Mad Hedge Technology Letter
June 23, 2023
Fiat Lux
Featured Trade:
(POACHING FOREIGN TECH)
(OCDO.L), (AMZN), (TSLA), (APPL)
Europe is reeling and now it is becoming Silicon Valley’s playground.
The evidence is all over Europe and quite clear-cut at this point.
The royal 7 from the likes of Tesla (TSLA) and Apple (APPL), who have been responsible for most of the stock market gains this year, are leading the charge to cherry-pick the best tech companies in Europe.
The Ukraine military conflict was a godsend for American big tech, as many European companies are now waving the red flag amid commercial electricity costs spiking 100% in many Western European countries.
The unrelenting electricity increase has caused a mad rush to relocate the best European talent to the United States.
Or, if they don’t relocate out of their own will, many are buy-out targets just like yesterday’s news of British online grocer Ocado.
They are on the verge of tasting the sweet hand of acquisitive cash from Amazon (AMZN).
Poached or not poached – Silicon Valley is dominating.
Ocado Group shares jumped as much as 47% - the most in more than five years.
Even with today’s gains, shares in Ocado have still lost about two-thirds of their value since the end of 2021 amid a selloff in growth stocks.
The stock soared in 2018 on a landmark deal to build warehouses and license software to US supermarket chain Kroger Co., boosting the grocer’s credentials as a technology company. Ocado has partnerships with several grocers, but investor focus has shifted to profitability as demand for automated warehouses slows.
I’m not surprised to hear about Amazon’s interest in Ocado.
Ocado has developed, leading automated warehouse technology that could be of great use to Amazon if it tried to take over the supermarket industry in Europe, which it might.
Many American tourists might experience how outdated and obsolete many European supermarkets are these days.
On the corporate side, when I talk to many European workers on the ground in Milan and Brussels, the consensus is that finding a job at an American big tech firm is considered the proverbial golden paycheck.
European counterparts are mired in inefficiency, unproductivity, and the politicians who exist as 27 European Joe Bidens are ruthlessly driving the industry into the ground by taxing and regulating the hell out of them.
European workers also take 2 months of vacation every year along with 15 to 20 federal holidays per year.
When I read the tea leaves, the next expansion of Silicon Valley is to gobble up anything of perceived value in Europe and anything in any European Union country is fair game.
This buying spree could trigger another leg up to big tech and expand margins.
American tech possesses the powerful balance sheets to wield around the world and dominating the European supermarket industry would add to the top line.
Amazon has already forayed into the food industry with Whole Foods in America so this should be viewed as something similar to that.
Look for big tech to enter strategic European industries and eventually buy something like Manchester United or any other high-quality asset.
Mad Hedge Technology Letter
June 21, 2023
Fiat Lux
Featured Trade:
(IS ALIBABA INVESTABLE?)
(BABA), (BIDU), (PDD)
Chinese ecommerce company Alibaba (BABA) is essentially a proxy for the Chinese economy and that’s not a good thing lately.
The last few years have been poor.
Single digit growth for the nations’ best tech company is not going to cut it for a prototypical growth company, but it’s not all their fault.
The company has been mired in chaos amid a faltering economy.
At a national level, China is quickly turning into the next Japan with a rapidly aging workforce, a mountain of debt, and youth unemployment going through the roof.
Throw in a dollop of geopolitical strife against the biggest economy in the world and this cocktail of lethal variables has meant that its top ecommerce company is stinking up the park.
It was just 10-15 years ago when China was the place to be flourishing during a golden era of prosperity and opportunity.
Now this paper tiger, its ghost cities, and social credit system are defensive as ever with its siege mentality after the self-induced Wuhan incident. The incident literally went viral in 2020 which lead to mass lockdowns and robot dogs barking orders.
This isn’t necessarily the best backdrop for tech firms to flourish.
In a desperate way to restart growth BABA has now gone back to the well like calling for Michael Jordan to unretire for the 3rd or 4th time.
Funnily enough, they are calling on the NBA’s Brooklyn Nets owner Joe Tsai to save the company.
Tsai understands the business intimately: he was right beside Ma at Alibaba’s inception in a Hangzhou lakeside apartment in 1999.
Another former friend is also called on to save the company – Eddie Wu, current chair of the Taobao and Tmall Group which is the name of BABA’s digital platform.
The former computer science major is credited with helping develop the company’s ad platform and the PayPal-like Alipay, now part of the Ma-backed Ant Group Co.
The company never regained its stratospheric growth, particularly as new entrants such as ByteDance and Pinduoduo (PDD). sapped its core business. It began to lose market share in the cloud, its other engine of growth, to state-backed rivals.
Long-time BABA rival Baidu Inc. — once dismissed by investors as having missed the mobile revolution — introduced China’s first ChatGPT-like AI service Ernie to positive reviews, highlighting how Alibaba and its peers may be falling behind in next-generation technology.
Beyond technology, much of the market has fixated on the imminent restructuring, and its potential to unleash a half-dozen publicly traded companies, starting with more mature units like the cloud and logistics.
In Baidu’s wake, Alibaba unfurled its own large language model dubbed Tongyi Qianwen. That might be key to ensuring the company name endures 102 years, as co-founder Ma once famously and repeatedly declared was his over-arching ambition.
BABA has told us they are rolling out their new generative AI apps but the Chinese communist party has flagged as something that must go through them.
Technology intersected by authoritarianism usually ends up a failure.
Creative juices aren’t flowing and the dynamism saps the creativity juices.
I highly doubt that Chinese generative AI can hold a candle to the Silicon Valley iteration.
Nothing they have rolled out signals they are ahead of Microsoft or Google.
If readers want to get into the future of tech through stocks, avoid China and focus on the best of breed.
In 2017, CEO of BlackRock, Larry Fink, said: “Bitcoin just shows you how much demand for money laundering there is in the world."
In 2023, BlackRock, filed for a spot bitcoin ETF.
Mad Hedge Technology Letter
June 16, 2023
Fiat Lux
Featured Trade:
(THE SKINNY ON AI)
(CRM), (NVDA), (MSFT), ($COMPQ)
(CRM), (NVDA), (MSFT), ($COMPQ)
One misunderstanding about generative artificial intelligence is that it is advertised as the panacea that will cure the economy and global business in one second.
It’s not.
These types of technologies take time to absorb and integrate.
The type of hype surrounding AI feels like every tech company should 100X revenue next year.
That’s not going to happen right away.
It’s obviously going to be an incremental phenomenon instead of a parabolic rise.
People also seem to miss there will be a swath of AI failures that will disappear into the dustbin of history and everything in between.
Just because Nvidia (NVDA) and Microsoft (MSFT) are making hay during this hot money AI investor pandemonium, doesn’t mean all tech companies will.
In the long term, access to high-quality artificial intelligence will unlock a long-term productivity miracle.
The United States economy is suffering from a bout of unproductivity as young workers mostly spend their time perusing Instagram than tangibly delivering results.
Moving a finger is a hard slog these days for Generation Z.
The net result is poorly trending productivity gains.
Productivity growth in the US has been a paltry 1%.
This week alone brought two examples of generative AI's potential for economic output.
First, a new McKinsey study identified 63 generative AI use cases spanning 16 business functions that could unleash $2.6 trillion to $4.4 trillion in economic benefits annually.
The same study found that generative AI could perform each of more than 2,100 detailed work activities such as communicating with others about operational plans.
Generative AI has the potential to change the anatomy of work, augmenting the capabilities of individual workers by automating some of their individual activities.
Current generative AI and other technologies have the potential to automate work activities that absorb 60 to 70 percent of employees’ time today.
Meanwhile, software company Salesforce (CRM) launched its new GPT enterprise products designed to boost worker productivity.
The company introduced "AI Cloud" at a New York City investor day. Salesforce says its AI Cloud product will allow marketers to auto-generate personalized content for customers and developers to auto-generate code.
Salesforce employees also showed off coming AI functions in the workplace collaboration platform Slack.
It’s true that this AI wave is going to be the biggest that anyone has ever seen, but it will take time to get there.
I think there are meaningful lags in AI's impact. And the idea there will be a surge in economic growth in the next seven to ten years because of AI and technology.
It won’t happen in 2 or 3 years.
Goldman Sachs estimated recently that generative AI could expose the equivalent of 300 million jobs globally to automation over the next decade. That's a nice way of saying a person may lose their job to a robot.
AI could also eventually increase the annual global Gross Domestic Product (GDP) by 7%.
There is the thought that AI will make production faster and more voluminous but the quality and understanding will be poor. Just like all those online chat assistants that companies use. If you have a very specific question not covered by the FAQs they just spit back unhelpfulness.
The takeaway is that there will be winners and losers, but it will take time.
In many cases, the outsized winner is someone we have never heard of that brings something new to the table.
A critical part of this investor play is to avoid AI failures as well because there is bound to be a pile of body bags on the way to AI riches.
“AI will probably most likely lead to the end of the world, but in the meantime, there'll be great companies.” – Said Current CEO of OpenAI Sam Altman
Mad Hedge Technology Letter
June 14, 2023
Fiat Lux
Featured Trade:
(ANOTHER ONE TO ADD TO THE AI BANDWAGON)
(ORCL)
We are starting to get to the overhype stage of AI in the short term because the sub-sector has gone too far too fast in such a short period of time.
Software company Oracle (ORCL) needs to be mentioned as another AI participant chomping at the bit.
ORCL has been quite the laggard for some time as their warehouse cloud system was considered behind the times.
It’s fair to say that the stock has benefited the most from the AI hype simply because its stock was priced so cheaply before it caught the AI bid.
Now they have finally told us how they will integrate generative AI into their products and this has triggered strong interest in the stock.
Oracle is offering its enterprise customers a way to build their own generative AI apps leveraging a company that is similar to OpenAi called Cohere.
Oracle will be embedding Cohere's generative AI technology into a bevy of its products and Cohere will be using Oracle's cloud to train, build, and deploy its generative AI models.
Cohere doesn't have an exclusivity contract with Oracle. Fellow investor Salesforce, for instance, already offers a service that embeds Cohere's chat capabilities into Salesforce. This is just one of the many AI tools Salesforce offers customers.
Oracle does have some of its own homegrown AI technology and uses it for features like its "autonomous" database where its cloud software detects and automatically solves problems.
Cohere is the only partner Oracle announced to power its generative AI services for customers.
Perhaps the main reason Cohere has emerged as an alternative to OpenAI is that it was founded by Aidan Gomez.
He was a research intern at Google Brain in 2017 when he co-authored a paper on a way of training AI models to improve their abilities to understand language.
His sharp ideas have become the basis for the generative AI tech that has so engulfed the industry today, including some models used by OpenAI.
Along with cofounders and fellow AI experts Nick Frosst and Ivan Zhang, Gomez founded Cohere in 2019 to bring Google-quality AI to the masses.
Oracle said that Cohere’s large language models will be directly integrated into Oracle’s cloud applications.
The company will add generative AI features not only to its flagship enterprise resource planning software, but also to applications for human resources, supply chain management, and customer experience management.
The tsunami of AI short-term hot money diving into stocks has been a boon for the tech this year.
The Nasdaq has gone from strength to strength and outpacing the other indices has meant it’s been the only game in town in 2023.
With the likes of Tesla in the green for 13 straight sessions, it’s hard to see when this pandemonium ends.
Surely, there will be a pullback at some point but the good news keeps getting shoved in my face and traders are inclined to buy.
The regional bank crisis also provided an extra swath of liquidity that was largely pumped into the stock market and the Fed’s quantitative tightening dramatically curtailed.
Even though tech stocks are oversold including Oracle, my analysis has shown that traders are waiting for any and every dip to add to their long tech positions.
Put ORCL down as another tech stock to buy on the dip.
