Mad Hedge Technology Letter
November 3, 2023
Fiat Lux
Featured Trade:
(THE CATCH UP PLAN)
(GOOGL), (MSFT), (CHATGPT)
Posts
The tech industry is quickly morphing into a generative artificial intelligence success story or bust outcome for many involved.
This came pretty much out of nowhere.
December 2022 was the big announcement that ChatGPT went live and everybody in tech has basically been freaking out since then.
Big ideas like the internet and software also had the same type of effect on tech stocks back in the heyday.
What would have Microsoft (MSFT) been without the computer or Windows?
Even more urgent, once perceived growth tech companies like Tesla are starting to cut prices of products because the consumer is tapped out these days.
That means tech corporations can’t sell the current product by adding incremental iterations and passing it off as something “groundbreaking.”
Consumers need something more.
Consumers will spend on the next big thing and generative artificial intelligence still has a long way to go, but stocks participating in generative AI are starting to get those premium multiples that were only reserved for tech royalty.
Everyone is hoping to get in on the action as well as Alphabet.
They are racing to build a new search engine and add artificial intelligence features to its existing products in the face of rapid growth in the field by rivals such as Microsoft Bing.
Google is testing new features called "Magi," with more than 160 people working full-time on the project.
Google's new products will try to predict users' needs, with features such as helping users write software code and display ads in search results, and Google is also exploring mapping technology that allows users to use Google Earth with the help of AI and search music through conversations with chatbots.
Samsung Electronics is reportedly considering replacing Google with Bing, the main search engine on its phones, because of Bing's artificial intelligence capabilities. The Samsung contract is expected to generate $3 billion in annual revenue for Google, a revenue stream that is now in jeopardy. In addition, Google has a $20 billion contract with Apple for a similar default search engine, which is up for renewal this year.
Google’s search engine could be swept into the dustbin of history if they don’t get a move on it pronto.
The ecosystems like Apple and Samsung can easily opt for a better engine if Google falls behind and that is exactly what we are seeing from Samsung.
I would probably say that Google got a little too cocky when they decided to stop developing itself.
They thought that nobody could topple them.
The panoramic views from the ivory tower can look nice from the terrace for a while until somebody builds a bigger ivory tower that obstructs the view.
It’s been quite fascinating to see Google’s sense of urgency lately because it was always assumed they were part of a stable duopoly with Facebook.
Google’s panic indicates that Microsoft’s Bing is a real threat to their revenue stream and at the very minimum, bits and pieces of the new technology will be incorporated into a new version of a search engine that will behave as a supercharged version of the likes we have never seen before.
If Google can catch up then its stock price will go a lot higher from here.
Mad Hedge Technology Letter
July 26, 2023
Fiat Lux
Featured Trade:
(GOOD SIGNS FOR TECH)
(GOOGL), (APPL), (CHATGPT)
It’s incredible that a 7% increase year-over-year in revenue means an extra $5 billion in just one quarter.
That’s what happens when a company is a behemoth, and the company I am talking about is Alphabet, or better known as Google (GOOGL).
Some of these tech companies are so large that growth rates don’t mean much unless they are negative.
Whether it is 3% or 6%, the nominal amount of revenue increase is gargantuan.
The law of large numbers is certainly valid in these situations so don’t expect multi-trillion dollar tech firms to grow 30% or 40% like they used to.
As I correctly predicted, Google and similar companies are doing just fine this earnings season, and I believe they could have gotten away with even 3% growth.
The 7% growth translated into a 7% bump in GOOGL shares this morning showing that investors care more about the additional $5 billion in revenue rather than the low growth rate.
For the fourth straight quarter, Google reported growth in the single digits as it reckons with a pullback in digital ad spending that reflects concerns about the economy.
Across the industry, investors will be looking for updates on cost-cutting measures implemented earlier in the year and the impact of artificial intelligence investments on profitability.
Revenue in Google’s cloud unit, which includes infrastructure and productivity apps, increased 28%.
Google’s ad revenue rose 3.3% to $58.14 billion, up from $56.29 billion last year. YouTube ads came in above analyst expectations at $7.67 billion marginally up from $7.34 billion the year before.
Google’s “search and other” revenue rose to $42.63 billion, up slightly from last year.
The only “growth” part of the business has been the cloud and even that is starting to taper off.
Up until recently, they were expanding that business around 35% year-over-year and now they are down to 28%. In a few years, they will be down to the teens.
Google is slowing down but that doesn’t mean they aren’t profitable.
The cash cow of the ad business keeps churning out the revenue and Microsoft hasn’t turned out to be the threat to Google search that investors first thought when ChatGPT came out.
Investors reacting to 7% growth by pouring money into the stock are a good omen for the rest of big tech.
It means that these other companies, like Apple, only need to marginally outperform to get rocket fuel in their stock and I will take that for all its worth.
Any worst-case scenario will not come to fruition.
Any tech analyst who is bearish this year can be described in one way – unemployed.
The fake narrative of an “earnings recession” and higher interest rates hasn’t even put a dent in the strength of tech.
It’s like throwing pebbles at the Titanic.
Even scarier for the bears, this was supposed to finally be the entry point when a dip could present itself so the bears could get into tech to try and salvage a terrible year.
Well, now, they need to chase another 7% because Google’s ship has sailed and I have conviction that Apple will jump over the low bar for its shares to have a similar effect.
As for GOOGL, I am a buyer on the next mini-dip.
Mad Hedge Technology Letter
May 3, 2023
Fiat Lux
Featured Trade:
(ALGORITHMS TAKE OUT ED TECH)
(CHGG), (ZM), (NFT), (CHATGPT)
Chegg (CHGG) is toast.
That is what artificial intelligence has done to their business model and we are in the early innings.
The company said to kiss growth goodbye.
Artificial intelligence is already putting a massive dent in some industries.
Education has changed dramatically in the past generation where more than half of Americans say a 4-year degree is not worth the price of admission anymore.
Now, moving forward, the little value extracted in terms of workable knowledge in the classroom is effectively zilch as generative artificial intelligence will do the job of a million university teachers for free.
There simply is no use case for taking geography studies or getting a basket weaving degree from Wesleyan College.
It doesn’t make sense anymore.
The scary thing is this is just the beginning and other industries are about to get t-boned as well.
Only the nimblest will survive.
Workers need to retrain, network, and preserve and expand skill levels.
Shares of virtual language-learning company Duolingo fell 9% while American depositary receipts tied to shares of London-based Pearson fell 12.5%.
Chegg offers subscription-based academic services that help students with writing and math assignments as well as study materials.
Management said the company didn’t see a significant effect on its business from ChatGPT until March, when the company behind the product, OpenAI, launched GPT-4.
Chegg said the popularity of ChatGPT among students is affecting its customer-growth rate.
The red alarm from Chegg and the subsequent selloff are among the most glaring indications that this isn’t some cute niche thing that can be downplayed or diminished.
AI is coming for most white-collar jobs and workers should be scared if not mortified.
Many of the job losses will occur in big corporations and America has some of the biggest and most profitable.
The tailwind for corporate management is that they don’t need to pay benefits or social payments to AI so big cost savings that will fall down to the bottom line.
Wall Street will be applying this technology to the utmost too.
To say this technology is transformative doesn’t do justice to the word transformative.
This isn’t going to be an all tides lift all boats scenario.
Bloomberg news noted that nearly 40% said that children currently in elementary school will be best off with a job in health care if they want to avoid being displaced by artificial intelligence.
What about tech?
There will be serious winners and losers as this shakes out. It’ll be like a slow-motion car crash for workers while tech firms profit in real-time.
Technology stocks will hollow out similar to how we see the behemoths pull ahead lately muscling out smaller companies with their solid balance sheets.
This has essentially become a 7-stock tech sector.
Tech companies will absolutely be chomping at the bit to fire computer engineers whom many command in excess of $150,000 in pre-tax gross salary.
Of course, the lower-level computer engineers will be thrown by the wayside first then slowly the terminations will reach higher up the value chain.
If a computer engineer wants to survive in the future, they will need to dive into generative artificial intelligence themselves which will easily offer the highest salaries in technology.
AI is now the new bitcoin and the best talent will flood that space. It’s easy to see how starting salaries with start with a 3 and end with 5 more numbers.
As for tech investors, this shows that getting into these little micro tech stocks is more and more treacherous as the landscape has dictated a hard future ahead.
That is why I tripled up on a bearish position in Zoom technologies (ZM). All big tech companies have some sort of version of video conferencing tech and it is easy to replicate. Stay with the strongest during this bank crisis.
My ad Hedge Technology Letter
April 21, 2023
Fiat Lux
Featured Trade:
(THE CATCH-UP PLAN)
(GOOGL), (MSFT), (CHATGPT)
The tech industry is quickly morphing into a "generative artificial intelligence success story or bust" outcome for many involved.
This came pretty much out of nowhere.
December 2022 was the big announcement that ChatGPT went live and everybody in tech has basically been freaking out since then.
Big ideas like the internet and software also had the same type of effect on tech stocks back in the heyday.
What would have Microsoft (MSFT) been without the computer or Windows?
Even more urgent, once-perceived growth tech companies like Tesla are starting to cut prices of products because the consumer is tapped out these days.
That means tech corporations can’t sell the current product by adding incremental iterations and passing it off as something “groundbreaking.”
Consumers need something more.
Consumers will spend on the next big thing and generative artificial intelligence still has a long way to go, but stocks participating in generative AI are starting to get those premium multiples that were only reserved for tech royalty.
Everyone is hoping to get in on the action, and Alphabet is also racing to build a new search engine and add artificial intelligence features to its existing products in the face of rapid growth in the field by rivals such as Microsoft Bing.
Google is testing new features called "Magi," with more than 160 people working full-time on the project.
Google's new products will try to predict users' needs, with features such as helping users write software code and display ads in search results, and Google is also exploring mapping technology that allows users to use Google Earth with the help of AI and search music through conversations with chatbots.
Samsung Electronics is reportedly considering replacing Google with Bing, the main search engine on its phones, because of Bing's artificial intelligence capabilities. The Samsung contract is expected to generate $3 billion in annual revenue for Google, a revenue stream that is now in jeopardy. In addition, Google has a $20 billion contract with Apple for a similar default search engine, which is up for renewal this year.
Google’s search engine could be swept into the dustbin of history if they don’t get a move on it pronto.
The ecosystems like Apple and Samsung can easily opt for a better engine if Google falls behind and that is exactly what we are seeing from Samsung.
I would probably say that Google got a little too cocky and stopped developing itself.
They thought that nobody could topple them.
The panoramic views from the ivory tower can look nice from the terrace for a while until somebody builds a bigger ivory tower that obstructs the view.
It’s been quite fascinating to see Google’s sense of urgency lately because it was always assumed they were part of a stable duopoly with Facebook.
Google’s panic indicates that Microsoft’s Bing is a real threat to their revenue stream, and at the very minimum, bits and pieces of the new technology will be incorporated into a new version of a search engine that will behave as a supercharged version of Google, the likes we have never seen before.
If Google can catch up, then its stock price will go a lot higher from here.
"Life is not fair; get used to it," said the Founder of Microsoft Bill Gates.
Mad Hedge Technology Letter
March 29, 2023
Fiat Lux
Featured Trade:
(THE FORCE MULTIPLIER)
(MSFT), (TSLA), (CHATGPT)