“My goal was never to make Facebook cool. I am not a cool person.” – Said Co-Founder and CEO of Facebook Mark Zuckerberg
Mad Hedge Technology Letter
November 13, 2023
Fiat Lux
Featured Trade:
(RIDE THE NVIDIA AND AMD ROLLER COASTER)
(NVDA), (AMD), (ORCL), (GOOGL), (AMZN)
It’s scary when the best chip company in the world rolls out new products.
It’s scary because others can’t compete and they get left further behind.
It’s scary because the high level of technology facilitates another new wave of technological expertise in other companies from the software and hardware side.
These new products are almost always faster, more efficient, and better than the previous products catalyzing a snowball effect that lifts everybody’s revenue.
This type of outstanding performance of late is the reason that made Nvidia (NVDA) into the world’s most valuable chipmaker and they have announced they are updating its H100 artificial intelligence processor, adding more capabilities to a product that has fueled its dominance in the AI computing market.
The new model, called the H200, will get the ability to use high-bandwidth memory, or HBM3e, allowing it to better cope with the large data sets needed for developing and implementing AI.
Amazon’s AWS, Alphabet’s Google (GOOGL) Cloud and Oracle’s (ORCL) Cloud Infrastructure have all committed to using the new chip starting next year.
Winning orders is easy with the outsized brand recognition and type of game changing product on offer.
The current version of the Nvidia processor is already experiencing accelerated demand.
But the product is facing stiffer competition: Advanced Micro Devices (AMD) is bringing its rival MI300 chip to market in the fourth quarter, and Intel Corp. claims that its Gaudi 2 model is faster than the H100.
AMD is another chip company that readers should feel comfortable diversifying into if they don’t feel comfortable putting all eggs into the Nvidia basket.
AMD’s stock is surging towards old highs around $125 and should overtake that soon after the nice rally in the 2nd half of the year.
With the new product, Nvidia is trying to keep up with the size of data sets used to create AI models and services.
Adding the enhanced memory capability will make the H200 much faster at bombarding software synthesizing data.
Large computer makers and cloud service providers are expected to start using the H200 in the second quarter of 2024.
Nvidia got its start making graphics cards for gamers, but its powerful processors have now won a following among data center operators.
That division has gone from being a side business to the company’s biggest moneymaker in less than five years.
Nvidia’s graphics chips helped pioneer an approach called parallel computing, where a massive number of relatively simple calculations are handled at the same time.
That’s allowed it win major orders from data center companies, at the expense of traditional processors supplied by Intel.
The growth helped turn Nvidia into the poster child for AI computing earlier this year — and sent its market valuation soaring.
Nvidia is like a freight train that has left the station.
The stock is up 9 straight days as we cruise into its earnings report on November 21st.
It’s hard to see this earnings report being nothing short of spectacular and Nvidia have become famous for forecasting the unthinkable.
They then go and surpass a high bar and push the envelope further so it’s not a bad idea to buy NVDA before the earnings report.
The speed at which they come out with products is astounding and now being able to boast the best server chip in the tech enterprise community, it just represents yet another powerful part of their stunning array of tech arsenal.
$600 per share is a no-brainer for Nvidia and that will be surpassed in 2024.
“If you don’t understand the details of your business you are going to fail.” – Said Founder and CEO of Jeff Bezos
Mad Hedge Technology Letter
November 10, 2023
Fiat Lux
Featured Trade:
(ARTISANAL TECH FEELS THE HEAT)
(BMBL), (PTON), (MTCH)
Bumble (BMBL) is a dating app in which women initiate communication first and their CEO Whitney Wolfe Herd deciding to quit offers deep insight into the state of tech firms.
Remember that Wolfe Herd is the person who established this app and presided over an 83% decline in share price since an initial public offering over two years ago.
Clearly, the writing was on the wall for Wolfe Herd, but she shouldn’t receive all the blame.
There is an industry-wide malaise occurring in some sub-sectors of technology and smartphone dating apps are one of them.
Some investors have started to gain a sense that these apps don’t have enough bang for the buck and these business models are gaining in popularity.
In the past few weeks, the popular dating app Tinder announced a new feature rolling out a new subscription tier for $500 per month boasting it would unlock premium profiles at that price point.
Asking for $6,000 per year is a serious overreach for a dating app and I believe that type of ask will alienate some of the core users.
These apps are supposed to scale but not at $6,000 per year.
What else is the big challenge for Bumble?
How to get consumers to commit money to a dating app when the economy is so uncertain?
That’s the conundrum.
In the months after the pandemic, online dating apps became the hottest ticket in town as the only way to not sacrifice a dating life.
Bumble, which currently has 40 million active monthly users across its portfolio of apps, is now fiercely fighting for users with its competitor Match (MTCH).
As with some of these niche tech businesses, opening up the economy from the lockdowns has been a tough pill to swallow as it relates to the knock-on effect on future sales.
In terms of pure market sentiment, investors have determined a strong likelihood that the lockdowns were the high water mark for these artisanal apps.
Unfortunately, these sub-sector stocks are labeled as a time and place stock and not one that is worth holding in times of chaos and upheaval.
We are far from the start-up frenzy peak where entrepreneurs could make hopes based on fantasies into an app and concoct a targeted addressable market.
It’s not going to cut it anymore, because the bar is so much higher.
In the era of cheap money, funding niche sub-sectors of technology was still quite fashionable and mainstream.
I would even say it caught fire.
Then there is the issue of artificial intelligence concerning how this type of technology delivers poison to the innards of the business model.
How?
Dating apps could easily turn into bots chatting to bots to monetize users with no real value. This would constitute a fake business. Ad sponsors could be paying for this to happen. AI integrates into online dating apps quite poorly because it strips away the authenticity of the end user which undermines communication and the underlying asset.
A fake business would mean a crash in the underlying equity value. Of course, we are not even close to that possibility right now, but keep in mind that force-feeding management to one-up AI capabilities could unearth some bizarre unintended consequences.
Ultimately, the end of 2023 is a dynamic time in technology because the trajectory of companies has never been so uncertain, fluid, and challenging at the same time.
Expect quite a few of these artisanal apps to get swept into the dustbin of history.
Readers need to stay away from sub-sector technology stocks like Peloton (PTON) and instead go for stocks that have broader exposure to more wallets where artificial intelligence will act as a tailwind.
Plus, many people use Instagram, X, or Facebook for dating anyway. No need to overcomplicate life.
Mad Hedge Technology Letter
November 8, 2023
Fiat Lux
Featured Trade:
(SETTING UP FOR THE NEXT BULL MARKET)
(WEWKQ)
Taking out long-term leases and turning around to rent short-term i.e. Airbnb style for corporate offices ended with a thud as office sharing tech company WeWork filed for bankruptcy.
The idea never made sense and felt more like a gimmick.
Surprisingly, this bankruptcy didn’t happen much earlier as the “work from home” pivot during 2020-2022 made this business model go from bad to worse.
It’s safe to say that we are far passed the peak “sharing economy” and investors are licking their wounds on this one.
WeWork filed for bankruptcy, capping a dramatic period that saw the once high-flying startup navigate a failed initial public offering, forced government lockdowns, a blank-check merger, and a stubborn avoidance of return-to-office trends.
The company at its 2019 peak commanded a $47 billion valuation with the likes of SoftBank losing more than $14 billion on just this one investment.
The firm’s death spiral arguably started in 2019. In a matter of months, the company went from planning an IPO to firing thousands and procuring a multi-billion-dollar bailout.
WeWork was almost a scam from the beginning with its main business mission explained as to “elevate the world’s consciousness.”
The former CEO of WeWork Adam Neuman operated the business almost as a cult.
The company eventually went public in 2021 through a special purpose acquisition company, two years after its initially planned IPO. But that didn’t stop WeWork from hemorrhaging cash.
While WeWork reached a sweeping debt restructuring deal in early 2023, it quickly signaled desperation soon after.
High-interest rates are starting to knock out the low-quality business ideas that never should have gotten off the ground in the first place.
These developments are a godsend for the tech economy that needs a complete flushing out of the bad ideas that were fueled by 0% interest rates.
Cheap money attracts larger-than-life ideas and personalities that can’t really back up the chutzpah.
Raising the bar for quality in tech has also caused the unintended consequence of raising the top tech companies or magnificent seven even higher up than before.
This trend can easily be seen in the EV sector where incumbent Tesla is putting their foot on the scruff of smaller EV company’s necks that simply can’t keep up with the higher material costs and headache of developing a global manufacturing presence amid deglobalization.
In simple terms, it is substantially harder to build an above-average tech company, or any tech company for that matter in 2023.
The former is an issue with the lofty competition that wields powerful balance sheets and the latter is an issue with draconian funding terms.
Waving goodbye to lemons like WeWork is only healthy for the tech sector in the long term and shortly we should see other junk-status companies be thrown by the wayside as well.
Cryptocurrency mogul Sam Bankman Fried’s fall from grace with a guilty verdict of fraud is another signal that the tech’s excesses are quickly normalizing.
We are in the middle of setting ourselves up for the new bull market in technology stocks which will be kicked into gear if interest rates sniff out the next recession.
Mad Hedge Technology Letter
November 6, 2023
Fiat Lux
Featured Trade:
(HIGHER FOR LONGER IS NOT OFF THE TABLE)
(BIG TECH), (QQQ), (AAPL), (GOOGL), (META), (TSLA)