“I don't create companies for the sake of creating companies, but to get things done.” – Said Elon Musk
Mad Hedge Technology Letter
January 13, 2025
Fiat Lux
Featured Trade:
(APPLE DROPS THE BALL)
(AAPL), (SAMSUNG), (CHINA)
Not only is Apple losing its edge, but they are failing miserably against the Chinese.
China, with its state-supported behemoths, is the bully on the playground and Apple can’t too diddlysquat.
Apple has been selling the same product for the past 13 years and the last iterations have been underwhelming, to say the least.
People don’t want to upgrade forcing them to elongate the refresh cycle.
It’s now so bad that Apple even ceded a 5% market share in the final quarter last year to Chinese competition.
Apple is also very late in integrating AI features signaling that Apple’s software game is behind the times and mediocre at best.
Apple risks falling behind quickly and the Chinese have really nailed the consumer tech and muscled into this industry.
They are poised to dominate EVs and smartphones and other value-added tech in the upcoming years.
They plan to seize the moment and squeeze American companies out of the way for good.
Samsung also has been going through a disastrous downcycle after their Android flagship phone peaked a few years ago.
This new trajectory is a slippery slope and if Apple goes on the cost-cutting path, there will be little talent left to innovate out of this problem.
The iPhone slipped a point to 18% worldwide market share in 2024.
Apple marked a 2% sales decline for the full year, at a time when the wider market grew 4% globally.
China’s smartphone makers are all developing their own in-house AI tools and agents, including services that can perform tasks on a user’s behalf.
Samsung also gave up its share to faster-growing Android device makers from China, led by Xiaomi and Vivo. Apple marked a 2% sales decline for the full year.
The situation paints a picture of the non-Chinese smartphone markets in a world of hurt.
I believe that Apple and Samsung have nobody to blame, but themselves as those years of forced technological know-how transfer are coming back to bite them where it hurts.
My friends’ kids have these new Chinese smartphones and I can tell you that I was surprised about how good they perform.
They are run on Android, which is very different from IoS, but they are premium.
German car companies are also feeling this bitter pill as Chinese companies have taken their own technology and implemented it in a more affordable way.
In aggregate, this latest news is a bad omen for Apple’s earnings season.
They are barely jumping over a lower bar and that will keep happening until something major is revamped in the product lineup.
I believe any steep sell-off would be a nice opportunity to execute a short-term trade, but those years of buying and holding Apple until eternity are gone.
Readers must really nitpick what this company is doing because management presides over a dull model and their China business is falling apart as we speak all while they helped the local Chinese competition over many years take market share with forced technological transfers.
Not a good look and things could get worse as we move deeper into the year.
Mad Hedge Technology Letter
January 10, 2025
Fiat Lux
Featured Trade:
(NVIDIA GETS PUT IN PLACE)
(NVDA)
It is uncommon when private tech companies lash out at the government like they are some kind of whipping boy.
Silicon Valley is so successful - they don’t need to target government policy.
Anger comes in many forms but openly criticizing the government could get you in some hot water in places like China.
Just look at Alibaba founder Jack Ma who was taken out to pasture by the Chinese communist party.
Criticism is usually reserved in Silicon Valley because subsidies and relationships are preserved to fight another day.
Nvidia finally felt it was time to let loose on the disastrous Biden Administration as the chip company gets dragged into politics just like almost everything else in American society.
Nvidia viciously criticized new chip export restrictions that are expected to be announced soon, saying the White House was trying to undercut the incoming Trump administration by imposing last-minute rules.
It’s is arguable that many strategic moves the current administration executes are to stymy the next administration.
Private tech companies are just collateral damage and Nvidia is finding that out the hard way.
The looming changes would cap the sale of US artificial intelligence chips on both a country and company basis — a move that would more tightly limit exports to most of the world.
The extreme ‘country cap’ policy will affect mainstream computers in countries around the world, doing nothing to promote national security but rather pushing the world to alternative technologies.
Nvidia has been the biggest beneficiary of a surge in AI spending over the past two years, helping turn the once-niche company into the world’s most valuable chipmaker. Its shares nearly tripled last year, following a 239% gain in 2023.
Speaking at the CES conference in Las Vegas this week, Huang said he expected Trump to bring less regulation.
I can now say with more certainty that tech stocks appear to be in a bubble and it doesn’t help that an obstructionist government is putting in limits to how much they can sell abroad.
Globalization has accelerated to some extreme that many people and businesses are still having a tough time wrapping their minds around what happened.
Putting a cap on the number of AI chips Nvidia can export will just gift the advantage to another competitor.
The Chinese have never played by the rules with their state subsidies and stealing of intellectual property.
These are several hallmarks of their national heavyweights.
Hamstringing Nvidia is the worst thing the US government could do minus shutting them down completely.
In general, the amount of bureaucratic nonsense, dysfunction, red tape, and needless saber-rattling is starting to hit the bottom line of Silicon Valley.
This could all bring forward a selloff from this tech bubble we are currently in.
Granted, I will acknowledge that the federal government isn’t only targeting the tech sector and the inefficiencies run across a wide swath of the U.S. economy system.
But that doesn’t make it better.
We are priced to the point where AI is guaranteed to become our savior and I would say to hold on because we are nowhere near certainty and there are very few use cases of all this AI data center investment.
We are trading at highs and the government going after Silicon Valley will hasten a sharp selloff in expensive tech stocks.
Don’t play with fire or you’ll be burned.
Mad Hedge Technology Letter
January 8, 2025
Fiat Lux
Featured Trade:
(BUY THE MICROSOFT DIP)
(MSFT)
How will Microsoft grow their stock in 2025?
In short, MSFT are building what the market wants, and what the market wants are AI data centers.
The stock price should be rewarded if they can deliver these new AI data centers to the market.
The data center increase shows no signs of slowing down and I do believe this puts a floor under tech stocks.
To be honest, there has been a lot of bad energy surrounding the current tech business models because many of them are getting stale.
Why upgrade to the next iPhone when there isn’t much of an upgrade?
The refresh cycle data shows people are standing pat and using their own tech longer and that is bad news for tech software and hardware companies.
So instead of trying to squeeze the remaining juice out of a stale model, beefy balance sheet tech companies are driving full force into AI investment even though this investment doesn’t reciprocate with any sort of revenue stream.
It’s a little bit of a build it and it will come mentality which I do believe is quite risky and at some point, we are due for a heavy selloff.
That selloff could get triggered if the US 10-year interest rate blows past 5.5%, then all bets are off.
Microsoft says it plans to spend $80 billion on building AI data centers this year.
Microsoft has poured billions of dollars over the last two years into Anthropic, as well as Elon Musk’s startup xAI.
Advances by these firms would not have been possible without new partnerships founded on large-scale infrastructure investments that serve as the essential foundation of AI innovation and use.
The $80 billion would reflect a significant increase on the $53 billion capex spend Microsoft made in 2023.
Documents leaked last April revealed it had more than 5GW of capacity at its disposal, with plans to add an additional 1.5GW in the first half of 2025. It is possible this has since been revised upwards as it looks to provide compute power to OpenAI to run ChatGPT and its other AI services, as well as supporting its own Azure public cloud platform.
Part of this is definitely the management at OpenAI namely CEO Sam Altman. He is seen as the avant-garde of AI and the leader of the whole movement. He is demanding a massive build out and investors have largely taken him at this word. Nobody has really questioned him and that stems partly from no one really knows where this AI thing is headed in the future, but we are convinced that buckets of data space are needed for whatever comes next.
My issue is what if the thing that comes next is a cataclysmic letdown, then where do tech stocks head?
Most likely they would head for the gutter.
So we give the benefit of the doubt to this gargantuan AI infrastructure build-out and it feels like we are flying blind in a snowstorm, but that is what the market is telling us and the market is always right until it is not.
Sometimes tech does figure it out, and we are really hoping there is something of great value at the end of the build-out.
Buy the dip in MSFT until the AI infrastructure story is killed off.
Mad Hedge Technology Letter
January 6, 2025
Fiat Lux
Featured Trade:
(DIGITAL SPORTS CONTENT RISES TO THE TOP)
(FUBO), (DIS)
It isn’t a shocker that the first deal to go through in 2025 is in digital sports streaming.
This sub-sector is scorching hot.
It was only just a few days ago when Netflix rolled out its debut in streaming NFL during Christmas when they broadcasted 2 games.
Live American football – not the European variant - is the holy grail of digital content and the beefiest of marketers with the deepest of pockets will cough up to place their ads in these commercial slots.
Disney (DIS) will combine its Hulu + Live TV business with sports streamer FuboTV (FUBO) in the first major media dealmaking move of 2025.
Disney will control 70% of Fubo. Shareholders of the sports streamer will own the remaining 30% of the combined business, which will operate under the Fubo publicly traded company name.
Disney is struggling in many parts of their business, for example, is underperforming in their theme parks.
Their movies also suck.
Pro football is the last bastion of premium content and even the woke employees at Disney understand that.
Disney stock has essentially halved since 2021 with shareholders furious about their lack of strategic vision.
The acquisition of Fubo gives Disney a chance to restart in a sub-sector that has a glowing future.
Cord cutters are exploding and since last year’s Presidential election, the trust in legacy media has never been at such a low ebb, and rightly so with the poor level of content quality.
The combination of the two businesses will form one of the largest digital pay-TV providers as consumers search for cable alternatives amid increased cord-cutting.
Fubo, which offers users access to live TV channels over the internet, has primarily focused on sports.
Hulu + Live TV, categorized as a cable replacement option — similar to YouTube TV — allows users to stream from about 100 live TV channels across sports, news, and entertainment.
As a much smaller player, Fubo struggled with high content costs and the ability to curb subscriber churn and adequately compete in the marketplace — hence the lawsuit's inception.
The three companies first announced the joint venture last year, with an expected price point of $42.99 a month. The service will bring together their respective slates of sports rights and comes as media companies face pressure from investors to scale their streaming services and achieve profitability.
I’m not saying that digital streaming of pro sports is easy.
We aren’t in the early innings.
Content costs are astronomically high and subscriber churn can be a problem in the offseason.
The nightmare could end up like the NBA.
Look at sports like pro basketball (NBA, viewership is down 50% this season as subscribers flee the sinking ship.
The basketball commissioner created a model where most teams make the playoffs meaning the 82 game schedule has been deemed irrelevant causing their best stars to sit out games.
It’s just one example of the management of pro sports going down the drain and pro football isn’t immune to bad management too.
As it stands, I highly support Disney’s foray into Fubo and Fubo would be a great stock to pick up and hold at $4.80.
The stock is up from $1.44 this morning.
Live pro sports still fetches a premium and I don’t believe that will change any time soon.
Jump into tech stocks that have big investments planned in American football.
Much of the big growth opportunities have been saturated and I do believe the tech market will become more of a zig-zag trading market in 2025.
Mad Hedge Technology Letter
January 3, 2025
Fiat Lux
Featured Trade:
(THE EYEWEAR PIVOT NOBODY SAW COMING)
(META), (ESSILORLUXOTTICA)
