Mad Hedge Technology Letter
January 29, 2025
Fiat Lux
Featured Trade:
(DIGITAL MIGRATION HITS THE U.K.)
(SKY), (BBC), (TIKTOK), (GOOGL)
Posts
If you thought that the cord-cutting trend is just confined to the United States – it’s not.
It’s happening at breathtaking speed throughout the world.
The biggest English language media base after the United States is also experiencing a huge step forward in digital migration.
How do know that?
Take a look at their linear flagship media company Sky.
They are drowning financially and have taken the hacksaw out to cut in large chunks.
Sky is planning to cut about 2,000 jobs in the UK in 2025, as the media group moves towards more internet-based services. They fired 1,000 people last year. BBC is also going through a similar type of change.
It is understood a significant number will be engineers, as fewer people require satellite dishes to be installed at home.
Sky currently employs about 26,000 people in the UK.
Sky has been shifting its strategy since it was bought by the US media giant Comcast for more than £30bn in 2018.
The British broadcaster wants digital revenues - which accounted for 27% of its total last year - to pass 50% by 2030.
It comes as Sky News tries to reverse a slump in audience due to the plummeting content quality of legacy media stations.
This has forced many subscribers to ditch Sky and go with higher-quality content platforms and channels.
Sky is racking up losses which total in the 100’s of millions pounds PER YEAR, and the hard question of what is the point of paying these high-profile personalities and expensive international assignments when they just drive the audience away?
The same could be said about CNN’s decision to demote media activist Jim Acosta who was unceremoniously downgraded to CNNs worst time slot yesterday.
He resigned instead announcing his resignation on air and clearly couldn’t accept a lesser role at his company.
With the losses in revenue staggering, for some reason, US media giant Comcast guaranteed to maintain the funding commitments until 2028.
Then there is the intense question of whether there will be a Sky after 2028, because at that point, who will be left watching it?
Comcast has already taken an $8.6bn write-down on its investment in Sky.
Staff at Sky News are preparing to unionize in protest against pay and working conditions.
It is understood that a group of employees at the channel have held preliminary talks with the National Union of Journalists (NUJ) about joining the group.
Attempting to unionize will cause the acceleration of firings from legacy media, but it demonstrates the extreme level of desperation at these dinosaur channels.
The future of Sky News, which is led by veteran Murdoch executive David Rhodes, is likely to be on the agenda amid ongoing budget discussions between Sky and Comcast.
Part of the massive changes the world is grappling with is how this new digital media fits into how we live everyday life.
Instead of corporate entities giving us what they think is the “truth,” media has fractured off into individuals doing their own version of media.
Much of this new media is accessed for free on platforms that only require a free signup.
Is it almost impossible for corporate media to compete with free content, especially when corporate media is one of the lowest forms of quality content available to the public?
If X.com was still a private company, then that is the best social media stock available. TikTok is a private company owned by the Chinese. YouTube is one of the platforms I am talking about, but that is part of a bigger company in Google.
Mad Hedge Technology Letter
December 11, 2024
Fiat Lux
Featured Trade:
(OPTIMISTIC FUTURE FOR GOOGLE)
(GOOGL), (AAPL)
It isn’t a surprise that the Department of Justice is going after Google (GOOGL) to divest its Chrome browser following a ruling in August that the company holds a monopoly in the search market.
I don’t believe this will tank the cash cow business of Google Search, and let’s not forget the most likely outcome is that Chrome is retained as a division of Google.
At worst, if it does get divested, the appeal process takes many years.
Although I do believe it will become harder for Google Search to track and monitor user behavior without Google Chrome, this is by no means a deal breaker.
Plenty of traffic comes from completely different operating systems like Apple (AAPL) iOS that don’t employ the Chrome browser.
In fact, spinning out its browser would result in a massive windfall because the current setup hides the aggregate value and synergies within a larger corporation.
Once Google Chrome is spun out, animal spirits could take hold, and the value could skyrocket.
Google will naturally profit from this as well.
Chrome, which Google launched in 2008, provides the search giant with data it then uses for targeting ads. The DOJ said in a filing that forcing the company to get rid of Chrome would create a more equal playing field for search.
The DOJ said that Google will be prevented from entering into exclusionary agreements with third parties like Apple and Samsung. The department also said that Google be prohibited from giving its search service preference within its other products.
Search advertising accounted for $49.4 billion in revenue, representing three-quarters of total ad sales in the most recent period.
The DOJ’s request represents the agency’s most aggressive attempt to break up a tech company since its antitrust case against Microsoft, which reached a settlement in 2001.
In August, a federal judge ruled that Google holds a monopoly in the search market.
Also, the DOJ suggested limiting or prohibiting default agreements and “other revenue-sharing arrangements related to search and search-related products.”
The most likely outcome is that Google will be legally forced to do away with certain exclusive agreements, like its deal with Apple. I also don’t believe that Google will be forced to divest from the Android operating system, and the chances of that happening are almost zero.
Even without an exclusivity agreement, most Apple users use Google Chrome because it is still the most useful search engine.
Will that be the case in the future?
With AI changing business models left and right, it is hard to say, but in the interim, it is hard to believe that a lack of exclusivity agreement will cause any meaningful change to the bottom or top line in the next few years.
Breaking up parts of Google would result in a massive windfall for shareholders, strengthen the tech ecosystem, and make Google and its spinoff entities more competitive.
However, high-up executives are wary about voluntarily dumping revenue from the mothership because it hurts negotiating leverage when agreeing on future compensation, and that is what usually standalone corporate executives care about.
I believe spinning out some of these businesses, like Waymo, Google devices, Google Maps, and YouTube, would be great for America and give an opportunity for investors to jump into great tech companies before they skyrocket.
Mad Hedge Technology Letter
December 6, 2024
Fiat Lux
Featured Trade:
(A SHORT TERM TRADE)
(UBER), (GOOGL), (TSLA), (WRD)
Uber’s (UBER) stock is almost 30% down from all-time high’s, and the stock was on a nice run from the lows of 2023 when the stock was trading around $25 per share.
There has been great optimism around the business, with revenge travel stoking a huge growth bump in the ride-sharing business.
Uber once burned through money like there was no tomorrow, but now it is a profitable business.
However, there are outsized risks just around the corner, and the stock has pulled back because the next risk might be existential.
They are running into one of the greatest innovators the world has ever seen.
Tesla (TSLA) and Elon Musk have made a lot of noise lately about self-driving robotaxis, and they do have their proprietary software with billions of driving hours of data.
Uber has nothing like this, and the more Elon Musk elbows out the competition about the self-driving technology, the more Uber’s share price sinks.
Uber is the tech company most affected if Musk successfully implements robo taxis as a main part of Tesla’s business.
By now, it is becoming quite apparent that EVs aren’t the holy grail of technology Musk is chasing after. It is merely a placeholder until he goes onto greater projects and technologies.
Sure, first, it would be rockets and space, but on Earth, Musk is after artificial intelligence through robots, and one of those applications would be self-driving automobiles.
Google’s Waymo is another long-term investors in self-driving tech that will destroy Uber’s business model as well.
Uber just said it would partner with robotaxi maker WeRide (WRD) to launch ride-hailing in Abu Dhabi. Uber said it would be the first time AVs are available on the Uber platform outside of the US and that Abu Dhabi would be the largest commercial robotaxi service outside the US and China when it launches in 2025.
Waymo (GOOGL) lately said it would expand its robotaxi service to Miami, Florida.
Waymo has previously tested vehicles in Miami, the company said, a city that provided “challenging rainy conditions” for its driverless vehicles, and Uber’s stock crashed 10% on this news itself.
Waymo said it is already providing 150,000 trips per week in Phoenix, Los Angeles, San Francisco, and Austin.
Uber still has to pay for over 160 million month active riders to get shuttled around on its app, and when they are muscled out of the technology by Google and Tesla, it is not guaranteed they will be able to license this high level of proprietary technology from these big tech stalwarts.
If you are Google or Tesla, why ever involve Uber when you could pick up their riders for pennies on the dollar after Uber bankrupts itself because of the high cost of employing human drivers?
Long term looks quite grim for Uber, and I don’t believe there is a magical elixir for the self-driving software. They are too far behind.
The one hunch I have is that over the past year, Waymo and Tesla have made the concept of the masses taking self-driving technology as a real service closer and closer.
Each day, we inch closer, and the day of full implementation will be a death knell for Uber.
However, in the short term, I do believe Uber’s stock is oversold, and it could stage a bounce back in the short to mid-term.
Any dive into the high $50 range would be a great buying opportunity for a quick trade in Uber. I wouldn’t buy and hold for the long haul, there are better options.
Mad Hedge Technology Letter
October 28, 2024
Fiat Lux
Featured Trade:
(THE FUTURE OF TECH STOCKS)
(AI), (NVDA), (XLU), (XLE), (AAPL), (GOOGL), (AMZN), (META), (MSFT)
Through the vast whole spectrum of public markets, the U.S. stock market, and specifically technology stocks, are dominating versus their peers from other countries.
Heck, even Apple, just one company from a small suburb in California, is valued at a price that is greater than the entire German economy.
Does that speak to how bad the German economy is, or does it speak to the potency of public tech companies in America?
The truth is probably a bit of both.
Then, take a second and try to absorb the fact that Apple hasn’t even integrated AI into its own products yet.
The future is bright for many tech stocks, and the rally will broaden out to non-Magnificent 7 stocks.
More granularly, the US will continue to lead by market cap share as artificial intelligence benefits expand beyond a few large tech names that have dominated the market rally over the past year to companies in various industries.
Revenue production and margin improvement will be the critical levers of expansion.
The first will come from the money pouring into AI benefiting companies outside of Big Tech. This plays out as tech companies buy AI chips from the likes of Nvidia (NVDA), and as they need more power, these AI operators are forced to spend with companies in the Utilities (XLU) and Energy (XLE) sectors.
As AI makes companies more efficient and eliminates the simplest work, eventually cutting down costs, US corporates should get a boost to profit margins.
Global equity markets, including retirement allocations to equities, are basically leveraged to Nvidia.
A non-US tech company will rise over the next decade and unseat the large tech companies currently driving the US market share, like Apple (AAPL), Nvidia, Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), and Meta (META) are almost zero.
When we look at the revenue possibilities and understand that AI will directly cut expenses by creating efficiencies, it’s hard to see tech stocks do anything but go higher in the long term.
Even then, there will be some dips, and they should absolutely be characterized as buying opportunities.
Just look at a 3-month chart of Apple, and each month has presented a dip buying opportunity on August 6th, September 16th, and October 7th.
Apple stock is up 7.5% in the past 3 months.
When everyone complains that tech stocks are too expensive, well, they will get more expensive.
As long as leverage is able to be tapped, institutions will tap it and look for that asymmetric trade to the upside.
Tesla has also proved how hard it is to bet against tech and Elon Musk.
It usually is a terrible idea.
The setup to Tesla’s earnings meant a very low bar, and Musk jumped over it to the tune of a 22% pop in Tesla stock.
Tech is clearly in a secular bull trend, and trying to get artsy to squeeze in a microdip on the short side usually has meant a loss-taking event.
Why even try?
It’s my job to tell readers to bet on tech going to the upside, especially the quality companies that accelerate revenue by harnessing the superpowers of AI.
Global Market Comments
October 17, 2024
Fiat Lux
Featured Trade:
(FRIDAY OCTOBER 25 SALT LAKE CITY UTAH STRATEGY LUNCHEON)
(THIS IS NOT YOUR FATHER’S NUCLEAR POWER PLANT)
(SMR), (MSFT), (GOOGL), (AMZN)
A 35% move-up in one day certainly gets one’s attention. The move was prompted by Microsoft’s (MSFT), Google (GOOGL), and Amazon’s (AMZN) move into the nuclear industry to supply electricity for AI data centers over the past two weeks.
Building on my early career at the Atomic Energy Commission in the 1970’s, I have been covering this company since 2012, and it has been a long and windy road. In one shot, they have solved the dozen problems that held the industry back in the 1950’s.
But thanks to Three Mile Island, Chernobyl, and Fukushima, nuclear had the kiss of death on it, making it impossible for the company to raise capital. The Company finally went public in May 2022 at $10.55 with major backing from Bill Gates, with the ticker symbol of (SMR) for “small modular reactor.”
Then, it rallied 60% when it obtained its first order. It then crashed to $1.80 in 2023 when that single order was canceled. It has doubled since September 1, when the new nuclear movement gained traction.
Nuscale’s design eliminates the risk of a meltdown by refining uranium into small pellets and then encasing them with five layers of zirconium. The heat generated is enough to boil water but not go supercritical. The cost of huge billion-dollar containment structures is eliminated by putting the plants underground.
Below, find my original 2012 research piece.
“On my recent trip to Oregon, I met with venture capital investors in NuScale Power, which is trailblazing the brave new world of “new” nuclear. Their technology has been pioneered by Dr. Jose Reyes, dean of the School of Engineering at Oregon State University in Corvallis.
This is definitely not your father’s nuclear power plant. The company has applied for design certification with the Nuclear Regulatory Commission for a mini-light water reactor with a passive cooling system rated at 45 megawatts. The idea is to site a dozen of these together, which in aggregate can generate 540 Megawatts, little more than half the size of the old 1-gigawatt monsters.
Running a dozen small reactors instead of one big one makes for vastly easier operation and maintenance, as individual units can be brought on and offline as needed. Small size also eliminates the need for gargantuan, expensive containment structures.
This power source runs at night when solar and wind plants are offline. Modular design makes mass production of these units economical. Once certification, approval, permitting, and construction are complete, we can expect to see the NuScale plants running by 2018.
After all, if something similar works in nuclear-powered submarines and aircraft carriers, why not in industrial zones on the outskirts of town? For more on NuScale’s innovative efforts, visit their website by clicking here.”
While the stock has already had a great run from the bottom up tenfold, it's probably not too late to buy. This could be another Nvidia-type situation.
My Old Jeep