“It’s OK to have your eggs in one basket as long as you control what happens to that basket.” – Said Owner of X Elon Musk
Mad Hedge Technology Letter
September 27, 2023
Fiat Lux
Featured Trade:
(REIMAGINING TECH AND THE WORKFORCE)
(AI), (AMZN), (UBER)
Students hoping to become bankers shouldn’t study finance, they should dive into programming.
This is the big takeaway from how investment banks are run these days.
Gone are the moments when finance degrees were the hottest commodity, now it is all about generative AI.
Artificial intelligence (AI) could replace the equivalent of 300 million full-time jobs, a report by investment bank Goldman Sachs says.
It could replace a quarter of work tasks in the US and Europe but may also mean new jobs and a productivity boom.
And it could eventually increase the total annual value of goods and services produced globally by 7%.
Generative AI, able to create content indistinguishable from human work, is "a major advancement", the report says.
Silicon Valley is keen to promote investment in AI in not only the United States but in a way that will ultimately drive productivity gains across the global economy.
AI will complement the way bankers work, not disrupting it - making finance jobs better, rather than taking them away.
The report notes AI's impact will vary across different sectors - 46% of tasks in administrative and 44% in legal professions could be automated but only 6% in construction and 4% in maintenance, it says.
Journalists will therefore face more competition, which would drive down wages unless we see a very significant increase in the demand for such work.
Consider the introduction of GPS technology and platforms like Uber (UBER). Suddenly, knowing all the streets in London had much less value - and so incumbent drivers experienced large wage cuts in response, of around 10% according to our research.
The result was lower wages, not fewer drivers.
Over the next few years, generative AI is likely to have similar effects on a broader set of creative tasks.
According to research cited by the report, 60% of workers are in occupations that did not exist in 1940.
However, other research suggests technological change since the 1980s has displaced workers faster than it has created jobs.
Nobody understands how the technology will evolve or how firms will integrate it into how they work.
Lower wages and higher output are a perfect recipe for higher technology share prices and that is exactly what we will get.
Currently, we are experiencing a mild pullback from the AI mania, but that is simply because it got too far ahead of its skis.
I am quite disappointed in the price action in a stock like Amazon (AMZN) which announced a major investment in an AI startup, but the stock sold off the next day.
The AI pixie dust has leveled off in the short term, and the broader tech market is being dragged down by spiking interest rates.
I do believe in the AI hype, but these trends don’t go up in a straight line and need time to digest which often results in short-term pullbacks.
Mad Hedge Technology Letter
September 25, 2023
Fiat Lux
Featured Trade:
(JOSTLING FOR THE FUTURE OF TECH)
(AMZN), (ANTHROPIC), (CRM), (MSFT)
Amazon AMZN will invest $4 billion in artificial intelligence company Anthropic.
This is a company competing with ChatGPT.
It’s just another chess move in what could symbolize as the beginning of the war in generative artificial intelligence.
I do believe this could be the last iteration of the internet as humans know it because the next big “upgrade” will be uploaded into the physical human itself.
That is what developments in companies like Neuralink are telling us.
It’s not surprising that many of the big tech firms are taking strategic bets on the future of artificial intelligence.
This trend mirrors the past seminal trends where the end game turns into a winner-takes-all sweepstakes.
I am not going to sit here and say this will be better for the consumer on the internet as a whole, it mostly won’t.
This next iteration of the internet will become cloudier because consumers won’t know who is a chatbot and who isn’t.
The critical takeaway here is that the internet will become less smooth for consumers, but absolutely great for the few technology firms that harness generative artificial intelligence to build revenue.
Even chatbots are on record for not knowing who is a chatbot or who is a human.
What does that mean?
Soon, we will see chatbots talking to chatbots for money.
No humans needed.
In this case, big tech earnings revenue for their chatbot capabilities will explode and the ones that do it best with harvest the most contracts.
That is terrible for certain platforms that rely on authentic human interaction like online dating.
For some subsectors like cybersecurity, computers will be fighting computers and whoever has the best AI software will win out.
Amazon now has real skin in the game and the deal includes Anthropic using its custom chips to build and deploy its AI software.
Amazon also agreed to incorporate Anthropic’s technology into products across its business.
People familiar with the deal said Amazon has committed to an initial $1.25 billion investment in two-year-old Anthropic, a number that could grow to $4 billion over time depending on certain conditions.
This is peanuts for a company as rich as Amazon.
Google invested more than $300 million in Anthropic in May. Salesforce (CRM) has also invested in a series of AI startups, including Anthropic and OpenAI rival Cohere.
Amazon, which runs the largest cloud-computing business, has been shifting its strategy somewhat in backing AI startups.
Large language models, the algorithms that power chatbots such as ChatGPT require huge amounts of capital to build and train, and startups spend that money largely on cloud-computing costs. Of the billions of dollars that OpenAI has raised from Microsoft (MSFT), much of it has been spent on the tech giant’s AI business Azure.
Despite the excitement and investment in AI, it still makes up only a fraction of the revenue flowing into cloud-computing businesses.
All this is right now is positioning as the real revenue payout is much later down the road and I am talking years.
Whoever acquires the best pieces of the AI infrastructure now and sets the rules of the road, will basically box out everyone else.
Amazon has now clearly thrown their hat in the ring.
Trade AMZN in the short-term and hold for the long-term.
“Those who rule data will rule the entire world.” – Said Softbank Founder Masayoshi Son
Mad Hedge Technology Letter
September 22, 2023
Fiat Lux
Featured Trade:
(THE NEW CORRECTION IS THE SIDEWAYS ONE)
($COMPQ), (NVDA), (AAPL), (META), ($TNX)
Thursday wasn’t a great day for technology stocks ($COMPQ).
It’s not always smooth sailing from the bottom left to the top right.
It never is.
Stocks like Amazon (AMZN) were down more than 4% and other lower-tier growth stocks were down a lot more.
The price action in tech was a knee-jerk reaction after Fed Chair Jerome Powell signaled “higher for longer” for US interest rates ($TNX).
Powell was slightly a little bit more hawkish than consensus had it, and I don’t believe that will have any weight in the short or long term.
Funnily enough, Fed Futures are still pricing in no interest rate hike at the next meeting, even though Powell said there is one more hike.
There is still a deep-seated psychology that the Fed will pivot and this concept that the Fed has our back is not going away with itty bitty hikes.
Is there much of a difference between 5.25% and 5.5%?
The answer is no.
I would say that Powell's slow-walking this whole rate situation has done a lot more damage than good.
In more than 3 years since inflation was supposed to be transitory, inflation is still stuck at 3.7%.
Imagine living in a house with severe water damage to the wall and allowing it to fester over 3 years.
Tech continues to do well relative to expectations because Powell’s minuscule rate hikes have been sanitized to the investor audience.
Investors are scared of uncertainty and Powell is full of certainty.
Investors also don’t believe Powell will do anything to scare the tech market as we approach a federal government shutdown yet again.
Powell keeps pedaling this version of economic success, possibly because it is an election year.
Talking up tech stocks isn’t bad and Powell said that a soft landing is not the Fed's baseline expectation; it's merely a "plausible outcome."
Ultimately, tech investors believe Powell will pivot.
The proof is in the pudding.
Let’s look at the short and long end of the treasury curve.
The 10-year US treasury is yielding 4.43% and the 30-year US treasury bond is yielding 4.53%.
This means for an extra 20 years of duration, investors are rewarded an extra measly .10% worth of juice, precisely because investors think Powell will drop the front end of the curve like a hot potato.
Investors are just waiting it out.
Thus, Powell has telegraphed that we are basically at the peak of rates which is highly bullish for tech stocks.
Tech stocks are down just slightly in the past 30 days which I would characterize as a massive victory in relative terms.
In normal financial times, tech stocks would be thrown out with the bath water and we haven’t seen that happen.
Any selloff has been pristinely orderly and that’s a bullish sign in the short-term.
I am not saying that tech stocks have unlimited upside, but I do believe there is a solid bottom under them and they will most likely bounce around in a range-bound fashion.
Remember that for most of this year stocks like Apple (AAPL), Nvidia (NVDA), Meta (META), and so on rose while treasury yields spiked.
I don’t see why this correlation will screech to an immediate stop.
The likely bet is it continues but at a slower pace.
“All money is a matter of belief.” – Said Scottish Economist Adam Smith
Mad Hedge Technology Letter
September 20, 2023
Fiat Lux
Featured Trade:
(THE BOND KING IS WRONG ABOUT TECH STOCKS)
($COMPQ), (UUP), (MSFT)
