“In order to have your voice be heard in Washington, you have to make some little contribution.” – Said Elon Musk
Mad Hedge Technology Letter
February 24, 2025
Fiat Lux
Featured Trade:
(AI IS IN QUESTION)
(ELON MUSK AND OPEN AI)
Elon Musk wants to buy OpenAI and that partly has to do with the vendetta he has against OpenAI CEO Sam Altman.
This fiery feud isn’t going away anytime soon.
My bet is that it will burst into the open and OpenAI is actively attempting to put the governance in place to block Musk from seizing the company.
The issue Musk has with OpenAI is that it was founded as a non-profit from capital Musk gave.
It was responsible for doing what is right for humanity, but Altman’s attitude to the industry shows the inverse of that.
It appears to the outsiders that Altman is hellbent on driving the price of AI up for the consumer and delivering profits to big tech that have invested into his “non-profit.”
Musk’s recent attempt at an unsolicited takeover was rejected by CEO Sam Altman and OpenAI's nonprofit board.
Now the creator of ChatGPT reportedly wants to make sure that there are indirect poison pills associated with any outsider takeovers.
All of that will take some maneuvering by OpenAI’s board members and Altman, all of whom are defendants in a lawsuit from Musk that seeks to block OpenAI from converting to a for-profit business.
Right now, investors like Microsoft are not equity holders in OpenAI but instead hold limited profit interests in OpenAI's for-profit subsidiary. Once OpenAI is profitable, Microsoft is entitled to 75% of profits until it recoups its $13 billion principal investment. The other 25% of profits go to employees and early investors, up to specified profit caps.
Once Microsoft’s principal is repaid, it is entitled to 50% of its profits until it reaches a profit cap of $92 billion.
OpenAI said it wants to convert its nonprofit parent to a Delaware public benefit corporation (PBC) that would issue ordinary shares of stock.
Charitable organizations aren’t typically targets for hostile takeovers, especially not the type that Musk had in mind — an unsolicited $97.4 billion bid for OpenAI’s estimated $157 billion in intellectual property and other assets.
Musk's lawsuit seeking to prevent OpenAI's conversion to a for-profit enterprise centers around Musk's initial $45 million donation to fund the startup, which he claims was contingent on OpenAI remaining a nonprofit organization.
If Musk ever acquires OpenAI, I believe he will put on his DOGE hat and cut the costs of doing AI.
The genie is now out of the bottle and the Chinese have proved that AI doesn’t need the bloat.
AI can run on cheaper and older chips while not needing the same amount of data centers.
My belief is that Musk wants to democratize AI and make it cheap for everyone and that would be bad for tech shares specifically Nvidia and Microsoft.
Big tech has the incentive to make the price of AI high just like the supermarkets have an incentive to place higher prices in the supermarkets.
Don’t believe in this mumbo jumbo of supermarkets operating on thin margins when they do produce a lot of their own house brands.
Musk wants to take a samurai sword to AI and make it applicable to the average American.
He doesn’t want to see a situation in which AI is used by executives at corporations to fire everyone, and the readers should know that we are barreling right down the path of replacing workers with robots right now.
If Musk ever gets into the position of neutralizing OpenAI, sell your tech stocks right away, because there will be less peaks and more valleys in tech share prices after that.
Mad Hedge Technology Letter
February 21, 2025
Fiat Lux
Featured Trade:
(THE AFFORDABLE IPHONE FROM APPLE)
(AAPL)
A $599 cheaper iPhone with worse features is clearly a sign that Apple (AAPL) is on its way down from peak innovation.
This new cheap phone won’t save the company, but the company doesn’t really need saving.
The company is on auto-pilot mode. Let me explain.
At this point, CEO Tim Cook has done the calculations and he has decided that the company doesn’t need to innovate.
Apple needs to milk its subscriber base whom are famously loyal to its ecosystem.
Apple users are the least likely to just jump ship and switch to the Android ecosystem.
Cook knows that which is why he can push through annual increases in service charges.
Apple’s balance sheet is also another key part of the story and Cook will wield it with extreme efficacy through shareholder returns.
It could be true that we are past the stage of Apple delivering big growth numbers.
That looks to be a thing of the past.
Now, competing with China on cheaper phones is a massive step back and it won’t flow through to the bottom line.
It’s easier to argue that this phone will cannibalize sales of Apple’s more expensive phones.
We have arrived at this point and it is sad for most technologists.
Apple AAPL expanded the iPhone 16 family with the launch of a cheaper iPhone 16e version powered by the latest A18 chip and supporting Apple Intelligence.
iPhone 16e is available in a 6.1-inch display size and has the best battery life ever on this display size offered by Apple. The iPhone 16e, available from Feb. 28, will cost $599 compared with $799 for iPhone 16 and $999 for iPhone 16 Pro.
Although iPhone sales decreased 0.8% year over year to $69.14 billion in the first quarter of fiscal 2025, Apple saw better iPhone 16 sales in those regions where Apple Intelligence was available. iPhone’s active installed base grew to an all-time high and saw a record level of upgrades in the reported quarter. The iPhone was a top-selling model in the United States, Urban China, India, the U.K., France, Australia and Japan.
AAPL maintained its lead over Samsung for the second consecutive year, with a market share of 23% compared with the latter’s 16%. Xiaomi trailed both Apple and Samsung with 13% market share. Global smartphone shipments increased 7% year over year to $1.22 billion units in 2024.
Apple has more than 1 billion paid subscribers in its ecosystem and the focus is entirely on them. There are only 8 billion people on this planet and Apple has decided it is not worth going after the other 7 billion.
If they haven’t adopted an Apple phone or tablet then this last cheap phone is the last chance. Even then, the reason they most likely haven’t adopted an Apple device is because they cannot afford it.
Apple shares are down 1% this year at the time of this writing and I still believe this is a buy-the-dip stock even with a weakening business model.
Apple knows they can withstand earnings whenever they want by just increasing their dividend.
Another headwind is that Apple is not one of the leaders in AI and shareholders will wait to see how that plays out.
Buy the dip in Apple, but don’t hold it long-term.
Mad Hedge Technology Letter
February 19, 2025
Fiat Lux
Featured Trade:
(THE EYEWEAR PIVOT NOBODY SAW COMING)
(META), (ESSILORLUXOTTICA)
Meta (META) migration into the eyewear business is a little bit of a head-scratcher until peeling back the layers and really understanding what is going on.
EssilorLuxottica’s agreement to prolong its long-term collaboration with Meta Platforms for the development of smart eyewear over the upcoming 10 years is a massive victory for Meta CEO Mark Zuckerberg.
This milestone offers meaningful insight into the direction of where the business model is heading.
Many have expected that Meta would start to branch out into other venues once their core businesses start to stagnate.
The digital ad game and social media platforms only go so far in terms of growth these days, and shareholders are waiting on the next big thing.
Short-term prospects are what drives the stock movement, and Meta is looking for that pixie dust.
EssilorLuxottica is the largest maker of eyewear in the world and the owner of many eyewear brands and retailers, including Ray-Ban, LensCrafters, and Pearle Vision in the U.S.
EssilorLuxottica also acquired Heidelberg Engineering, maker of imaging and healthcare machinery and technology, largely for the ophthalmic and eyecare markets worldwide.
Prescription glasses are not cheap, ranging into the thousands of dollars for designer frames and lenses.
If Meta can figure out how to do this all online without going to the optician, imagine the juicy margins they could extract from this sort of venture.
Meta and EssilorLuxottica have a relationship for the production of the Ray-Ban smart glasses. The glasses’ latest version gives consumers video, camera, and Bluetooth headset capability in a stylish eyewear frame with a cool brand on it.
Heidelberg Engineering makes complex, sophisticated, expensive equipment that you may be exposed to if you’re examined in an ophthalmologist’s office. Buying Heidelberg makes EssilorLuxottica more entrenched in the industry where it is the established leader.
The tie-up with EssilorLuxottica is the perfect onboarding situation to understand how to perfect the optimal glasses and lenses and then to transfer it into an online experience.
Remember, even if this investment is for VR purposes, the application revolves around virtual eyewear as well.
Meta now understands they need to secure a monopoly on eyewear, and it is a conscious decision to make that a launching point into more of their products.
In the future, Meta wants consumers to access Instagram, Whatsapp, and Facebook through EssilorLuxottica eyewear products.
Meta also hopes to secure the first mover advantage while other big tech firms lack the deep knowledge of eyewear. There have already been numerous failed attempts at smart glasses, and so Meta founder Mark Zuckerberg is doubling down with a relationship with Europe’s most deeply entrenched premium eyewear firm.
Although the boost to the bottom and top line won’t happen quickly with a possible relationship with EssilorLuxottica, this could anoint Meta as the gatekeeper to the new virtual world through this new eyewear tech.
It’s becoming clear that Meta is running up to certain upper limits in regards to the growth of their 3 platforms, and they are looking for another super booster to prop up profits.
I don’t believe that Meta will be allowed to acquire this eyewear company because of anti-competitive laws, but adopting its best products and practices and hiring their best talent seems a lot more on brand from Meta.
Meta has never been shy at poaching outside talent and rewarding them handsomely.
On the flip side, EssilorLuxottica would be smart to adopt some tech now by hiring the right people and trying to digitize the experience further otherwise, Meta will get what they are coming for.
Meta pushing the envelope is one of the big reasons why they have stayed ahead of other big tech companies and why the stock has done so well the past few years.
Meta stock is a great short-term and long-term proposition for patient and impatient investors.
Mad Hedge Technology Letter
February 14, 2025
Fiat Lux
Featured Trade:
(AIRBNB DOES JUST ENOUGH)
(ABNB)
Americans still have money to travel, so ignore all those wacky reports that the consumer is about to go missing.
Granted, I wouldn’t say people are flush with cash, but enough to go on holiday and pay for short-term rentals from the likes of good ‘ol company Airbnb (ABNB).
The big takeaway from Airbnb’s earnings report is that the tech rally will continue albeit it in a choppier form than we are generally used to.
But it will keep chugging along, translating into traders and investors buying the big dips when tech stocks go on discount.
That dip buying is what prevents stocks from real weakness, which is something more like a 10% or 20% drop.
Have you noticed that tech stocks hardly go down anymore?
Well, there is money waiting like a parachute to a paratrooper, and this dynamic will underpin the market even though I admit that tech stocks are expensive and losing steam in their internal business models.
Cross-border travel drove a majority of nights booked in the APAC region.
Its North American business, where there were signs of slowing demand last summer, also saw faster growth with a “mid-single digits” gain in nights booked during the holiday season. That’s “driven by broad strength of underlying travel trends within the region,” the company said, while also citing higher pricing of stays and strength in short-term bookings and entire homes.
Booking’s growing 8.5% is nothing to throw a parade over, but the market delivered the stock a 14% return at the time of this writing.
I remember for that type of sumptuous pop, we used to need 30% or more in revenue expansion, and tech just isn’t delivering on that, and it is a sign of the times of Silicon Valley running out of great ideas.
We are still living on Steve Jobs’ ideas for better or worse.
Zuckerberg is still doing the Facebook and Instagram thing, and CEO of Airbnb Brian Cheksy is still doing the short-term rental thing.
His other ideas aren’t stupid, but they won’t move the needle.
Chesky is doubling down on “other products.”
Airbnb will invest $200 million to $250 million into launching and scaling those new products starting in May. His plans are to build on the experiences business for tours, classes, and workshops, and offering add-on amenities during stays such as personal chefs, midweek cleaning, and in-home massages.
Airbnb’s co-host marketplace, which allows homeowners to hire fellow hosts to manage their rentals, is really a nothing-burger.
Getting someone more ruthless to squeeze out higher profits from a rental is not some revolutionary idea, nor will it attract new shareholders.
It is basically hiring a property manager for a short-term rental. It also scales very poorly and is not an efficient use of time.
I am also not sold on the “experiences” business and find it overreaching.
Just the other day, I opened Airbnb’s homepage only to be forced and overruled into an “experience” page of the location I was hoping to search for even though I still hadn’t found a rental unit.
I had to click out of it, wasting my precious time.
Luckily, after I reloaded the page, Airbnb didn’t force-opt me again into their marginal experience page, and I was able to search for my rental.
After all these years, call me arrogant, but I think I know enough to plan my trip and don’t need tech companies to hold my hand or put digital sensors up my butt.
In fact, I will call Airbnb out, their service has been getting incrementally crappier the last few years, but they have a monopoly so they get away with it. Life is unfair, isn’t it?
Tech companies risk alienating many customers, but Airbnb is still a great buy-the-dip company and gives us brilliant insight into the health of the North American consumers.
Buy the dip in tech and ABNB until you shouldn’t.
“I say something, and then it usually happens. Maybe not on schedule, but it usually happens.” – Said Tesla CEO Elon Musk