Mad Hedge Technology Letter
May 31, 2023
Fiat Lux
Featured Trade:
(WILL CHINA WIN THE AI WARS)
(NVDA), (MSFT)
The two tech heavyweights are basically what the generative AI wars are going to come down to.
Who do I mean?
The United States and China are naturally involved in a larger economic spat that has come to define the world we live in.
What’s the good news?
The Yanks are clearly ahead in the technology that could define the future of the human race.
China’s bread and butter has been to steal vital intellectual property, reverse engineer it, then roll it out for mass adoption.
The strategy has been incredibly effective in launching the Chinese to the second-biggest economy in the world.
Rinse and repeat, right?
China won’t be able to just “copy” generative AI unless they can poach the competition, but since American corporations know the Chinese playbook, I doubt they would allow IP secrets to leak out like a broken toilet.
It most likely appears as if the Chinese and their own Silicon Valley or lack of one will need to create this by themselves.
Funnily enough, American artificial intelligence developed from a non-profit OpenAI as it researched the Transformers machine learning model, which eventually powered ChatGPT.
This environment never existed in most Chinese companies. They would build deep learning systems or large language models only after they saw the popularity.
US investors have also been supportive of the country's research push. In 2019, Microsoft said it would put $1bn into OpenAI.
China, meanwhile, benefits from a larger consumer base. It is the world's second-most populous country, home to roughly 1.4 billion people.
China lives in a world where speed is essential, copying is an accepted practice, and competitors will stop at nothing to win a new market.
This rough-and-tumble environment makes a strong contrast to Silicon Valley, where copying is stigmatized and many companies are allowed to coast on the basis of one original idea or a lucky break.
Creativity and entrepreneurship aren’t valued in China.
At the fundamental level, Chinese tech companies might not be able to hang because they won’t have access to suitable materials.
High-performing computer chips, or semiconductors, are now the source of much tension between Washington and Beijing. They are used in everyday products including laptops and smartphones, and could have military applications. They are also crucial to the hardware required for AI learning.
US companies like Nvidia currently have the lead in developing AI chips and that supply is choked off by the US administration.
For now, the US seems to be ahead in the AI race, and there is already the possibility that current restrictions on semiconductor exports to China could hamper Beijing's technological progress.
However, China's ability to manufacture high-end equipment and components is an estimated 10 to 15 years behind global leaders and that could be the determinant between winning and losing.
Readers need to invest in the AI stocks like Nvidia on every dip and the best of the rest to participate in one of the greatest tech trends in the modern era.
Mad Hedge Technology Letter
May 26, 2023
Fiat Lux
Featured Trade:
(RIDE THE ELEVATOR UP WITH GENERATIVE AI)
(NVIDA), (FOMO), (APPL), (MSFT), (META), (GOOGL), (AMZN)
Part of these artificial intelligence executives going on record to sound out the problems with AI is mostly to protect themselves if this weird digital experiment goes disastrously wrong.
They have mostly said that AI going rogue is a real possibility and could end mankind.
Obviously, we hope that doesn’t happen.
Much of the tech market gains this year have been because of the technology surrounding AI.
Strip that out and the gains will look paltry.
A good example is Nvidia (NVDA) offering legendary guidance to the demand of their chips because of the need to install them in AI-based technology.
The AI narrative truly has legs – it will be the theme that defines 2023 in technology stocks.
The Big 7 tech stocks will possess explosive qualities to their stock precisely because of this thesis.
Then there is the fear of missing out (FOMO).
Every financial advisor is pitching AI as an investment of a lifetime – something that cannot be missed by their clients.
Therefore, I do expect meteoric legs up in shares of Nvidia, Apple, Microsoft, Tesla, Amazon, Facebook, and Google in 2023.
These 7 stocks dominate the tech market and the generative AI gains will mostly manifest themselves in these 7 tech firms.
Yet there are dangerous concerns that AI could also destroy these companies and the internet which we interface with, because the changes could erode the trust in platforms by populating fake photos like deep fakes.
In Washington speech, Brad Smith calls for steps to ensure people know when a photo or video is generated by AI.
Brad Smith, the president of Microsoft, has said that his biggest concern around artificial intelligence was deep fakes, realistic-looking but false content.
Smith called for steps to ensure that people know when a photo or video is real and when it is generated by AI, potentially for harmful purposes.
For weeks, lawmakers in Washington have struggled with what laws to pass to control AI even as companies large and small have raced to bring increasingly versatile AI to market.
Last week, Sam Altman, CEO of OpenAI, the startup behind ChatGPT, told a Senate panel in his first appearance before Congress that the use of AI interferes with election integrity is a “significant area of concern,” adding that it needs regulation.
Lawmakers need to ensure that safety brakes be put on AI used to control the electric grid, water supply and other critical infrastructure so that humans remain in control.
It’s hard to know what is fake and real these days. Fake photos of politicians getting attacked or fake videos of tigers roaming around freely in Times Square New York look weirdly authentic.
AI is getting so good that nobody knows what is real anymore.
I’m sure some of you saw the recent Tom Cruise deep fake where the fake Tom Cruise is telling the audience that he does a lot of “industrial clean up” along with his own stunts. Honestly, I could not tell it was fake, and most people wouldn’t. It caught me – hook, line, and sinker.
As it stands, ride this generative AI to riches in the short-term, but be aware that this technology could blow up the internet or make the internet unusable because of security and trust reasons.
DEEPFAKES LOOK AND SOUND TOTALLY REAL IN 2023
“It's better to be a pirate than to join the Navy.” – Said Co-Founder of Apple Steve Jobs
Mad Hedge Technology Letter
May 24, 2023
Fiat Lux
Featured Trade:
(START-UP EV INDUSTRY WISHES FOR A MIRACLE)
(RIDE), (TSLA)
Not all of the current tech companies have that cushy position at the top of the ivory tower.
The likes of Google, Microsoft, and Apple are just a few of a handful of privileged companies that are too big to fail and have a direct line to Congress if anything starts to go haywire.
Not every tech firm has that luxury and, to be more precise, they are usually start-ups and lesser-known, which makes sense.
In the case of the tech sector, the grass truly is greener on the other side between the haves and have-nots.
Just look at the EV sub-sector that is emblematic of this larger trend.
Lordstown Motors (RIDE) is barely keeping its head above water after the company announced a 1-for-15 reverse stock split.
Investors holding Lordstown stock should see fewer shares at a higher price in their brokerage accounts.
Lordstown has about 243 million shares outstanding. Following the reverse split, the number will be roughly 16 million.
Investors typically like conventional stock splits that reduce the price of shares while increasing the number of shares outstanding. Stock splits can make shares more affordable to retail investors and can signal that management is optimistic about the future. No one would split a stock they expect to go down.
Reverse splits typically happen after a period of hardship. Coming into Tuesday trading, Lordstown stock is down 90% over the past 12 months.
The company has struggled to produce trucks and needs more cash. Lordstown has produced 56 pickup trucks since the start of production.
RIDE is also running out of money fast and the company will need more than $200 million for the remainder of 2023 if the company is to ramp up production.
Lordstown has received a delisting notice from the exchange. It has until mid-October to remedy the situation. The threat of delisting was also a concern to partner Foxconn.
Foxconn owns the factory that produces RIDE’s EVs.
RIDE may be forced to cease operations and file for bankruptcy after manufacturing giant Foxconn told the electric-vehicle company that it’s prepared to pull out of a production partnership.
The deal with Foxconn Technology Group could unravel after the Taiwanese company threatened to withhold funding.
This quickly souring situation could rapidly destabilize the other start-ups in the EV market.
Just about eight months ago, Foxconn agreed to invest as much as $170 million in Lordstown and take two board seats. The deal gave the EV maker much-needed capital while offering Foxconn, the Taiwanese manufacturer best known as the maker of Apple Inc.’s iPhone, a firmer foothold in automotive production.
In January, Lordstown asked Foxconn to suspend production because the cost of making the Endurance battery-powered pickup exceeded the targeted sale price of $65,000 — and said it would need another partner beyond Foxconn's share costs.
RIDE finds itself in quite a pickle. Unlike many of the big tech behemoths, they can’t just make a call to the higher-ups to sort it out and they don’t have the balance sheet nor the clout to get things their way.
Essentially, fighting upstream is not an advantageous proposition and when Tesla started heavily discounting new Teslas, what consumer would opt for an untested brand for the same price?
If readers want to get into EV stocks, buy Tesla on the dip or nothing at all.
“I know that you must be passionate, unreasonable, and a little bit crazy to follow your own ideas and do things differently.” – Said CEO and Founder of Salesforce Marc Benioff
Mad Hedge Technology Letter
May 22, 2023
Fiat Lux
Featured Trade:
(BUY EMERGING CHIP COMPANIES ON BIG DIPS)
(SWKS), (CRUS), (QRVO)
So what about these small chip companies that attach themselves to Apple’s future?
The ones like Qorvo (QRVO), Skyworks Solutions (SWKS), and Cirrus Logic (CRUS).
Many refuse to invest in them because they are too reliant on Apple.
I would argue the exact opposite.
It’s exactly because they have strong relationships with Apple that readers need to invest in these stocks.
The issue is that they are highly volatile and missing the optimal entry point can mean the difference between a profit and a loss.
Apple can’t develop everything internally.
It’s just too much to do.
I don’t believe the tech giant could gradually replace most of its third-party components with first-party ones.
Furthermore, I do not see Apple abruptly swapping suppliers or canceling an existing supplier's orders with its competitors to secure lower prices.
As a result, most of Apple's suppliers can negotiate favorable terms.
For 2023, iPhone shipments appear stable as the market continues to recover from weak demand and ongoing macroeconomic challenges, but I believe this is just a short-term blip.
Cirrus Logic mainly sells audio converters and chips, but it also develops other mixed-signal processing chips for wireless headsets, wearables, augmented reality/virtual reality (AR/VR) headsets, notebook computers, and mobile devices. Apple installs Cirrus' audio chips and IC controllers in its iPhones, iPads, and Macs.
Skyworks produces a wide range of wireless chips for the mobile, automotive, home automation, wireless infrastructure, and industrial markets. Apple installs Skyworks' wireless chips in its iPhones, iPads, Macs, Apple Watches, and other devices.
Lumentum is a diversified supplier of optical chips for service providers, 3D-sensing chips which are used in mobile devices, cars, 3D printers, and other industrial machines, as well as commercial lasers for manufacturing various products. Apple uses Lumentum's 3D-sensing chips and lasers to power its Face ID features.
These companies bask in the glory of being connected to Apple when many other chip companies wish they were in the same position.
Cirrus relied on Apple for 79% of its revenue in 2022 and the gains from this contract are precisely why it is great to hold this company's stock.
Skyworks generated 58% of its revenue from Apple in fiscal 2022, while Lumentum generated 29% of its revenue from Apple in 2022.
The semiconductor industry has been prone to cycles. Periods of soaring demand are followed by periods of drought, causing some wild swings in many chip stocks. But some news reports predict that because of the demand for chips throughout the economy, these boom-bust cycles might be over.
Semiconductors are now going into various devices between 5G, cloud datacenters, phones, PCs, laptops, cars are using more and more semiconductors that the demand is becoming so diversified and that supply is becoming so expensive to bring on. It's going to be much more of a steadier business going forward, more like a steady growth business rather than a cyclical business with booms and busts.
Don’t believe the naysayers who urge investors to stay out of chip stocks because of overreliance. That is like saying Warren Buffet is too reliant on Apple which is false.
Wait for a big dip of 15% or 20% to invest in these small chip stocks.
