Mad Hedge Technology Letter
February 8, 2023
Fiat Lux
Featured Trade:
(CHATBOT SINKS STOCK 8%)
(GOOGL), (MSFT)
Down 8% on a faulty chatbot conversation – that’s what happened to Google’s (GOOGL) stock today.
That’s why we need to pare back the euphoria and nonstop celebration of ChatGPT.
Hold your horses.
It’s an emerging technology and could end up with chatbots chatting with other chatbots for little or no value.
My point is that it can still go very wrong from here.
Google’s stock swan dived on Wednesday after its own iteration of A.I. chatbot erroneously answered a question about the first usage of space telescopes via its promotional material.
It all lends itself to surmise that Google is way behind in this game and Microsoft has the situation by the scruff of the neck.
Only just a few days ago, Microsoft integrated the AI technology into the front page of its Bing search engine, and is available for user downloads on the Bing app.
The drop in share price meant that Google lost more than $100 billion off its market cap.
The service called Bard is to compete with the popular ChatGPT.
Despite the chatbot’s claim in the ad, NASA reports that the first photo of a planet outside the Milky Way was taken by the Very Large Telescope in 2004 — nearly 19 years before NASA’s Webb telescope.
Unpreparedness by Google could translate into a significant loss of ad revenue for Google’s cash cow Google search.
The desperation of throwing Bard out there not on their timeline could mean they are exposing a product that isn’t up to Google’s standards.
An AI chatbot that consistently delivers false answers will turn off an advertiser quicker than no AI chatbot.
Investing in Google is still worth it even if it takes time to correct the quality of their AI. because it is logical to give a good company the benefit of the doubt.
Another problem is that Google could be stuck with bad AI for a few years before it turns the corner.
For better or worse, they were forced to go public with whatever they had just for the optics of competition even if they are badly lagging behind.
The worst-case scenario is receiving a direct blow to the cranium in terms of total ad revenue.
Google is still relying on search to drive the rest of its business.
They earned over $200 billion in ad revenue in 2021.
This is the first threat to Google’s search model in a generation and the threat has them on their toes.
I do believe they possess the resources to solve this issue.
No doubt that Google CEO Sundar Pichai is throwing the kitchen sink to find and poach the best AI engineers to beef up the chatbot team.
Ultimately, the real new world of higher interest rates and high inflation environment means that your father’s tech playbook must be thrown out the window.
It’s quite evident that we are in the midst of a paradigm shift and new leaders during this shift will emerge.
History shows us that tech leaders of old have a habit of falling behind because they are too set in their ways to adapt to a world with new rules.
It might be so that at some point in the not-so-near future, we might need to set the search default to Bing.
How ironic?
“Bad times are incredibly good for Palantir.” – Said CEO of Palantir Alex Karp
Mad Hedge Technology Letter
February 6, 2023
Fiat Lux
Featured Trade:
(PLATOONING AND TECH IS A MATCH MADE IN HEAVEN)
(ODFL), (CVLG), (ARCB), (ULH), (SNDR), (WERN)
If trucks drive themselves, what will happen to long-distance drivers?
Self-driving cars are still a little ways off - but I do believe it will happen.
What will become of long-distance drivers?
Actually, self-driving cars should have been part of the street scene for a long time, at least according to Twitter CEO Elon Musk's forecasts.
In 2015, the Tesla founder predicted that two years later fully autonomous cars would be driving around.
Not so fast.
Since then, he has adjusted the forecast year after year. Musk recently said that 2023 will finally be the day.
But it's not just Musk who has butchered it when it comes to self-driving cars. Many car producers have announced autonomous cars every year, but they are still a long way off.
Many questions remain unanswered and will still remain unanswered for the foreseeable future.
No wonder, because the technical and social challenges involved in getting fully autonomous cars on the road are enormous.
Then there is the legislation of it – can an industry that is tilted towards benefitting Elon Musk really expect any Democratic legislation that is positive?
The consensus is that anything he will try to do will get delayed and he will need to wait for the Republicans.
What about the technical level?
What happens in unforeseen traffic situations? What if the human has to take the wheel, but his driving skills have long since atrophied? What do autonomous vehicles mean for traffic and urban planning? Who is liable in case of accidents?
Is "platooning" revolutionizing the forwarding business?
In the short term, there are traffic situations that are manageable in their complexity and in which autonomous vehicles could definitely play an important role in the future.
For example, experiments with automated truck convoys have long been carried out on freeways and highways. In this so-called "platooning", several trucks drive behind one another, with only the first vehicle in the column having to be driven by a person.
"Platooning" is intended to save fuel, since the vehicles' slipstream can be used more efficiently. But there is also the suspicion that staff could also be saved because fewer long-distance drivers are needed.
Last but not least, last year’s trucker protests in Canada highlight how governments can quickly turn authoritarian in nature, in this case, by closing truckers’ bank accounts.
Nobody in their right mind can say that’s pro-business and who in their right mind would want to open a new Canadian trucker business after that.
In the U.S., the truck driver is the most common occupation in 26 out of 50 US states. There is a 67% chance of it disappearing completely in the next twenty years because artificial intelligent solutions will deliver us a timely way to replace the driver.
The economist John Maynard Keynes predicted in 1930 that by 2030 we would only be working 15 hours a week. In an essay entitled "Economic Possibilities for our Grandchildren," the Brit didn’t consider that these gains would be pocketed by corporations and not the people.
It’s highly possible that within 10 years, humans won’t be driving groceries or other goods across states and this function will be replaced by an algorithm. If not that, then products will be platooned to a destination headed by one driver followed by a herd of self-driving trucks behind him or her.
Instead of passing on the cost savings to the end consumer, the gains will materialize in increased buybacks, higher dividends, higher stock prices, higher executive compensation, increased operational efficiencies, and decreased wage expenses.
Some of the winners of this A.I. revolution will be public trucking names such as Old Dominion Freight Line (ODFL), Covenant Logistics Group (CVLG), Arcbest (ARCB), Universal Logistics Holdings (ULH), Schneider National (SNDR), Werner Enterprises (WERN).
Mad Hedge Technology Letter
February 3, 2023
Fiat Lux
Featured Trade:
(HIGH BETA IS SUDDENLY HOT)
(DOCU), (META), (LYFT), (AMZN), (NFLX)
The Federal Reserve swung its big stick again.
They are and will continue to be the largest influencer in tech share price action in the short-term and the last 2 days has proved it.
Whatever you think or say about the equity market, we can’t hide from the truth that liquidity will either wreak havoc on short-term price action or shoot it to the moon like we saw post-Fed announcement about the latest rate hike.
Tech shares lifted off like an Elon Musk spaceship to Mars and the Mad Hedge Technology Letter was tactical enough to take profits on a DocuSign (DOCU) put spread and stomp out in Meta (META) before the earnings report.
I was able to add some additional long tech as Friday is proving to benefit from the spillover effect.
No matter how we view it, volatility isn’t going anywhere any time soon.
Why?
Since January 2020, the US has printed nearly 80% of all US dollars in existence.
Lots of fiat paper sloshing around in the system has many unintended consequences.
When pushed into certain asset classes, the hot money polarizes price action. That’s how we got all the meme stock craziness.
This phenomenon won’t be going away anytime soon and the Fed slowly reducing their asset sheet pales in comparison to the liquidity hanging around on the sidelines.
The Fed hike means short-term rates now stand at between 4.5%-4.75%, the highest since October 2007.
The move marked the eighth increase in a process that began in March 2022. By itself, the fund's rate sets what banks charge each other for overnight borrowing, but it also spills through to many consumer debt products.
Tech shares took off because Chairman Powell acknowledged that “the disinflationary process” had started.
In a blink of an eye, the Nasdaq was up 2% and growth stocks were up 5%.
Powell intentionally didn’t pour cold water on the rally when he had a chance to smash it down with more hawkish rhetoric or a 50 basis point hike.
It appears highly likely that Powell isn’t interested in tech stocks or any equities for that matter experiencing another bloodbath like 2022.
There might be pitchforks out for him if there is a 30% loss in major indexes this year and perhaps he is scared that Washington would bring the heat. He likes his cushy job and the benefits that come with it.
I do believe this is only the first of a series of Powell Houdini acts where he is willing to disappear behind any sort of opportunity to smash down the markets and let them run wild.
Tech stocks will be a natural buy-the-dip opportunity during this deflation narrative.
We have a clear runway from 6.5% inflation to around 4% and during this 2.5% deflation drop, I can easily see the Nasdaq lurching higher.
I used Friday to add a bullish position in Lyft (LYFT) and Amazon (AMZN) after their terrible earnings while I took almost maximum profit in our Netflix (NFLX) call spread.
It was almost as if Powell announced a new round of QE or, well, sort of.
“If you get the product and technology right, then the rest usually falls into place.” – Said CEO of Uber Dara Khosrowshahi
Mad Hedge Technology Letter
February 1, 2023
Fiat Lux
Featured Trade:
(5 STOCKS FOR THE UPCOMING A.I. BOOM)
(NVDA), (AMBA), (MBLY), (AI), (AYX)
There has been non-stop talk about how ChatGPT is reimagining the tech sector.
The highest quality artificial intelligence chatbot to ever grace the earth is scaring tech executives around the world.
My personal discussions with people in the know are that every tech company is now forming a work group and assembling its best engineers to figure out how to get their hands on something similar.
That being said, here are five companies that will benefit asymmetrically as this chatbot tech goes from fringe to mainstream.
Buckle up with your cowboy hat because this type of technology will become pervasive in no time.
Since the cutting-edge chatbot was launched, there has been a massive re-rating of A.I. stocks because of the legitimacy of the technology.
It definitely appears that chatbot AI will finally live up to the hype.
On November 30th, OpenAI Chat introduced GPT and has since shown that the software can be used in everything from writing stock reports to resignation emails to messages for dating apps
Nvidia (NVDA), famously known for designing and manufacturing graphics chips, is the first stock that goes off the top of my head to benefit from this new AI craze.
The company's technology is being used for various AI integrations from self-driving cars to robots.
Nvidia's CEO Jensen Huang is one of the better leaders in Silicon Valley.
Recent forecasts estimate that a boom in Chat GPT usage could bring Nvidia revenue of between $3 billion and $11 billion over the next 12 months.
Success of Chat GPT brings Nvidia a potentially significant boost in demand for computing power.
New Nvidia chips are benefiting from the large computing requirements of AI tools such as ChatGPT.
Ambarella (AMBA) is another chip company powering the AI market. It develops semiconductors used in everything from in-car entertainment consoles to cell phones.
AMBA chips are also specifically used in self-driving cars, and the company recently partnered with German auto parts maker Continental for a joint autonomous driving project.
Mobileye (MBLY) was spun off from Intel and focuses on autonomous driving technology and driver assistance systems, which include chips and cameras. Volkswagen, Ford, and GM are among the company's customers.
Mobileye SuperVision is the top AI product at MBLY and is the most advanced driver-assist system on the market, providing “hands-off” navigation capabilities of an autonomous vehicle and designed to handle standard driving functions on various road types, while still always requiring the driver's full attention and eyes on the road.
C3.ai (AI) is a provider of software solutions in the field of artificial intelligence and owes its recent share price increase to the success of Chat GPT. Upon the announcement alone, shares rose about 28% when it was announced that Chat GPT would be integrated into its product range.
Alteryx software (AYX) is best known for data and analytics. The company is also involved in automation and specializes in artificial intelligence integration, albeit to a much lesser extent than competitors like Google and Meta.
There are rosy days ahead for AI stocks that will attach their fortunes to one of the most important trends in Silicon Valley.
