Mad Hedge Technology Letter
August 4, 2023
Fiat Lux
Featured Trade:
(SELF-DRIVING CARS ARE HERE)
(TSLA), (FSD)
Isn’t it interesting that self-driving cars and the software that launched this phenomenon are not required to pass a driving test, yet humans are?
I am here today to challenge the basic premise that software backed by artificial intelligence can drive a car better than a human.
Take left turns without a traffic light:
Artificial intelligence has consistently failed to successfully complete this standard objective.
This somewhat riskier driving maneuver must take into account drivers on the other side of the road, which humans can do, but the back-tested data in the self-driving software cannot predict external variables that could come into play.
This is why the software malfunctions on a left turn when a bird defecates on the windshield believing it’s an accident worthy of a full stop and yes a full stop right in the middle of oncoming traffic.
These types of poor decisions occur more often than you think with this “cutting-edge” technology.
The truth is that self-driving car technology has been very slow to develop.
Elon Musk has been talking about Tesla's Full Self-Driving technology for years. In 2016, the CEO said that Tesla's driver-assist feature Autopilot will be able to drive better than a human in two to three years.
He also said that by 2018, it would be possible to remotely summon a Tesla (TSLA) across the country.
In 2019, he said that Tesla could have a fleet of a million robotaxis by the end of 2020 if the company pumped out hundreds of thousands of FSD cars.
FSD is currently under investigation by the federal government in 2023.
Twenty years on from the start, no real product to show for except many unintended road deaths and rich Silicon Valley software engineers that peddle this false theory that software is better at driving than humans.
What’s the current situation today?
100% self-driving technology amounts to little more than a bunch of glorified tech demos. FSD isn’t the real deal.
In demos, you see what the creators want you to see, and they control for things that they'd rather you didn't.
To an AI, a slight change could be catastrophic. After all, how is it supposed to know what an appropriate response to a slight or sudden change is when it doesn’t understand everything it’s looking at?
How will it handle when the weather goes from sunny to hail, or when there’s deer in the headlights at the edge of the road?
It is unequivocally wrong to believe that software is better at real-time driving than a human, and therefore this industry will never mushroom into what investors think it might.
Self-driving cars are a 2-ton weapon ready to kill pedestrians, cyclists, and little kids.
The interesting thing to look for is whether these venture capitalists and investors double down on failed technology and pull strings to get this circus on public roads with the rest of us.
It’s entirely possible that this could happen in limited areas like the states of Arizona and California.
At the very minimum, if all 50 states do green-light such technology, we will need to wait another 15 or 20 years.
It’s not as imminent as Elon Musk tells us.
Don’t believe self-driving is the secret sauce that will be the next leg in revenue for Silicon Valley.
The benefits of this are not coming any time soon.
Outdoing the smartphone is proving to be almost impossible. Who would have known that the smartphone would have such staying power and longevity?
Tech is still utterly reliant on smartphone revenue until someone can supplant it and package it nicely in a consumer-friendly way. The road to that type of achievement is littered with good intentions.
ANOTHER LONG WHILE FOR SELF-DRIVING TO HIT THE MASSES
“Restaurants get you in with food to sell you liquor; religions get you in with belief to sell you rules.” – Said Lebanese-American Risk Analyst Nassim Nicholas Taleb
Mad Hedge Technology Letter
August 2, 2023
Fiat Lux
Featured Trade:
(SPOT ON WITH SPOTIFY)
(SPOT), (AMZN), (APPL)
Many industries have experienced consolidation in the last few years and music streaming has been no exception.
The strong emergence of a few companies running the show has resulted in these same companies wielding extraordinary pricing power.
Spotify (SPOT) has been one of the leading music streaming platforms for years, and when companies harness pricing power, they can raise prices to compensate for higher expenses.
That is exactly what Spotify did recently as their stock sold off on a wider-than-expected loss for the second quarter, even though subscribers surged.
The streaming service posted a net loss of 302 million euros.
Monthly active users (MUAs) beat estimates of 530 million to hit 551 million — a 27% improvement compared to the year-ago period. Net additions of 36 million represented Spotify's largest quarterly net addition performance in its history.
Premium subscribers also surpassed expectations of 217 million, jumping another 17% year over year to hit 220 million.
In its first-quarter report, the company said it expected to add 15 million new monthly active users in Q2, bringing its total to 530 million. It also expected revenue of 3.2 billion euros and to report 217 million paid subscribers in the quarter.
Spotify is continuing to invest in advertising, and its ad-supported revenue grew 12% year over year. The company said podcast advertising revenue growth reaccelerated to more than 30% year over year.
Spotify will increase the price of its Premium subscription offerings by as much as $2, which translates to a 20% rise for some plans.
In the U.S., Spotify’s Premium Individual offering now costs $10.99, up from $9.99, and the price of its Premium Duo plan changed to $14.99, up from $12.99. The company’s Premium Family plan is now priced at $16.99, up from $15.99, and the Student offering costs $5.99, up from $4.99.
Spotify doesn’t expect a drawdown in product demand from the price increase, and let’s face it, most people can handle paying an extra 2 bucks for something they use every day.
Music streaming is definitely close to becoming an industry participated in by just a few for as long as it’s a viable business.
That means Spotify will also have the opportunity to raise subscription prices again in the future.
The licensing issues alone are too much of a hurdle for most companies to get to launch so to really compete takes a high amount of upfront funds and in the world of high interest rates, tech firms can’t fund this type of retread business again.
Spotify isn’t a pure monopoly.
The others involved are Apple Music, Amazon, Tidal, Deezer, and Pandora.
SPOT’s stock has increased by over 85% after the earnings pullback, and at one point they were up over 100%.
Growing subscriptions at 27% is still considered something that a growth company does at a time when growth companies are hard to find.
It doesn’t matter that they aren’t profitable yet, as long as they add more subscribers, which they have strongly indicated they will.
The stock has pulled back from $175 and once the negative shakeout fades away, traders should get into SPOT while they still can.
“Never invest in a business you can't understand.” – Said American Investor Warren Buffett
Mad Hedge Technology Letter
July 31, 2023
Fiat Lux
Featured Trade:
(THE BEST OF BREED OF THE SECOND TIER)
(ADBE)
Though without the pedigree of tech blue blood such as Apple or Microsoft, Adobe (ADBE) comes close and is at the top end of that second group in Silicon Valley.
Investors need to take notice immediately of ADBE.
They don’t compete on the data center level with Microsoft or Google, but they do have room to expand in their own way through artificial intelligence which offers a wide path to a higher stock price in the short and long term.
ADBE mainly creates artist tools via software that in the future will absorb a big dose of generative artificial intelligence which will make it easier to produce more creative content in minimal time.
It’s safe to say that the chutzpah surrounding generative artificial intelligence (AI) has also overflowed into Adobe.
Ride on the bandwagon while it lasts. This year is turning into a year many will not forget.
It’s true that ADBE’s foray into AI promises to be just the tip of the iceberg in harnessing this powerful set of revenue boosters.
Adobe's Photoshop Generative Fill feature lets users edit and enhance images by just typing in the desired outcome and letting the software perform its magic easily and effortlessly.
Adobe intends to roll this feature out officially in the second half of this year through its new Firefly beta app. Its Illustrator software will also integrate Firefly to enable customers to come up with ideas faster, enhancing the creative process and saving many hours of work.
ADBE has also shown stable earnings growth albeit nothing spectacular.
Revenue came in at $4.8 billion, up 10% year over year for the quarter, while net income stood at $1.3 billion, up nearly 10% year over year.
Free cash flow for the quarter came in at $2 billion, 5.4% higher than the $1.9 billion reported in the prior year.
One big highlight is the profitability of what ADBE does.
Earnings per share are expected to be between $11.15 for the next quarter.
On a down note, ADBE may encounter a stumbling block in its bid to acquire Figma, a cloud-based design platform.
Its $20 billion bid for the software company is being scrutinized by the European Union antitrust regulators. The European Commission will decide whether to clear Adobe's bid by August 7 as it was concerned that the deal may stifle competition.
There is still a great deal of upside to ADBE’s stock and I do believe it is one of the more robust franchises in software paving the way for its Creative Cloud to capitalize on the integration of generative AI functionality into existing workflows.
It’s hard to put an exact number on the level of efficiencies but I do believe artists will show around 50% increased productivity using this new software.
This would translate into multi-thousands of dollars in cost savings for individual content creators who effectively will be able to run a professional artist studio from their own iPhone.
It’s never been a better time to own a brand because to run it and promote it, is easier than ever.
This is why the stock is defying gravity this year, so I predict that ADBE shares will be a lot higher than today a year from now.
Mad Hedge Technology Letter
July 28, 2023
Fiat Lux
Featured Trade:
(ANOTHER IMPLOSION BEGGING TO HAPPEN)
(RAPPI), (SOFTBANK)