Mad Hedge Technology Letter
July 3, 2024
Fiat Lux
Featured Trade:
(SHOULD I INVEST IN AI CHIPS OR AI SERVERS?)
(SMCI), (NVDA), (DELL)
The AI server market is booming and so are the AI chip markets.
I’ll talk about 2 prestigious companies right in the mix of things.
For long-term portfolios, it’s essential to not miss out on these supercharge growth companies.
I just don’t think that average investors will be able to make up the performance if they miss the boat of these 2 companies. The law of large numbers will just put you too far behind.
All the hot new money is going into AI which adds to the momentum of the share price trajectories.
Even the old money, after not being convinced by Bitcoin, is starting to come around to AI partly because most of the companies involved in AI are publicly listed companies on the New York Stock Exchange.
It makes it a lot easier when the source of exponential growth isn’t on some alternative exchange in some alternate currency in some backwater jurisdiction.
With a few clicks and moving a few dollars here and there, investors can be part of the AI future whether it be in AI chips or AI servers like the companies I am about to talk about.
What up with Nvidia?
Nvidia (NVDA) dominates an impressive 94% of the AI chip market. It’s basically a monopoly or close to it.
Revenue is rising a stunning 262% year over year.
Even more interesting, emerging growth avenues in the nascent AI market indicate that Nvidia could end up doing even better than that.
For instance, governments are also betting the ranch on AI and this stable source of revenue will highly likely grow substantially for the foreseeable future.
Nvidia's customer base is diversifying beyond the major cloud infrastructure providers that have been deploying its chips in large numbers to train and deploy AI models.
Spending on AI chips is expected to grow more than 10-fold over the next decade, generating $341 billion in revenue in 2033 compared to $23 billion last year.
Nvidia should remain the Tom Brady of AI stocks as the race to develop AI applications by companies and governments alike has created a secular growth opportunity.
What about Super Micro Computer?
Supermicro's future prospects are attached to some extent with that of Nvidia’s.
Data center operators require server rack solutions of the type that Supermicro sells to mount the processors sold by Nvidia and other chipmakers.
Revenue jumped 200% year over year and Supermicro isn't all that far behind Nvidia when it comes to how AI has supercharged its fortunes.
I expect its top line to nearly double over the next couple of years.
Demand for AI servers is expected to expand at a compound annual rate of 25% through 2029.
Supermicro is growing at a faster pace than the AI server market right now. As it turns out, its growth is faster than that of more established companies such as Dell.
How to invest?
Supermicro is cheaper than Nvidia and Nvidia’s run-up to a more than $3 trillion market valuation has got to scare some people with sticker shock.
People with a time advantage of more than a few years should invest in Super Micro, whereas investors looking for that quick sugar high should buy the dips in Nvidia.
In short, anyone under the age of 40 and many years in front of them should invest long-term in Super Micro at a market cap of $50 billion. With Nvidia, I could easily see its market cap climbing to $4 trillion soon, but a wicked pullback would mean its market cap going from $4 to $3 trillion.
Either way, these are two tech firms with great prospects in the current and future.
“Freedom is never more than one generation away from extinction. We didn't pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same.” – Said Former US President Ronald Reagan
Mad Hedge Technology Letter
July 1, 2024
Fiat Lux
Featured Trade:
(SOFTBANK BETS THE RANCH ON AI)
(SFTBY), (NVDA)
SoftBank Group raised about $1.86 billion via dollar and euro bond sales in one of the biggest foreign-currency deals by a Japanese company this year.
This is big news.
Softbank is one of the most prominent venture capitalist funds in the world and they plan on deploying the capital solely into generative artificial intelligence.
Many of these heavyweights from Asia, and the Middle East, and other billionaires around the finance world are chomping at the bit to get a piece of American AI firms.
This trend is in the early innings and won’t slow down.
It’s interesting that Softbank raised the currency in dollars and euros which is another bet on the Japanese yen strengthening and the Fed cutting rates.
The Yen has been one of the worst-performing currencies in the past few years and there is a chance this move could blow up in Softbank’s face.
The dollar is strong and has been increasingly strong lately as the Fed stays higher for longer.
However, if the dollar does get stronger, it will mean that Softbank will need to pay higher costs. Even that said, they will still dive head-first into AI.
My belief is that their CEO Masayoshi Son, who I know very well, will bet the ranch on AI considering he sold out of his Nvidia shares in 2022 and calls it the “fish that got away.”
He rues leaving hundreds of billions of dollars in profits on the table and I don’t believe he is willing to allow that to happen again.
So he will approach these new investments as an “all or nothing” all guns blazing type of strategy.
In its first non-yen debt offering since 2021, billionaire Masayoshi Son’s company priced two dollar tranches totaling $900 million and two euro tranches raising €900 million ($964 million).
It’s not only Softbank, it’s also other Japanese companies looking for ample liquidity.
SoftBank joins a bond bonanza by issuers from Asia and elsewhere including even bigger deals from fellow Japanese borrowers such as Takeda Pharmaceutical and Rakuten.
The Japanese firm this year directly invested $200 million into Tempus AI, a startup that analyzes medical data for doctors and patients to come up with better treatments. More recently, it backed Perplexity AI at a $3 billion valuation, betting on a firm that aims to use AI to compete with Alphabet’s Google search.
Longer term, SoftBank is working on a plan to deploy some $100 billion into AI-related chips in a project dubbed Izanagi, Bloomberg News reported in February.
My belief here is that Softbank and other Japanese companies are on the verge of deploying over $1 trillion of new money into generative artificial companies in America.
There is a reason why leading AI companies like Nvidia (NVDA) have surged to the skies and a lot of it is foreign money coming chasing the new hot trend.
I don’t believe this trend will stop will money from all corners of the globe from flooding the US markets chasing the few quality AI companies.
The ultimate takeaway is that the best companies connected the generative artificial intelligence are at the beginning of a huge run in share price that will extend years into the future.
Don’t fight the trend – especially the biggest ones in the world.
“The most important thing to do if you find yourself in a hole is to stop digging.” – Said American Investor Warren Buffett
Mad Hedge Technology Letter
June 28, 2024
Fiat Lux
Featured Trade:
(THE NEW AI PLAY THAT YOU MIGHT WANT TO KNOW ABOUT)
(VRT)
This new artificial intelligence stock could be a keep.
As an insider, let me fill you in on the details.
Readers need to look at a company that is literally collaborating with Nvidia to position themselves closest to Nvidia’s business model.
Aligning themselves with the hottest stock in the best sub-sector in the industry that grows the fastest isn’t a bad idea.
That’s why readers should take a peek at Vertiv (VRT) shares which has gone absolutely ballistic over the past year.
VRT is a provider of coolant distribution infrastructure for data centers.
IT cooling challenges continue escalating as new server-accelerated compute technologies, machine learning, artificial intelligence, and high-performance computing drive higher heat densities in the data center environment. Liquid cooling is rapidly emerging as the technology for efficiently handling power-dense hot spots.
These massive data centers require significantly more electricity to operate.
That offers upside to industrials, utilities, and commodities, according to the firm.
GPUs need 2-2.5x more power than CPUs, and expected power usage for US data centers under construction is equivalent to more than 50% of the power currently used by US data centers.
Here is how Vertiv aids the technological revolution:
High-Density Power and Cooling Solutions: The ever-growing processing power of AI requires robust power and cooling infrastructure.
Vertiv's data center solutions are designed to handle the intense heat generated by AI workloads, ensuring optimal performance and preventing overheating.
Technical Partnerships: Vertiv actively collaborates with leading AI chipmakers like Nvidia. These partnerships ensure their solutions are specifically tailored to meet the unique power and cooling demands of cutting-edge AI hardware.
End-to-End Expertise: Vertiv doesn't just provide individual components. They offer comprehensive solutions that manage power delivery and heat rejection from the power grid all the way to the individual chip. This holistic approach streamlines AI infrastructure deployment and optimizes performance.
Their scalable solutions can adapt to the ever-increasing power and cooling needs of AI applications.
Organic orders increased by 60% compared to the same period last year and net sales reached $6.82 billion.
Operating profit for the quarter was $203 million, while adjusted operating profit stood at $249 million, reflecting a significant year-over-year growth of 42%.
The company also began returning cash to shareholders, repurchasing approximately 9.1 million shares at an average price of $66 per share.
Its strong performance is due to robust demand, particularly in AI-driven deployments and liquid cooling technologies, positioning VRT for continued growth and operational improvement in the evolving digital infrastructure landscape.
The necessity of power usage also makes these GPUs considerably hotter, putting pressure on firms such as VRT to improve cooling systems in data centers.
VRT shares have essentially gone up in a straight line in the past 1.5 years from $12 per share to $86.
That type of return has been entirely justified.
Moving forward, I believe the stock will behave in a similar fashion as the demand for its products grows strongly.
Under no scenario do I find a way that its cooling technology will go by the wayside.
In fact, they could have such a great product that it might fuel speculation of getting acquired which would fuel an even higher share price.
I am bullish VRT.
“The best customer service is if the customer doesn't need to call you, doesn't need to talk to you. It just works.” – Said Founder and CEO of Amazon Jeff Bezos
Mad Hedge Technology Letter
June 26, 2024
Fiat Lux
Featured Trade:
(FISKER BLOWS UP)
(FSRNQ), (NVDA), (TSLA)
