“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The performance of the stock has superseded anybody’s wildest dreams.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.
Mad Hedge Technology Letter
October 9, 2023
Fiat Lux
Featured Trade:
(GLOBAL WAR THREATENS TECH RALLY)
(GOOGL), (MSFT), (LMT), (EV), (CHINA)
Hot wars play a central role in accelerating inflation and the world’s newest kinetic war in the Middle East could prove toxic to the Fed’s quest to quell high inflation.
First, condolences to the atrocities that have occurred in the past 72 hours, the damage to families, society, and communities are hurtful and long-lasting.
Conflict in the Middle East means higher energy prices because a higher risk premium will be attached to the cost of logistics and production.
The Middle East has some of the highest outputs of oil and natural gas in the world with supply from Qatar, Saudi Arabia, and Iran flooding the world with cheap energy.
What does that mean for technology stocks?
I can tell you nothing good.
Physical wars rotate demand to certain goods that will deliver the consumer the best outcomes and in this case food and shelter. Running a supermarket during the lockdowns was a small gold mine. That means there is a high chance that money rotates out of Google and Microsoft and goes into defense and military stocks like Raytheon and Lockheed Martin (LMT).
Unless products are critical to survival, goods like EVs and Tesla’s (TSLA) are placed on the backburner.
Few will have the money to charge their EVs with another wave of price increases coming down the pipeline. I already hear Norwegians complaining about the cost of fueling EVs after cheap Russian energy was shut off to them.
Forget about an iPhone upgrade cycle.
Kids will just have to deal with the iPhone 14 for longer.
High inflation plays a leading role in wars and conflicts. But that doesn’t mean that economic policy doesn’t matter anymore. Less wars result in bigger tailwinds to deflation.
China also owns the rare metals industry and policy might dictate to hold back supply and earmark it for national and military industries instead of selling to foreigners.
Tesla’s might not be able to be produced anymore because they can’t secure the right materials like cobalt from China.
If a full-fledged regional war intensifies, then the US economy is almost guaranteed to lock in 4% as the new CPI low for this inflationary cycle. The next move would be higher.
The US has already pledge financial and military aid to Israel and that bill will be footed by the US taxpayer.
If this war begins to get expensive and the US starts shipping off $200 billion every few months to the Middle East then this fiscal spending will bring forward more inflation.
Ultimately, if a third war in the shape of Taiwan rears its ugly head, we could experience high 20% inflation like we did in the 1970’s, but this time around, we would do it with close to $34 trillion in US federal debt and those onerous debt interest payments.
The technology sector better hope and pray for a quick resolution to the Middle East conflict in order to stave off the threat of destroying the Santa Claus rally in the Nasdaq.
A third concurrent war in Taiwan would mean instant recession, spiking bond yields, $150 per barrel oil, and technology stocks experiencing a wild pullback.
In the meantime, the newest stresses will guarantee the Eurozone plus UK into a deep recession because they aren’t self-sufficient.
It also adds even more stress to the US economy which is the last man standing at this point because US tech earnings are still in the green.
Certain stocks do very well in times of geopolitics, but these multinational globalized companies have a lot to sacrifice if the world goes pear-shaped.
Mad Hedge Technology Letter
October 6, 2023
Fiat Lux
Featured Trade:
(TESLA GAINS UPPER HAND WITH HELP FROM CHINA)
(TSLA), (LCID), (RIVN), (EV), (CHINA)
The American consumer has been battered.
Declining iPhone sales says it all, but that is nothing compared to the Chinese consumer who are drowning in a cesspool of their own debt.
The Chinese economy is threatening to become the new Japanese economy which is infamous for its run of lost decade after lost decade.
Who cares?
I don’t, but lithium prices do and that’s why we need to focus on as the lust for EVs in the western world picks up pace.
The Chinese have cornered the lithium market and supply has expanded.
This should allow EV makers like Elon Musk to lower the price of Tesla’s further effectively winning the price war. The inverse of Bidenomics sometimes happens, but usually takes the Chinese to flood the market with extra product and in this case lithium.
Every small EV stock should be ignored. There is Tesla and nobody else.
Lithium prices are crashing around the world.
After a buying frenzy sent global prices soaring though last year, they’ve since plunged as electric vehicle demand crashes and supplies are expected to remain strong.
The weakness has been especially pronounced there as battery makers tap stockpiles built up during the boom, while demand concerns are being exacerbated by wider fears about the country’s economy.
Chinese sentiment is being hurt by weak consumer and business confidence and an ongoing property crisis.
The nation’s EV sales growth slowed to 37% in the second quarter from a year earlier, versus a global average of 50%.
That’s helped push most-active Chinese lithium carbonate futures down about 37% since they started trading in July. They’re at a level that works out to a roughly 35% discount to lithium hydroxide futures in the US, according to traders.
The price decline has further to go. Lithium carbonate and hydroxide could drop another 30% in the near term on the back of weaker demand, high inventories and improved supply.
Tesla can lower the price of EVs as it seeks to capitalize on US consumer’s lack of discretionary budget as inflation takes a bite out of their daily budgets.
Today, the carmaker marked down the starting price of the base Model 3 by $1,250 to $38,990.
Tesla also lopped $2,250 off the price of the performance version of the Model 3, which now starts at $50,990, and $2,000 off the long-range and performance versions of the Model Y sport utility vehicle, which now cost $48,490 and $52,490, respectively.
The biggest factor contributing to Tesla’s price cuts has been the lifting of production constraints that held the company back for years.
Tesla still maintains a dominant position in the US electric-vehicle market, though it’s increasingly relied on discounting to preserve its position. Fresh product could help buoy pricing in the coming months, with the carmaker recently debuting an updated version of the Model 3.
Tesla has already identified the race to the bottom for the price of EVs and this should crush the rest of the competition as EVs turn from luxury goods to commodities.
Just take a look at rivals like Rivian (RIVN) who lose $33,000 for each vehicle they sell. EV maker Lucid’s $338,000 loss per car Is turning investors off
I wouldn’t put a cent into any other EV stock aside from Tesla.
They will be the future iPad on wheels that Steve Jobs dreamed about and now they can lower prices even more aggressively now that the price of lithium has crashed.
Musk was smart to start the price war earlier to crush competition.
