I know many readers gripe about certain tech stocks being too expensive like Google (GOOGL), Facebook (FB), or even Amazon (AMZN), but that’s not the case for all high-quality tech names out there.
There are still deals to be had.
An undervalued tech name in the same industry, albeit more diminutive than the three I just mentioned, is ad revenue platform Snap Inc. (SNAP).
Their story is a good one and their revenue model appears to be maturing at an optimal time while still exhibiting many elements of explosive growth.
To see what I mean — Snap grew both revenue and daily active users at the highest rates they have achieved in the last four years.
Daily active users grew 23% year-over-year to 293 million — expanding revenue by 116% year-over-year to $982 million.
This outperformance reflects the momentum in SNAP's core advertising business and the positive results of their team serving ad partners helping them to generate a return on investment.
SNAP benefited from a favorable operating environment and continued success with both direct response and large brand advertisers — continue to leverage performant ad products to grow an advertiser base globally.
Adjusted EBITDA improved by $213 million compared to last year, marking the third adjusted EBITDA profitable quarter in the last 12 months as SNAP continues to demonstrate the leverage in their business as they scale.
They are also fully absorbed in making progress against revenue and Average Revenue Per User (ARPU) opportunities, which I believe will be driven by three key priorities.
First, driving ROI through measurement, ranking, and optimization.
Second, investing in aggressive sales and marketing functions by continuing to train, hire, and build for scale.
And third, building innovative ad experiences around video and augmented reality, with a focus on shopping and commerce.
The commitment to these three priorities, along with a unique reach and large, engaged community, allows SNAP to drive performance at scale for businesses around the world.
They have proven through results in North America that with a robust team, surrounding resources, and a local focus, they can accelerate revenue.
They are now taking that model and replicating it in several markets that they have identified as having a large digital advertising market and significant levels of existing Snapchat adoption.
It’s true to say they still have a lot of room to grow in some of the world's most established ad markets outside of North America, especially in Europe.
For example, in the UK, France, and the Netherlands, SNAP reaches over 90% of 13- to 24-year-olds — 75% of 13- to 34-year-olds.
SNAP continues to invest heavily in video advertising, with the goal of driving results for advertising partners and connecting them to the Snapchat Generation.
For example, SNAP worked with Nielsen to help U.S. advertisers understand how to more efficiently reach their target audiences via Snap Ads.
The Total Ad Ratings study analyzed how over 30 cross-platform advertising campaigns reached people on both Snapchat and television.
The analysis showed that Snapchat campaigns contributed an average of 16% incremental reach to advertisers' target audiences, and over 70% of the Gen Z audience that was reached by Snapchat was not reached by TV-only campaigns.
This is especially important as people are increasingly cutting the cord, and mobile content consumption continues to grow, presenting SNAP with a large opportunity to help advertisers reach the Snapchat Generation at scale.
Augmented reality advertising is delivering a return on investment that is measurable and repeatable, which is encouraging the incremental businesses to invest in AR.
For example, Smile Direct Club (SDC) leveraged a Goal-Based Bidding Click optimization for Augmented Reality (AR), which drove 49% of Snap customer leads in Q2 and was the most effective ad unit at driving traffic for their business compared to other social channels.
The success of the Lens ultimately encouraged Smile Direct Club to include AR Lenses as part of their long-term business strategy.
SNAP is betting the ranch on efforts to help advertisers improve conversions and ROI, and recently launched optimization for AR, which allows advertisers to optimize their AR campaigns for down-funnel purchases and fits well into the broader shopping strategy.
SNAPs bread and butter region of North America is hitting on all cylinders with revenue growing 129% year-over-year in Q2, while ARPU grew 116% year-over-year as they continue to benefit from significant investments made in sales teams and sales support in the prior year.
At a 30-thousand-foot level, the global internet services market was valued at over $450 billion in 2020, the year in which the pandemic fundamentally altered how society functions, accelerating a push towards digital offerings.
The internet market is expected to grow at a compound annual growth rate of 5% through 2027 and reach a value of $652 billion. US-based equities presently control close to 30% of the total global market share in the industry.
My takeaway from this is that even though there is GOOGL and FB in this space, the pie is growing so fast that there is easily room for others like SNAP.
One must believe that if SNAP keeps operating anywhere close to its pandemic performance relative to other companies, they are surely guaranteed to be a buy-the-dip company.
In terms of price action, that’s exactly what we have witnessed as the price has zig-zagged up by 300% — the stock price goes two levels up and retraces back one — rinse and repeat.
Just view the big down days as optimal entry points into a burgeoning social media platform and deploy capital.
In the short term, on the monetization side, I have to note that the fiscal comparisons will be more challenging in the second half as SNAP begins to lap the acceleration in top-line growth that they experienced in the prior year.
Once that sell-off gets baked into the equation via a 3-5% sell-off, readers should jump back into SNAP.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-08-30 12:02:192021-09-05 17:12:54A Great Alternative in the Ad Tech Space
Below please find subscribers’ Q&A for the August 25 Mad Hedge Fund TraderGlobal Strategy Webinar broadcast from The Atlantis Casino Hotel in Reno, NV.
Q: How does a 2X ProShares Ultra Technology ETF (ROM) February 2022 vertical bull call spread on the ROM look? Would you do $110-$115 or $115-$120?
A: I would do nothing here at $112.50 because we’ve just gone up 10 points in a week. I’d wait for some kind of pullback, even just $5 or $10 points, and then I would do the $110-$115. I’m leaning towards more conservative LEAPS these days—bets that the market goes sideways to up small rather than going ballistic, which it has done for the last 18 months. Think at-the-money strikes, not deep out-of-the-money on your LEAPS from here on for the rest of this economic cycle. The potential profits are still enormous. The only problem with (ROM) is that the longest maturities on the options are only six months.
Q: How do you recommend entering your long-term portfolio?
A: I would use the one-third rule: you put on ⅓ now, ⅓ higher or lower later on, and ⅓ higher or lower again. That way you get a good average price. Long term, everything goes up until we hit the next recession, which is probably several years off.
Q: I keep reading that the Delta variant is a market risk, but I don’t think that investors will look through this. Is Delta already priced into the shares?
A: Yes, what is not priced into the shares is the end of Delta, the end of the pandemic—and that will lead to my “everything” rally that I’ve been talking about for a month now. And we have already seen the beginning of that, especially with the price action this week. So yes, Delta in: dead market; Delta out: roaring market.
Q: Do you think there will eventually be a rotation into emerging markets (EEM), or has the virus battered these markets too much to even consider it?
A: Sometime in our future—not yet—the emerging markets will be our core holding. And the trigger for that will be the collapse of the dollar, which is hitting an interim high right now. When the greenback rolls over and dies, you can expect emerging markets, especially China, to take off like a rocket. That’s going to be our next big trade. I don't know if it will be this year or next year but it’s coming, so start doing your emerging market research now, and keep reading my newsletter.
Q: Is the coming tax hike a problem for the stock market?
A: No, I don’t think so. First off, I don’t think they’re going to do a tax bill this year; they don’t want anything to interfere with the 2022 election, so it may be next year’s business. Also, any new taxes are going to be overwhelmingly focused on billionaires, carried interest, offshoring, and large corporations. The middle class, people who make less than $400,000 a year, will not see any tax hike at all, possibly even getting some tax cuts via restored SALT deductions. So, I don't really see it affecting the stock market at all.
Q: What do you think about Chinese stocks (FXI)?
A: Long-term they’re okay, short term possibly more downside. Interestingly, the bigger risk may not be China itself and how the government is beating up its own tech companies, but the SEC. It has indicated they don’t really like these offshore vehicles that have been listed on the New York Stock Exchange, and they may move to ban them. I’m not rushing into China right now, only because there are just so many better opportunities in the US stock market for the time being. I may go back in the future—it’s a case where I’d rather buy them on the way up than trying to catch a falling knife on China right now.
Q: Do you expect any market impact from the Jackson Hole meeting?
A: Yes, whatever J Powell says, even if he says nothing, will have a market impact. And it will have a bigger impact on the bond market than it will on the stock market, which is down a full point this morning. So yes, but not yet. I imagine we’ll hear something very soon.
Q: September and October tend to be volatile; do you see us having a 5% or 10% pullback in those months?
A: I don’t see any more than 5%, with the hyper liquidity that we have in the system now. There just aren’t any events out there that could trigger a pullback of 10%—no geopolitical events, and the economy will be getting stronger, not worse. So yes, an “everything rally” doesn’t give you many long side entry points, so I just don’t see 10% happening.
Q: What about a Walt Disney (DIS) January 2022 $180-$220 LEAPS?
A: I would do the $180-$200. I think you can afford to be tighter on your spread there, take some more risk because I think it’s just going to go nuts to the upside once we get a drop in COVID cases. By the way, Disney parks are only operating at 70% capacity, so if you go back up to 100% that's a near 50% increase in profits for the company. And it’s not just Disney, but Netflix (NFLX), Amazon (AMZN), and everybody else that’s about to have the greatest number of blockbuster movies released of all time. They’re holding back their big-ticket movies for the end of the pandemic when people can go back into theaters. We’ll start seeing those movies come out in the last quarter of this year, and I’m particularly looking forward to the next James Bond movie, a man after my own heart.
Q: Are EV car charging companies like ChargePoint Holdings (CHPT) going to do as well as the car companies?
A: No. They’re low margin business, so it’s not a business model for me. I like high-profit margins, huge barriers to entry, and very wide moats, which pretty much characterizes everything I own. The big profits in EVs are going to be in the cars themselves. Charging the cars is a very capital-intensive, highly regulated, and low-margin business.
Q: Would a Fed taper cause a 10% pullback?
A: Absolutely not; in fact, I think a taper would make the market go up because Jay Powell has been talking it into the market all year. And that’s his goal, is to minimize the impact of a taper so when they finally do it, they say ho-hum and “okay you can take that risk out of the market.” That’s the way these things work.
Q: What is your yearend target for United States Treasury Bond Fund (TLT)?
A: $132. Call it bold, but I'm all about bold. I think the first stop will be at $144, then $138, then bombs away!
Q: What will it take for (TLT) to dip below $130?
A: Another year of hot economic growth, which Congress seems hell-bent on delivering us.
Q: What are your ProShares Ultra Short 20+ Year Treasury ETF (TBT) targets?
A: When we were at 1.76% on the 10-year bond, the (TBT) made it all the way back to 22 ½. Next year we go higher, probably to $25, maybe even $30.
Q: What’s your 10-year view on the (TBT)?
A: $200. That’s when you get interest rates back to 10% in 10 years on the 10-year bond. So yes, that’s a great long-term play.
Q: How long can we hold (TBT)?
A: As long as you want. Ten years would be a good time frame if you want to catch that $17 to $200 move. The (TBT) is an ETF, not an option, therefore it doesn’t expire.
Q: Are you working on an electrification stock list?
A: I am not, because it’s such a fragmented sector. It’s tough to really nail down specific stocks. I think it’s safe to say that the electric power grid is going to change beyond all recognition, but they won’t necessarily be in high margin companies, and I tend to prefer high-profit-margin, large-moat companies which nobody else can get into, like Apple (AAPL) or Google (GOOG).
Q: What about gas pipelines with high yields?
A: They have a high yield for a reason; because they’re very high risk. If you're going to a carbon-free economy, you don’t necessarily want to own pipelines whose main job is moving carbon; it’s another buggy whip-type industry I would avoid. I’ve seen people get wiped out by these things more times than I could count. If you remember Master Limited Partnerships, quite a few of them went bankrupt last year with the oil crash, so I would avoid that area. These tend to be very highly leveraged and poorly managed instruments.
Q: Best play on silver (SLV)?
A: Wheaton Precious Metals (WPM) is the highest leveraged silver play out there, and a great LEAPS candidate. Go out 2 years and triple your money.
Q: Geopolitical oil (USO) risks?
A: No, nobody cares about oil anymore—that’s why we’re giving up on Afghanistan. China is buying 80% of the Persian Gulf oil right now. We don’t really need it at all, so why have our military over there to protect China’s oil supply?
Q: What about Freeport McMoRan (FCX)?
A: I absolutely love it. Any big economic recovery can’t happen without copper, and you have a huge tailwind there from electric cars which need 200 pounds of copper each, as opposed to 20 pounds in conventional cars.
Q: I see AMC Entertainment Holdings (AMC) is up 20% today; should everyone be chasing this stock?
A: No, absolutely not. (AMC) and all the meme stocks aren’t investments, they’re gambling, and there are better ways to gamble.
Q: Should I buy the lumber dip?
A: Yes. I think the slowdown on housing is temporary because it will take 10 years for supply and demand in the housing market to come back into balance because of all the millennials entering the housing market for the first time. So, that would be a yes on lumber and all the other commodities out there that go into housing like copper, steel, and aluminum.
Q: Should I put money into Canadian Junior Gold Miners (GDX)?
A: No, I would rather go out and take a long nap first. These are just so high risk, and they often go bankrupt. The liquidity is terrible, and the dealing spreads are wide. I would stick with the bigger precious metal plays like Newmont Mining (NEM), Barrick Gold (GOLD), and Wheaton Precious Metals (WPM).
Q: Is Boeing (BA) a buy here?
A: Yes, we’re back at the bottom end of the trading range for the stock. It’s just a matter of time before they get things right, and the 737 Max orders are rolling in like crazy now that there’s an airplane shortage.
Q: What do you think about Robinhood (HOOD)?
A: I like it quite a lot; I got flushed out of my long position on Friday with a 10% down move. Of course, 90% of my stop losses end up expiring at their maximum profit points, but I have to do it to keep the volatility of the portfolio down. So yes, I’ll try to buy it again on the next dip. The trouble is it’s kind of a quasi-meme stock in its own right, hence the volatility; so I would say on the next 10% down day, you go into Robinhood, and I probably will too.
Q: How are the wildfires around Tahoe?
A: They’re terrible and there are three of them. I did a hike two days ago there, and out of a parking lot with 100 spaces, I was the only one there. It’s the only time I’d ever seen Tahoe deserted in August. With visibility of 500 yards, it's just terrible. Fortunately, I was able to hike without coughing my guts out—it’s not so thick that you can’t breathe.
Q: What do you think of US Steel (X)?
A: I like it, I think the whole industrial commodity complex rallies like crazy going into the end of the year.
Q: As a new member, where is the best place to start? It’s just kind of like drinking from a fire hose.
A: Wait for the trade alerts; they only happen at sweet spots and you may have to wait a few days or weeks to get one since we only like to enter them at good points. That’s the best place to enter new positions for the first time. In the meantime, keep reading all the research, because when these trade alerts do come out, they’re not surprises because I’m pumping out research on them every day, across multiple fronts. Be patient— we are running a 93% success rate, but only because we take our time on entering good trades. The services that guarantee a trade alert every day lose money hand over fist.
Q: If they do delist Chinese stocks, will US investors be left holding the bag?
A: Yes, and that will be the only reason they don’t delist them, that they don’t want to wipe out all current US investors.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH or TECHNOLOGY LETTER (whichever applies to you), then select WEBINARS and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Overperformance is mainly about the art of taking complicated data and finding perfect solutions for it. Trading in technology stocks is no different.
Investing in software-based cloud stocks has been one of the seminal themes I have promulgated since the launch of the Mad Hedge Technology Letter way back in February 2018.
I hit the nail on the head and many of you have prospered from my early calls on AMD, Micron to growth stocks like Square, PayPal, and Roku. I’ve hit on many of the cutting-edge themes.
Well, if you STILL thought every tech letter until now has been useless, this is the one that should whet your appetite.
Instead of racking your brain to find the optimal cloud stock to invest in, instead of scouring the grains of sand to find a diamond, I have a quick fix for you and your friends.
Invest in The WisdomTree Cloud Computing Fund (WCLD) which aims to track the price and yield performance, before fees and expenses, of the BVP Nasdaq Emerging Cloud Index (EMCLOUD).
What Is Cloud Computing?
The “cloud” refers to the aggregation of information online that can be accessed from anywhere, on any device remotely.
Yes, something like this does exist and we have been chronicling the development of the cloud since this tech letter’s launch.
The cloud is the concept powering the “shelter-at-home” trade which has been hotter than hot since March 2020.
Cloud companies provide on-demand services to a centralized pool of information technology (IT) resources via a network connection.
Even though cloud computing already touches a significant portion of our everyday lives, the adoption is on the verge of overwhelming the rest of the business world due to advancements in artificial intelligence and the Internet of Things (IoT) hyper-improving efficiencies.
The Cloud Software Advantage
Cloud computing has particularly transformed the software industry.
Over the last decade, cloud Software-as-a-Service (SaaS) businesses have dominated traditional software companies as the new industry standard for deploying and updating software. Cloud-based SaaS companies provide software applications and services via a network connection from a remote location, whereas traditional software is delivered and supported on-premise and often manually. I will give you a list of differences to several distinct fundamental advantages for cloud versus traditional software.
Product Advantages
Speed, Ease, and Low Cost of Implementation – cloud software is installed via a network connection; it doesn’t require the higher cost of on-premise infrastructure setup maintenance and installation.
Efficient Software Updates – upgrades and support are deployed via a network connection, which shifts the burden of software maintenance from the client to the software provider.
Easily Scalable – deployment via a network connection allows cloud SaaS businesses to grow as their units increase, with the ability to expand services to more users or add product enhancements with ease. Client acquisition can happen 24/7 and cloud SaaS companies can easily expand into international markets.
Business Model Advantages
High Recurring Revenue – cloud SaaS companies enjoy a subscription-based revenue model with smaller and more frequent transactions, while traditional software businesses rely on a single, large, upfront transaction. This model can result in a more predictable, annuity-like revenue stream making it easy for CFOs to solve long-term financial solutions.
High Client Retention with Longer Revenue Periods – cloud software becomes embedded in client workflow, resulting in higher switching costs and client retention. Importantly, many clients prefer the pay-as-you-go transaction model, which can lead to longer periods of recurring revenue as upselling product enhancements does not require an additional sales cycle.
Lower Expenses – cloud SaaS companies can have lower R&D costs because they don’t need to support various types of networking infrastructure at each client location.
I believe the product and business model advantages of cloud SaaS companies have historically led to higher margins, growth, higher free cash flow, and efficiency characteristics as compared to non-cloud software companies.
How does the WCLD ETF select its indexed cloud companies?
Each company must satisfy critical criteria such as they must derive the majority of revenue from business-oriented software products, as determined by the following checklist.
+ Provided to customers through a cloud delivery model – e.g., hosted on remote and multi-tenant server architecture, accessed through a web browser or mobile device, or consumed as an application programming interface (API).
+ Provided to customers through a cloud economic model – e.g., as a subscription-based, volume-based, or transaction-based offering Annual revenue growth, of at least:
+ 15% in each of the last two years for new additions
+ 7% for current securities in at least one of the last two years
Some of the stocks that would epitomize the characteristics of a WCLD component are Salesforce, Microsoft, Amazon-- I mean, they are all up, you know, well over 100% from the nadir we saw in March 2020 and contain the emerging growth traits that make this ETF so robust.
If you peel back the label and you look at the contents of many tech portfolios, they tend to favor some of the large-cap names like Amazon, not because they are “big” but because the numbers behave like emerging growth companies even when the law of large numbers indicate that to push the needle that far in the short-term is a gravity-defying endeavor.
We all know quite well that Amazon isn't necessarily a pure play on cloud computing software, because they do have other hybrid-sort of businesses, but the elements of its cloud business are nothing short of brilliant.
ETF funds like WCLD, what they look to do is to cue off of pure plays and include pure plays that are growing faster than the broader tech market at large. So, you're not going to necessarily see the vanilla tech of the world in that portfolio. You're going to see a portfolio that's going to have a little bit more sort of explosive nature to it, names with a little more mojo, a little bit more chutzpah because you're focusing on smaller names that have the possibility to go parabolic and gift you a 10-bagger precisely because they take advantage of the law of small numbers.
One stock that has the chance for a legitimate ten-bagger is my call on Palantir (PLTR).
Palantir is a tech firm that builds and deploys software platforms for the intelligence community in the United States to assist in counterterrorism investigations and operations.
This is one of the no-brainers that procure revenue from Democrat and Republican administrations.
In a global market where the search for yield couldn’t be tougher right now, right-sizing a tech portfolio to target those extraordinary, extra-salacious tech growth companies is one of the few ways to produce alpha without overleveraging.
No doubt there will be periods of volatility, but if a long-term horizon is something suited for you, this super-growth strategy is a winner, and don’t forget about PLTR while you’re at it.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-08-25 15:02:202021-08-27 17:47:18The Best Way to Alpha Your Tech Portfolio
A can’t-miss stock in technology investing has to be Nvidia (NVDA).
We got confirmation from the latest earnings report that they are still too hot to handle.
Sure, the bulk of revenue still mostly comes from gaming, but gaming is still a secular growth driver.
They had another strong quarter overall, with revenue of $6.5 billion and year-on-year growth of 68%.
They set new records for total revenue as well as for Gaming, Data Center, and Professional Visualization.
The pandemic minted a fresh wave of new gamers which has been a generous gift to an already robust company.
The audience for global eSports will soon approach 0.5 billion people, while the number of those who live stream games is expected to reach over 700 million.
Meanwhile, the number of PC gamers helps set the stage for a new audience that will help drive Nvidia’s future products.
Gaming, with revenue of $3.1 billion, was up 11% sequentially and up 85% from a year earlier.
Demand remained exceptionally strong, outpacing supply.
Nvidia has two powerful new GPUs for gamers and creators, the GeForce RTX 3080 Ti and RTX 3070 Ti, delivering 50% faster performance than their prior generation with acclaimed features such as real-time ray tracing, and AI Rendering.
Laptop demand was another blistering division that was again helped by the importance of quality devices in a locked-down world.
From the top-of-the-line gaming laptops to those through mainstream price points as low as $799 that brings the power of GeForce CPUs to gamers, the entire range of products was in high demand.
Highlighting Nvidia’s stranglehold at the cutting edge of technology and the future is its developments in the self-driving sphere.
In autonomous trucking, DRIVE ecosystem partner, Plus, signed a deal with Amazon (AMZN) to provide at least 1,000 self-driving systems to Amazon's fleet of delivery vehicles.
The systems are powered by NVIDIA DRIVE for high performance, energy-efficient and to take advantage of its centralized AI computer.
An autonomous trucking start-up, Embark, is building on NVIDIA DRIVE.
The system is being developed for trucks for four major auto manufacturers representing the vast majority of largest size trucks in the US.
The NVIDIA DRIVE platform is being rapidly adopted across the transportation industry from passenger-owned vehicles to rob taxis, to trucking and delivery vehicles.
The goal is to get Nvidia products in everything that autonomously moves one day, a big goal, but I have seen crazier things come to fruition.
Nvidia expanded AI software and subscription offerings make it easier for enterprises to adopt AI from the initial development stage through to deployment and operations.
The enterprise continues to be a core set of Nvidia’s operations.
In the Enterprise, the application that is driving AI is that every enterprise must move toward being a tech company, take advantage of connected clouds, connected devices, and artificial intelligence to achieve it.
Nvidia just helps facilitate the opportunity to deploy AI services out of the edge.
And in order to do so, there are several things that have to happen; first, they have to create a computing platform that allows them to do training in the IT environment that they understand, which is a virtualized, which is largely managed by VMware (VMW).
And Nvidia’s collaboration with VMware is creating a new type of system that could be integrated into the enterprise that has been quite a significant effort and it's in volume production today.
The second is a server that allows the enterprise customers to deploy their AI models out to the edge.
The AI engine through software suite that they’ve been developing over the last 10 years now has been integrated into this environment and allows the enterprises to basically run AI out of the box.
Putting all of the state-of-the-art AI solvers and engines and libraries that Nvidia has industrialized and refined over the years, are all available to anyone that signs up for an Enterprise license.
The largest eyebrow-raiser in the earnings rhetoric was news from the data center which is expected to have another strong quarter with sequential growth driven largely by “accelerating demand.”
This acceleration has boosted record revenues in both hyperscale cloud and industrial enterprise.
Now we are seeing accelerated growth for the short to midterm.
The acceleration in hyperscale and cloud comes from the transition of the catalyst providers in taking AI applications, which are now heavily deep learning-driven into production.
Ultimately, Nvidia’s gaming division is its cash cow operating at a tremendously high level and the accelerated growth in the data center will help sweeten margins for the foreseeable future.
Gaming demand is continuing to exceed supply and the company expects channel inventories to remain below target levels.
The one controversy that most analysts were waiting for was an update on its acquisition of British chip company Arm Ltd.
Upper management, more or less, offered some vague one-liners expressing “concern” and noting that the deal is “taking longer than initially thought.”
Getting Arm Ltd. onboard to add another monkey branch in its neural network would be a major feather in Nvidia’s cap, but the global regulatory climate has been harsh as of late.
This could be a headwind for future cash flow expectations, yet, ultimately, if there is any weakness in the stock, I would dollar cost average this one out on any 3-5% dip.
Nvidia is highly volatile, and this is not the stock to day trade. Considering we are at new all-time highs of $200, I wouldn’t chase this one higher but wait for the next small dip.
Fortunately, time and time again, Nvidia proves they are at the forefront of tech innovation, powered by a brilliant CEO, and instead of market timing the stock, it should simply be a cornerstone of a long-term buy and hold portfolio.
I am bullish on Nvidia long term with high conviction.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-08-20 15:02:032021-08-27 15:59:18Is Nvidia Worth a Long-Term Investment?
I am really happy with the performance of the Mad Hedge Long Term Portfolio since the last update on February 2, 2021. In fact, not only did we nail the best sectors to go heavily overweight, we also completely dodged the bullets in the worst-performing ones.
For new subscribers, the Mad Hedge Long Term Portfolio is a “buy and forget” portfolio of stocks and ETFs. If trading is not your thing and you don’t want to remain glued to a screen all day, these are the investments you can make. Then don’t touch them until you start drawing down your retirement funds at age 72.
For some of you, that is not for another 50 years. For others, it was yesterday.
There is only one thing you need to do now and that is to rebalance. Buy or sell what you need to reweight every position to its appropriate 5% or 10% weighting. Rebalancing is one of the only free lunches out there and always adds performance over time. You should follow the rules assiduously.
Despite the seismic changes that have taken place in the global economy over the past nine months, I only need to make minor changes to the portfolio, which I have highlighted in red on the spreadsheet.
To download the entire new portfolio in an excel spreadsheet, please go to www.madhedgefundtrader.com, log in, go “My Account”, then “Global Trading Dispatch”, the click on the “Long Term Portfolio” button, then “Download.”
Changes
Biotech
Pfizer (PFE) has nearly doubled in six months, while Crisper Therapeutics (CRSP) has almost halved. Since the pandemic, which Pfizer made fortunes on, is peaking and we are still at the dawn of the CRISPR gene editing revolution, the natural switch here is to take profits in (PFE) and double up on (CRSP).
Technology
I am maintaining my 20% in technology which are all close to all-time highs. I believe that Apple (AAPL), (Amazon (AMZN), Google (GOOGL), and Square (SQ) have a double or more over the next three years, so I am keeping all of them.
Banks
I am also keeping my weighting in banks at 20%. Interest rates are imminently going to rise, with a Fed taper just over the horizon, setting up a perfect storm in favor of bank earnings. Loan default rates are falling. Banks are overcapitalized, thanks to Dodd-Frank. And because of the trillions in government stimulus loans they are disbursing, they are now the most subsidized sector of the economy. So, keep Morgan Stanley (MS), Goldman Sachs (GS), JP Morgan (JPM), and Bank of America, which will profit enormously from a continuing bull market in stocks. They are also a key part of my” barbell” portfolio.
International
China has been a disaster this year, with Alibaba (BABA) dropping by half, while emerging markets (EEM) have gone nowhere. I am keeping my positions because it makes no sense to sell down here. There is a limit to how much the Middle Kingdom will destroy its technology crown jewels. Emerging markets are a call option on a global synchronized recovery which will take place next year.
Bonds
Along the same vein, I am keeping 10% of my portfolio in a short position in the United States Treasury Bond Fund (TLT) as I think bonds are about to go to hell in a handbasket. I rant on this sector on an almost daily basis so go read Global Trading Dispatch. Eventually, massive over-issuance of bonds by the US government will destroy this entire sector.
Foreign Exchange
I am also keeping my foreign currency exposure unchanged, maintaining a double long in the Australian dollar (FXA). Eventually, the US dollar will become toast and could be your next decade-long trade. The Aussie will be the best performing currency against the US dollar.
Australia will be a leveraged beneficiary of the synchronized global economic recovery through strong commodity prices which have already started to rise, and the post-pandemic return of Chinese tourism and investment. I argue that the Aussie will eventually make it to parity with the US dollar, or 1:1.
Precious Metals
As for precious metals, I’m keeping my 0% holding in gold (GLD). From here, it is having trouble keeping up with other alternative assets, like Bitcoin, and there are better fish to fry.
I am keeping a 5% weighting in the higher beta and more volatile iShares Silver Trust (SLV), which has far wider industrial uses in solar panels and electric vehicles. The arithmetic is simple. EV production will rocket from 700,000 in 2020 to 25 million in 2030 and each one needs two ounces of silver.
Energy
As for energy, I will keep my weighting at zero. Never confuse “gone down a lot” with “cheap”. I think the bankruptcies have only just started and will stretch on for a decade. Thanks to hyper-accelerating technology, the adoption of electric cars, and less movement overall in the new economy, energy is about to become free. You are looking at the next buggy whip industry.
The Economy
My ten-year assumption for the US and the global economy remains the same. I’m looking at 3%-5% a year growth for the next decade after this year’s superheated 7% performance.
When we come out the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 700% or more from 35,000 to 240,000 in the coming decade. The American coming out the other side of the pandemic will be far more efficient, productive, and profitable than the old.
You won’t believe what’s coming your way!
I hope you find this useful and I’ll be sending out another update in six months so you can rebalance once again. If I forget, please remind me.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-08-17 17:02:262021-08-17 19:30:35August 17, 2021
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