the moral high ground saying that “we believe that advancing technology is one of the most virtuous things that we can do.”
I believe he is only saying that because he will have skin in the game and if technology equals high morality, then it would be impossible for a man like Horowitz, in his position, to not double or quadruple his net wealth.
He even double downs on the moral high ground position by giving us a blockbuster quote of “we believe Artificial Intelligence can save lives.”
He, again, paints a sub-sector of technology into a save lives or die proposition.
Technology is more nuanced and it’s blatantly obvious that he is attempting to skew the narrative in which he sees fit so it benefits him.
Horowitz intentionally skips the possibility that AI could be used to kill people out of malice in terms of drones, killer robots, autonomous weapons, nuclear bombs, hypersonic missiles.
He arrives at the conclusion that “the only perpetual source of growth is technology.” Thus, we need this only perpetual growth to makes peoples likes better.
This quote only sounds like he is wants the world to believe that the world cannot function without him and his huge ego.
My opinion is that many of these billionaires have lost the real pulse of the nation and are living too much in an alternative reality that are occupied by other billionaires and their consensus ideas.
This blog almost sounded like a real estate agent telling a buyer that it is a great time to buy a house, even with 10, 20, 30% mortgage rates.
I do believe that technologists like him will never be able to re-establish the moral high ground for at least 2 or 3 generations.
The whole Facebook (META) connecting the world marketing ploy and Airbnb (ABNB) live next to your neighbor because we are all buddy buddy is gone and won’t come back soon.
Selling hopium is old news and I don’t believe the same guys who profited from Facebook will lead the technology innovation races in the next round.
The quality of their ideas has deteriorated and it’s clear that leading technologies like the iPhone is on its last legs.
This manifesto screams desperation. It’s also interesting that he didn’t even mention crypto which he’s a huge investor in.
It’s even more interesting that he is calling for no regulations on technology in which crypto would massively benefits. He intentionally stays away from that central topic.
Technology needs to be re-imagined and by a new set of fresh blood. The old guard has become stale and this manifesto is proof of their desperation that it might be hard for their old ideas to become accepted in a rapidly changing world. They want the era of zero rates to never end.
Andreessen Horowitz investments
Dealing with the Cloud works and for every relevant tech company, this division serves as the pipeline to the CEO position.
If this isn’t the case for a tech company, then there’s something egregiously wrong with them!
Take Andy Jassy, the mastermind behind Amazon’s (AMZN) lucrative cloud computing division and was the man who succeeded company founder Jeff Bezos.
He was rewarded this important position based on his performance in the cloud and faces a daunting proposition of following Bezos as CEO.
Bezos incorporated Amazon almost 30 years ago.
Jassy developed a highly profitable and market-leading business, Amazon Web Services, that runs data centers serving a wide range of corporate computing needs.
Cloud 101
If you've been living under a rock the past few years, the cloud phenomenon hasn't passed you by and you still have time to cash in.
You want to hitch your wagon to cloud-based investments in any way, shape, or form.
Amazon leads the cloud industry it created.
It still maintains more than 30% of the cloud market. Microsoft would need to gain a lot of ground to even come close to this jewel of a business.
Amazon relies on AWS to underpin the rest of its businesses and that is why AWS contributes most of Amazon's total operating income.
Total revenue for just the AWS division would operate as a healthy stand-alone tech company if need be.
The future is about the cloud.
These days, the average investor probably hears about the cloud a dozen times a day.
If you work in Silicon Valley, you can quadruple that figure.
So, before we get deep into the weeds with this letter on cloud services, cloud fundamentals, cloud plays, and cloud Trade Alerts, let's get into the basics of what the cloud actually is.
Think of this as a cloud primer.
It's important to understand the cloud, both its strengths and limitations.
Giant companies that have it figured out, such as Salesforce (CRM) and Zscaler (ZS), are some of the fastest-growing companies in the world.
Understand the cloud and you will readily identify its bottlenecks and bulges that can lead to extreme investment opportunities. And that is where I come in.
Cloud storage refers to the online space where you can store data. It resides across multiple remote servers housed inside massive data centers all over the country, some as large as football fields, often in rural areas where land, labor, and electricity are cheap.
They are built using virtualization technology, which means that storage space spans across many different servers and multiple locations. If this sounds crazy, remember that the original Department of Defense packet-switching design was intended to make the system atomic bomb-proof.
As a user, you can access any single server at any one time anywhere in the world. These servers are owned, maintained, and operated by giant third-party companies such as Amazon, Microsoft, and Alphabet (GOOGL), which may or may not charge a fee for using them.
The most important features of cloud storage are:
1) It is a service provided by an external provider.
2) All data is stored outside your computer residing inside an in-house network.
3) A simple Internet connection will allow you to access your data at anytime from anywhere.
4) Because of all these features, sharing data with others is vastly easier, and you can even work with multiple people online at the same time, making it the perfect, collaborative vehicle for our globalized world.
Once you start using the cloud to store a company's data, the benefits are many.
No Maintenance
Many companies, regardless of their size, prefer to store data inside in-house servers and data centers.
However, these require constant 24-hour-a-day maintenance, so the company has to employ a large in-house IT staff to manage them - a costly proposition.
Thanks to cloud storage, businesses can save costs on maintenance since their servers are now the headache of third-party providers.
Instead, they can focus resources on the core aspects of their business where they can add the most value, without worrying about managing IT staff of prima donnas.
Greater Flexibility
Today's employees want to have a better work/life balance and this goal can be best achieved by letting them working remotely which effectively happened because of the public health situation. Increasingly, workers are bending their jobs to fit their lifestyles, and that is certainly the case here at Mad Hedge Fund Trader.
How else can I send off a Trade Alert while hanging from the face of a Swiss Alp?
Cloud storage services, such as Google Drive, offer exactly this kind of flexibility for employees.
With data stored online, it's easy for employees to log into a cloud portal, work on the data they need to, and then log off when they're done. This way a single project can be worked on by a global team, the work handed off from time zone to time zone until it's done.
It also makes them work more efficiently, saving money for penny-pinching entrepreneurs.
Better Collaboration and Communication
In today's business environment, it's common practice for employees to collaborate and communicate with co-workers located around the world.
For example, they may have to work on the same client proposal together or provide feedback on training documents. Cloud-based tools from DocuSign, Dropbox, and Google Drive make collaboration and document management a piece of cake.
These products, which all offer free entry-level versions, allow users to access the latest versions of any document so they can stay on top of real-time changes which can help businesses to better manage workflow, regardless of geographical location.
Data Protection
Another important reason to move to the cloud is for better protection of your data, especially in the event of a natural disaster. Hurricane Sandy wreaked havoc on local data centers in New York City, forcing many websites to shut down their operations for days.
And we haven’t talked about the ransomware attacks by Eastern Europeans on energy company Colonial Pipeline and meat producer JBS Foods.
The cloud simply routes traffic around problem areas as if, yes, they have just been destroyed by a nuclear attack.
It's best to move data to the cloud, to avoid such disruptions because there your data will be stored in multiple locations.
This redundancy makes it so that even if one area is affected, your operations don't have to capitulate, and data remains accessible no matter what happens. It's a system called deduplication.
Lower Overhead
The cloud can save businesses a lot of money.
By outsourcing data storage to cloud providers, businesses save on capital and maintenance costs, money that in turn can be used to expand the business. Setting up an in-house data center requires tens of thousands of dollars in investment, and that's not to mention the maintenance costs it carries.
Plus, considering the security, reduced lag, up-time and controlled environments that providers such as Amazon's AWS have, creating an in-house data center seems about as contemporary as a buggy whip, a corset, or a Model T.
The cloud is where you want to be.
Mad Hedge Technology Letter
October 16, 2023
Fiat Lux
Featured Trade:
(GO STRAIGHT TO THE TOP WITH THE CLOUD)
(AMZN), (ZS), (CRM), (GOOGL)
“Broadcast TV is like the landline of 20 years ago.” – Said CEO and Founder of Netflix Reed Hastings
Mad Hedge Technology Letter
October 13, 2023
Fiat Lux
Featured Trade:
(A GOOD TECH STOCK FOR THE LONG TERM)
(UBER)
Uber is an interesting tech stock that readers need to look at for the long haul.
Even though in today’s tech market, there are many exogenous events creating uncertainty, any big dip in Uber should be looked at as a cheaper price to buy into the stock.
From 2021 to 2022, Uber’s gross revenue went from $17 billion per year to $32 billion per year and that has really set the tone for the company.
The upward trajectory in revenue has cemented Uber as a stable company and has allowed it to shed the label of a speculative company.
Showing revenue stability has gone a long way in 2023.
The performance of the stock has superseded anybody’s wildest dreams.
Uber is solidly on its way to surpass its 2021 peak of $60 per share from the $44 per share today.
That’s not to say they won’t have some down periods along the way.
After an abysmal year for investors in 2022, when rising interest rates completely shut down interest in growth tech stocks, this year has brought some renewed optimism.
The transportation-as-a-service business is experiencing strong momentum right now following impressive financial results.
In the second quarter of 2023, Uber's revenue of $9.2 billion was 14% higher than in the year-ago period.
The business was finally able to register its first-ever operating profit, as this metric came in at $326 million for the quarter. And perhaps even more impressive, Uber produced a record $1.1 billion of free cash flow.
The bulls are optimistic as a result of these positive financial metrics, as the company appears to have reached a tipping point where profits will reoccur in the future.
CEO Dara Khosrowshahi has successfully found ways to cut costs.
Uber spent $8.9 billion in the most recent quarter on all of its costs and expenses which wasn’t a penny more than the same time last year.
Yet the sales base is much higher right now. That's an early sign that the business is scaling up in an efficient manner
Uber is a captivating investment because of just how essential it has become to the daily lives of millions of people.
It's hard to imagine what life was like before Uber existed, as its services are so entrenched around the world.
This superior customer value proposition gives me confidence that Uber isn't going away anytime soon and that maybe its importance will only expand over time.
In Q2, Uber had 137 million monthly active platform consumers (MAPCs), up 12% year over year, who spent $33.6 billion in gross booking value on the app and took 2.3 billion trips.
Plus, there were 6 million drivers and couriers who worked for the app in the three-month period. That goes to show you just how big this platform really is.
Uber also benefits from having an economic moat, which helps it fend off rivals like Lyft. As more riders join the platform, it becomes increasingly valuable to drivers.
Granted, we are in a tough trading time with almost daily reminders that the world is a volatile place. This does not help tech stocks grow and investors sometimes flee to fixed income.
If Uber does deliver investors a big dip, it would be a great chance to hop into some shares.
“Imagination is the limit. Go out there and create some magic.” - Said Elon Musk
Mad Hedge Technology Letter
October 11, 2023
Fiat Lux
Featured Trade:
(QUESTIONS POP UP ABOUT GENERATIVE AI)
(GOOGL), (AI)
Google is worried that generative artificial intelligence isn’t as accurate or as useful as currently advertised.
There have been major disagreements among internal Google engineers about whether this service is additive at all.
Google product managers, designers, and engineers have used a chat forum to openly debate the AI tool's effectiveness and utility, with some questioning whether the enormous resources going into development are worth it.
The problem with a great deal of the data they are using to build the software is they cannot independently verify whether it is true or not.
The AI systems are trained on massive amounts of text that form the building blocks of chatbots, but this text is just idling on the internet and that doesn’t mean it's accurate.
Last month, Google unveiled its most ambitious update yet: connecting Bard to its most popular services, such as Gmail, Maps, Docs, and YouTube.
However, rolling out these new updates has coincided with a drove of new complaints about the tool generating made-up facts and giving potentially dangerous advice.
Google’s thousands of low-paid contractors training Bard use convoluted instructions that they’re asked to complete in minutes.
In my opinion, Google is attempting to roll out this product as fast as possible without really focusing on the quality.
Inside and outside the company, the internet-search giant has been criticized for providing low-quality information in a race to keep up with the competition, while brushing aside ethical concerns.
For Google, ensuring the success of its Bard AI chatbot is of utmost importance. The company is far and away the leader in search, its financial lifeblood generates about 80% of parent company Alphabet’s revenue.
At Bard’s launch, the company was upfront about its limitations, including the possibility for the AI tool to generate convincing-sounding lies.
Google takes advantage of an army of underpaid and overworked contractors in order to refine Bard’s responses and I believe that is an extremely rash strategy.
Executives also must consider the consequences of the enormous costs needed to maintain large language models.
Google has reacted by downplaying fears, lack of usefulness, and the sheer fact that they might not have any idea what they are doing.
We are in unknown territory now with unproven technology and Bard could end of becoming a giant bust.
When is the point where engineers egging each other on start to question the core project? Remember, these engineers have monetary and personal incentive to continue with this because they are getting paid around half a million dollars per year.
If this project ends in humiliation for Google, they just move on, take the next engineering job, and Google writes down the losses.
The beginning of 2023 was beset with AI euphoria only to move into the latter half of 2023 where investors realize that it would take a while for any of this technology to meaningfully boost revenue.
Questioning the idea in itself is also another downgrade to AI momentum, and investors need to be cautious right now instead of throwing money at whatever sticks.
At some point, management will need to look at this project closer and not make this only about catching up with Microsoft’s ChatGPT.
Next year will go a long way to prove whether this technology is legitimate or not and we stay on a knife edge to see how it plays out. My bet is nothing really hits until later in the year.
Even if it doesn’t go exactly to plan, I do believe there are some revenue-boosting applications from this technology in the long term so it’s not exactly all negative for Google.
It could be that Google realizes that using the best data coupled with the best engineers is a better combination than what they are doing with Bard.
