Mad Hedge Technology Letter
December 4, 2024
Fiat Lux
Featured Trade:
(MANAGEMENT TURNOVER IN TECH SPURRING CHANGES)
(INTC), (CRWD), (PANW)
Posts
CEO’s are toast as the CEO turnover tally starts to explode at the end of 2024.
There appears to be a strong trend that will grow in 2025, and that is corporate tech companies looking to the bullpen to substitute out the CEO.
They aren’t doing enough for their respective companies, and that needs to change.
This speaks volumes to the tough times in which debt has become too expensive to fund growth.
Tech companies have always played by the idea of the “winner takes all” mentality, and 2024 underscored this trend by seeing the likes of the Magnificent 7 grow in size and stature.
Through October, more than 1,800 CEOs have announced their departures this year. The outperformance of big tech stocks means that shareholders are putting massive pressure on management to juice up their own stock prices.
The number of exits is up 19% from the more than 1,500 departures during the same period last year, which was the previous year-to-date record.
Boards of directors are becoming impatient and ambitious, holding their CEOs accountable for underperformance — both in terms of profits and stock price.
The expected length of tenure as a CEO, on average, is declining as a result of these performance pressures.
The massive stock market gains of the past two years — the S&P gained roughly 20% in 2023 and is set to gain more than that by the end of 2024 — also pose challenges to US companies.
The outperformance of big tech is forcing shareholders to lean into their own management and demand answers to why they are falling behind.
The answer is complicated, and I acknowledge that many CEOs aren’t in the position to throw around capital like the CEO of Apple, Tim Cook, or CEO of Meta Zuckerberg.
These leaders can chase the next big thing and can strike out many times and not even bat an eyelid.
High turnover shows growing risk appetites and "a desire for leaders who can navigate increasing complexity in the macro business environment, including tech transformation, sustainability, geopolitical crises, and social issues."
If a company’s figurative boat is sinking while most others are enjoying a rising tide, corrective action must be taken by the CEO and or the Board.
If the CEO doesn’t have a clear plan for a turnaround, the Board finds someone who has a plan and the strength to execute that plan. It doesn’t matter if the CEO is actually at fault. Blame is assigned, and heads roll. It isn’t always fair.
Many of these tech CEOs cannot just issue dividends or execute stock buybacks to manipulate the share prices higher.
I believe these shareholder returns will be a key tool for big tech to jump over the low bar after a bevy of lower-than-expected guidance.
Next year, we could experience the haves and have nots in tech separate from each other even further.
Many of these hot chip names are right in the middle of their growth curves.
Software stocks still look good on the dips.
Lately, there were selloffs in cyber security stocks like Palo Alto Networks (PANW) and CrowdStrike (CRWD).
Traders bought the dip after weak guidance, and this is an example of where there is an opportunity as a trader to get in at optimal entry points.
Global Market Comments
September 2, 2024
Fiat Lux
Featured Trade:
( AUGUST 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(SMCI), (QQQ), (CRWD), (NVDA), (TSLA), (GOLD), (BRK/B), (BAC), (AAPL)
Below please find subscribers’ Q&A for the August 28 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Santa Barbara, CA.
Q: What is your opinion on Supermicro (SMCI)?
A: I can tell you that all fund managers have the same reaction as I do when they hear the words “accounting irregularities” ….run. So, if you haven’t, I would get out. If you’re looking to get in, there’s probably a great opportunity somewhere, but not here. Their product isn’t that high-tech, cooling racks for artificial intelligence servers. But it did have the letters “AI” attached, so it went up 50-fold. But Hindenburg is occasionally right on their research reports, although they’re wildly exaggerated to enhance their short positions. I would stay out of the way on that one for now.
Q: Are there any startup companies worth investing in on the public market right now?
A: No, because new listings are always overhyped. They come in usually double their true value. This happened with Tesla (TSLA)—I think Tesla came out at $32, I waited for the 50% selloff and all the marketing hype to wear off and I bought it at $16, and of course, that's probably about 60 cents now on a split-adjusted basis. So, I don't play the IPO game. If an IPO really is hot, chances are your broker won’t give it to you anyway; he'll give it to his largest clients. That's probably not you. So, I don't get involved in that game, I look at the aftermath. And in hot markets, there is no aftermath, you just watch them go up. The answer to that is a firm no.
Q: Home prices just hit new all-time highs, according to the S&P Case-Shiller. How do the prices keep rising with high interest rates?
A: Because people expect interest rates to fall, and they are doing so dramatically. If you look at all the interest-sensitive sectors which I've been recommending for the last four months, they've all been on fire. So if the cost of your mortgage is about to drop by half, housing prices should double, and we are starting to see that double now.
Q: Should we buy a put on the (QQQ) based on Nvidia (NVDA) earnings?
A: Nobody knows what the Nvidia earnings are going to be, so if you're willing to make a bet on a coin toss, go ahead and do it. I don't make bets on coin tosses. I make bets when there's a 90% chance that I'm going win, and there are no 90% chance trades out there anywhere in any asset class right now. It's better to watch and wait for the next opportunity. If Nvidia sells off 10% on a weak guidance, then I would be in there with both hands buying, because Nvidia is still cheap relative to the rest of the sector and the rest and of the market. And if Nvidia goes up 20%, I might even sell it short. I have shorted Nvidia this year a couple of times this year, and made money both times, so that is the trade. But right here we're in the middle of the next likely range, so no trade there at all.
Q: Will CrowdStrike (CRWD) have a financial liability for the problem it created by crashing the world's travel computers?
A: Yes, and that will no doubt be the subject of litigation for the next 10 years, which I would rather not get involved in.
Q: The tech industry keeps cutting white-collar jobs, and they have been for some time. At which point does this subside, and won’t this crush employment in Silicon Valley?
A: Well, it’s already crushed employment by about 300,000 in Silicon Valley, but artificial intelligence is now starting to soak up those employees, and they certainly are soaking up the office space, which is why the smart money that is now pouring into San Francisco buying up office buildings for pennies on the dollar. They see an employment recovery. In the meantime, buy the Magnificent Seven stocks, because they’re creating profits by cutting the excess staff which they always used to keep.
Q: When you talk about Tesla (TSLA) losing ground in the EV market, do you see the company broadening out its technologies, and growing the company down other avenues?
A: Absolutely, yes. They have a very fast-growing solar panel business, an industrial-scale battery business, and of course, they're basically running the charging network for the entire United States and the entire world. They also have new batteries under development that have the potential to increase car ranges 20 times at zero cost. Elon always has at least a dozen or so other projects underway, many of which he keeps secret. What you have to keep track of is how many of these accrue to Tesla, and how many accrue earnings to his other companies, like SpaceX, Neuralink, and xAI. SpaceX is going gangbusters right now because guess what? They're planning an IPO in the near future and should get a big multiple. xAI just raised $6 billion in a VC round.
Q: How can Nvidia (NVDA) go higher tonight if it disappoints?
A: It won't. It will drop about 10%. I'm just saying you can go higher into next year on 50% earnings growth, but we may have to give back 10%, 20%, or in the case of August 5th, 40% before we can go forward.
Q: Whatever happened to the commercial real estate problem? How is that taken care of so tightly by private capital?
A: It's a play on falling interest rates. A lot of buildings were going for 10 cents on the dollar in Manhattan and in San Francisco, so these guys know bargains, and they're long-term players, and that's how they always make money in that business. I've been watching it for 50 years, and their market timing is excellent.
Q: What will the effects of de-dollarization mean to the long-term health of the stock market?
A: Nothing, because de-dollarization isn't going to happen. It's more or less an internet conspiracy theory. There's no serious move whatsoever to replace the US Dollar, and Bitcoin or crypto in general never got to more than 1% of the total value of US dollars out there, and plus it's had its problems. So I don't think de-dollarization is going to happen in my lifetime.
Q: Why is Warren Buffett (BRK/B) unloading shares in Apple (APPL) and Bank of America (BAC)?
A: He thinks the whole market is expensive, and I would agree with him. He likes having a lot of cash during recessions or during major market crashes, so he can swoop in and buy whole companies. So that is the answer. He's thought the market has been expensive for years now, but that doesn't seem to stop them from making money.
Q: Should we take profit on the LEAPS in Barrick Gold (GOLD) expiring in January?
A: Yes, you should take the profit here. You make maybe 20% or 30% and then wait for the next sell-off, and then go back into (GOLD), but add an extra year to the expiration date. Do a 2026 instead of a 2025, because we're getting kind of short on time on all the January 2025 expirations. So that would be the smart thing to do, is to take profits on all your January 25 LEAPS, raise cash, and go back in into an 18-month LEAP on the next sell-off, and I will be reminding you to do exactly that when it happens.
Q: Should we wait until after the election to invest?
A: No. The market will start running before the election, especially if the election outcome becomes more and more certain. So that kind of sets up an October bottom for the market, and maybe even a September one—who knows? We will just have to see how the polls go, even though they are usually wrong. So that's what I would do on that.
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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
August 7, 2024
Fiat Lux
Featured Trade:
(TECH OUTAGE BITES)
(DAL), (MSFT), (CRWD)
Mad Hedge Technology Letter
March 8, 2024
Fiat Lux
Featured Trade:
(APPLE NEEDS TO UP ITS GAME)
(CRWD), (PANW)
It’s no longer Apple’s world.
Times have changed.
Management at Apple including CEO Tim Cook need to get with the times or else they risk being left behind.
Large existential risks aren’t only felt by Apple, most of the tech sector risk being left behind by the AI bandwagon.
If there was any inkling that I might be wrong about this then explain the latest data point about Apple’s lackluster sales in Asia.
Sales of Apple’s iPhone plunged in China by 24% year over year as Apple faced stiff competition from local smartphone firms like Huawei, Oppo, Vivo and Xiaomi.
Apple came under particular pressure from Chinese tech giant Huawei, whose consumer business is experiencing a resurgence in China after the launch of its Mate 60 smartphone.
Several rival Chinese smartphone companies also logged drops in their unit sales in the six-week period, but the declines were less pronounced than that of Apple.
The best-performing smartphone brands for the first six weeks were Huawei and its spinoff Honor, which branched out of the tech giant in 2020 as a result of U.S. sanctions.
Huawei smartphone unit shipments rose 64% year over year in the first six weeks of 2024.
Apple is facing a backbreaking environment in its cash cow China.
Local Chinese smartphone makers have caught up and make a pretty nice version of a smartphone comparable to the iPhone including a reinvigorated Huawei.
Customers flocked to iPhones, once Huawei’s phones lost their competitiveness due to the lack of 5G and no cutting-edge semiconductors.
Losing the China market is a big blow to Apple’s management as deglobalization picks up speed.
Even more worrying is why isn’t Apple hopping on the AI bandwagon?
They risk being left behind as the “iPhone company.”
It’s not emerging as one of the largest risk to Apple’s strategic future.
They did well with last generation’s technology, but they look gradually misplaced for the next round of technological modernizations.
I haven’t heard much of what they are doing in AI, and they had to fire their team that worked on the Apple car.
No doubt that Apple shareholders are starting to question what management has up its sleeves and before it was ok to return to the well with iPhone sales growing.
However, we have clearly entered a paradigm shift where the iPhone well has run dry and shareholders are expecting more.
If Tim Cook can’t figure it out then large investors like Warren Buffett could start to unload shares in batches which could demoralize the stock in the short-term.
For now, I do believe Apple is worth a trade to the upside because it’s so beaten down.
It shocking that we have gotten to this point with Apple, but tech companies are all at risk of extinction unless they evolve with the times.
For the first time in a long time, it’s right to question whether to hold Apple shares for the long haul.
Mad Hedge Technology Letter
March 6, 2024
Fiat Lux
Featured Trade:
(CYBER SECURITY IS STILL GROWTH)
(CRWD), (PANW)
Since starting the company, CrowdStrike (CRWD) has brought cybersecurity to the cloud.
They have pioneered AI for cybersecurity, and quickly become the de-facto security platform that disrupts, displaces, and consolidates other vendors.
This stock has been really good to Mad Hedge Tech Letter followers, and we recently took profits in a successful in-the-money bull call spread in CRWD.
Money will flow into enterprise protection as the stakes get higher with hackers looking to strike gold.
When talking about the threat landscape, CrowdStrike pioneered commercial threat intelligence that governments and companies of all sizes depend on.
It's CrowdStrike that delivers billions of new threat detections every month to stop breaches.
It's CrowdStrike that is the search bar of security, where security analysts complete millions of queries daily.
What took hackers hours, has shrunk to minutes and seconds. Attack speeds will only accelerate.
The cloud is increasingly under attack and CRWD exists to protect businesses against these attacks.
CRWD tracked a 75% year-over-year increase in cloud intrusion attempts.
The cloud is today's battleground for cyberattacks.
Generative AI is an adversary force multiplier and the last few years have seen the onboarding of this new force multiplier.
Gen AI puts advanced cybercrime tradecraft in the hands of attackers of all skill levels. Gen AI will dramatically grow the adversary population.
CRWD collects trillions of threat signals daily, creating one of the world's largest and fastest-growing cyberthreat datasets.
From day one, CRWD has been an AI company, training the industry's most effective and accurate AI models to prevent attacks based on data mode.
Embedded in the Falcon platform is a virtuous data cycle where CRWD collects cybersecurity's very best threat intelligence data, builds, and trains robust preventative and generative models, and protects CRWD customers with community immunity.
In today's environment of heightened cyberattacks, the latest SEC breach disclosure regulation only increases the pressure on companies and their boards.
One of the best of breeds and its superior performance are a critical reason to why the share price has moved up in the last few years.
Let’s look at the numbers behind the business model.
Moving to the P&L, total revenue grew 33% year over year to reach $845.3 million.
Subscription revenue grew 33% over Q4 of last year to reach $795.9 million. Professional services revenue was $49.4 million, representing 26% year-over-year growth.
Subscription customers were five or more, six or more, and seven or more modules growing to 64%, 43%, and 27% of subscription customers, respectively.
CRWD is landing bigger with new customers on average adopting 4.9 modules out of the gate, an increase over last year. CRWD’s gross retention rate remained high at 98%.
CRWD is knocking it out of the park.
It’s hard to maintain growth company status in the head of major macro headwinds.
Many enterprise businesses are pulling back spend, but cybersecurity hasn’t been curtailed as of yet.
Tech companies are becoming more efficient and cybercrime hasn’t felt the pain of leaner software budgets.
This bodes well for the future of cyber security and the main players in the industry.
Mad Hedge Technology Letter
January 17, 2024
Fiat Lux
Featured Trade:
(GROW WITH CROWDSTRIKE)
(CRWD), (NVDA)
