The đŸ”„H.E.A.T.đŸ”„ Formula

AI Driven Insights to Spark Your Portfolio

February 05, 2025

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The H.E.A.T. Formula is a radically different way to look at investing your portfolio.

‍H- Hedges, you should always have hedges and be agnostic as to being long or short. Bonds are not a hedge

‍E-Edges, you should always look for edges. Preferably these are edges with some sort of psychological underpinning, structural edges, or some sort of barrier to entry.

‍A-Asymmetric. Everything you do, be it trades or your overall portfolio, should be designed so that heads you win a lot, tails you lose a little.

‍T-Themes. You should always be invested in the top themes. Most everything else is just noise.

Preview of Coming Attractions

I think AI is going to make traditional indexing and active management obsolete. I am putting my money where my mouth is


The investment firm is introducing eight new AI-focused funds, including offerings targeting UFO disclosure and DeepSeek's emerging AI technology.

Our Next Webinar

Uncovering Hidden Themes with AI: How DeepSeek Is Rewriting the Investment Playbook

Thu, Feb 27, 2025 2:00 PM - 3:00 PM EST

1. Bullets From DeepSeek to Disruptors: Explore how one AI breakthrough (DeepSeek) reveals cost-effective strategies and under-the-radar opportunities beyond mainstream tech giants.

2. Finding Alpha in the Noise: Learn how AI-driven data-mining cuts through market hype and identifies genuine growth catalysts—even in emerging or overlooked sectors.

3. Comparing & Contrasting Strategies: Discover how to harness AI to evaluate different investment approaches.

In the News

YouTube Videos

We will be hosting The Watchlist every Tuesday and Thursday. Jeremy Vreeland (Bullish Bears) and I will be discussing stocks we are currently watching, buying, or shorting. We will also be discussing how to structure trades for asymmetrical returns and we will take your questions.

Click below to register for the Thursday:

Tuesdays are live streamed on YouTube here:

Market Recap

If you bought Monday’s tariff related dip you were rewarded yesterday. If you sold into yesterday’s rally you are looking good this morning. I think Jefferies continues to have this right
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We see the AI developments as a positive rather than a negative. Cheaper technology would lead to more companies accessing AI which should be a long term positive. For us, it's a rotation story, with certain sectors including chipmakers and energy being under pressure and a broadening out of the equity rally.

Tariffs and trade wars, however, would result in a near term volatility which is making us a bit cautious short term. Our medium term positive view of risky assets and range bound rates remains, but we see more speed bumps on the way.

Over the last couple of weeks, Trump has announced tariffs on Colombia which were reversed in a matter of hours. This was followed by 25% tariffs on Canada and Mexico, which were subsequently delayed by a month. Trump also imposed additional 10% tariffs on China which has resulted in counter tariffs and currently negotiations are underway to agree to a deal. It is likely that Europe would be next on Trump tariff list and 10% tariffs have been suggested.

We remain of the view that eventually, tariffs will not be as bad as feared. Hence, we retain a medium term bullish view on risky assets. Tariffs are a negotiating tool, with Trump wanting favourable terms for US companies and US economy. However, the current modus operandi seems to be to impose tariffs first and negotiate later. Thus, tariff and counter tariff announcements have the potential to create near term uncertainty. Hence, we are advocating a more cautious view on risky assets short term, while retaining a medium term bullish view.

GOOGL earnings were the big event last night and they disappointed. However, they seem to view the DeepSeek developments as a positive
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"I think part of the reason we are so excited about the AI opportunity is we know we can drive extraordinary use cases because the cost of actually using it is going to keep coming down, which will make more use cases feasible and that's the opportunity space."

The big thing for me is that Google joined META and MSFT in raising it’s 2025 capex forecast
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"The majority of that is going to go towards our technical infrastructure, which includes servers and data centers."

Bottom line at some point will be monetization of all of this capex. See below for an analysis on GOOGL.

Meanwhile, this news hit
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Looks like tariff retaliation so not sure at the moment whether it’s news or noise.

GOOGL

Assuming that the tariffs and trade war are just noise, the most important development yesterday was GOOGL earnings


Sundar Pichai, chief executive of Google and its parent, Alphabet GOOGL 2.56%increase; green up pointing triangle, used the company’s fourth-quarter report Tuesday to announce plans to spend $75 billion in capital expenditures this year. That is a major jump from the $52.5 billion the internet giant spent last year and amounts to 19% of Wall Street’s projected revenue for the year. Google’s capital outlay has grown remarkably over the past decade, but has averaged less than 13% of annual revenue during that time.

A slowdown in cloud-computing sales dragged down Google’s revenue growth in its most recent quarter, sending its shares tumbling in after-hours trading.

I asked GPT if GOOGL should still be a core holding, if I should buy the dip, and the impact on other areas of the AI infrastructure



Synthesis

  1. AI Infrastructure: GOOGL’s capex surge undercuts the “hardware meltdown” narrative, suggesting data-center expansions continue—even if “DeepSeek” is more efficient. HPC usage eventually outstrips near-term fears.

  2. AI Energy: HPC expansions heavily affect power consumption, so nuclear, renewables, or grid-oriented holdings remain relevant. GOOGL’s AI push demands stable, large-scale power solutions.

  3. AI Agents: Gemini’s competition with DeepSeek or open-source might hamper short-term sentiment, but GOOGL’s integration across search, YouTube, Maps, and Android yields a formidable AI agent deployment platform.

Verdict on GOOGL:

  • Core Holding Status: Yes. The near-term slowdown doesn’t negate GOOGL’s entrenched position. If anything, the commitment to $75B capital outlay underscores a long-run vision of AI dominance.

  • Add on Dip: For long-term AI-centric investors, a 7–10% post-earnings drop can be a good entry or adding point. GOOGL’s search and large-scale user base remains a strong launching pad for future AI-driven monetization.

Final Word

Despite the cloud slowdown spooking the market, GOOGL’s multi-year AI ambitions remain intact. If HPC meltdown concerns truly materialized, GOOGL’s capital push wouldn’t be so bold. Consequently, from your vantage point—invested in AI infrastructure, AI energy, and AI agents—GOOGL stays a prime, long-term bet. A short-term revenue miss doesn’t undermine its scale, financial firepower, or strategic vantage to integrate AI across billions of users. Yes, it’s still a core holding. And yes, if your horizon extends beyond quarterly hiccups, buying on this dip can be a savvy move.

The Future?

GPT knows my portfolio, the names I am in, how much, and why. If I see an interesting research report I put it in and ask GPT if there is anything in there that I should pay attention to. Yesterday, I dropped Stifel’s daily TMT piece—one of my go-to research sources—into GPT. Within minutes, it flagged a potential swap: out of Micron (delayed near-term catalysts, stuck in a memory downcycle) and into Lumentum (direct AI data-center optical beneficiary, fresh CEO, strong near-term tailwinds). GPT then spit out the exact thesis:

Micron: Core AI memory supplier but stuck in a down memory cycle with delayed near‐term catalysts.

Lumentum: Direct AI data‐center optical beneficiary, new CEO with a track record of driving value, near‐term momentum in datacom.

Conclusion: Swapping MU for LITE targets a more immediate HPC networking upside—capitalizing on AI thematics now—while sidestepping Micron’s ongoing slump.

Is GPT “right” about this call? That’s not the main point. The point is: it’s possible to have something akin to a dedicated investment analyst—one that sees all available info, is always on call, and costs a fraction of a traditional research subscription. For $200 a month, I have an AI that can parse daily reports, weigh them against my portfolio, and feed me insights I’d otherwise spend hours—or days—digging for. That is the game changer.

Flashback to the Internet BoomI was a broker at a major Wall Street firm. Back then, if you were an individual investor who got that the internet was revolutionary but didn’t fully understand the technology—or who would ultimately win—you had to call people like me. The problem? People like me often knew only marginally more than you did, and sometimes we knew a lot less. Now imagine that entire setup becoming obsolete the moment investors realize they can ask an AI that’s read every research note, scanned every filing, and can provide custom analysis instantly.

This is the new paradigm. It’s why I keep saying: AI doesn’t just transform investing—it vaporizes the old inefficiencies. And for me, that’s worth far more than the modest monthly subscription. I’ve got a personal, hyper-informed analyst in my corner 24/7, helping me navigate each daily twist in the markets. If that’s not a revolution, I don’t know what is.

MAHA

RFK cleared committee yesterday and is likely to be confirmed.

I wanted to revisit some potential winners now that there is more certainty. I had GPT analyze a report from BTIG
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1. Overall Sentiment: “No Huge Shocks, Some Shifts”

  • RFK Jr. is controversial (particularly on vaccine issues), yet BTIG sees minimal radical disruption. They emphasize continuity in biotech (little near-term downside) and note that the White House is unlikely to allow major shake-ups.

  • MAHA (Make America Healthy Again) focus is seen as consistent with preexisting Republican talking points on value-based care and primary/preventive health.

2. Potential Winners

A. Value-Based Care & Primary Care-Oriented Names

  1. Astrana (ASTH), Privia (PRVA), HealthEquity (HQY), DocGo (DCGO), LifeMD (LFMD)

    1. These are directly called out by BTIG as well positioned under MAHA.

    2. RFK Jr. and the broader Trump administration appear committed to value-based care, telehealth, and reducing “fraud, waste, and abuse” — presumably by incentivizing prevention over expensive acute interventions.

  2. Skilled Nursing Facility Operators / Age-in-Place Services

    1. BTIG expects Medicare Advantage, age-in-place services, and senior care to benefit from policy.

    2. Lower overall budget cuts than initially feared, and a push for cost containment via better coordination (rather than slashing entire programs).

  3. Health IT & Telehealth

    1. The digital health and telemedicine space continues to see tailwinds: cost-efficient, consumer-friendly, and appealing to a Republican administration looking for free-market solutions with less regulatory friction.

  4. Medical Device Companies

    1. BTIG suggests the medtech/device sector typically has broad bipartisan support. While there could be macro-driven volatility, there are no direct headwinds from RFK Jr. or the White House.

B. Pharma/Drug Makers: Net “Mostly Neutral”

  • Inflation Reduction Act (IRA) drug pricing is here to stay; that cuts both ways.

    • Yes, it means continued drug pricing negotiation and margin pressures, but the White House’s stance is actually supportive of the IRA’s negotiating framework.

    • No mention of any radical new restrictions beyond targeted “transparency” or “tweak” reforms.

3. Potential Losers (or Higher Headline Risk)

A. PBMs (Pharmacy Benefit Managers)

  • RFK Jr. stated multiple times that PBM reform is a priority.

  • The largest vertically integrated PBMs — CVS (CVS), Cigna (CI), UnitedHealthcare (UNH), Humana (HUM) — could see:

    • Persistent headline risk (i.e., negative press, Congressional calls for reform).

    • Likely reforms: curtailing spread pricing, mandating more transparency.

  • Major structural breakups or forced divestitures are less likely, but negative optics and new rules could weigh on valuations or create pockets of volatility.

B. Vaccine Makers? Possibly Mild Risk

  • RFK Jr.’s well-known skepticism could lead to:

    • Potential attempts at stricter vaccine approval standards, more rigorous safety messaging, or changes in CDC guidance.

    • That said, big policy shifts face legal and scientific pushback, plus states control mandates.

    • The net effect could be more rhetorical/political noise rather than an immediate drop in vaccine usage or a ban on new vaccines.

    • Bottom line: watch large vaccine-reliant names (e.g., Pfizer, Moderna), but the threat likely remains modest under a White House reluctant to stir major industry disruption.

4. Other Policy Notes

  1. Medicaid Changes

    1. “Tweaks” are more likely than wholesale cuts. Congress might reduce the Federal Medical Assistance Percentage (FMAP) or tweak eligibility/work requirements.

    2. Some Medicaid-focused providers could see temporary reimbursement pressure (especially if FMAP or expansion match rates decline), but it’s not expected to be a massive shock.

  2. Drug-Price Transparency in Ads

    1. A ban on DTC advertising is unlikely (politically and legally fraught), but the push for price-disclosure requirements is growing in popularity.

  3. FDA Staff Turnover & Timelines

    1. Possible staff shake-ups under RFK Jr. might slow the FDA’s approvals, but that’s not guaranteed. Keep an eye on possible biotech timelines if large-scale departures occur.

5. Bottom Line for Investors

  • Bright Spots: Value-based care providers, telehealth platforms, primary care–focused companies, and medtech remain the clear winners in this environment. BTIG specifically calls out ASTH, PRVA, HQY, DCGO, and LFMD as poised to benefit from MAHA.

  • Watch Out:

    • PBMs (CVS, CI, UNH, HUM) could see ongoing policy drama, though likely short of forced divestitures.

    • Vaccine makers face possible rhetorical or administrative headwinds, but states’ control over mandates plus federal pushback to major disruptions limit downside.

  • Overall: The environment is largely stable for broader healthcare. Under Trump + RFK Jr., expect fewer radical shifts than many originally feared, with a preference for incremental changes (e.g., PBM transparency, modest Medicaid adjustments, vaccine “awareness” rather than sweeping mandates).

Net takeaway:

  • Winners = telehealth, primary care, value-based care (names above).

  • Losers = none glaring on a structural level, but PBMs face headline/political risk; vaccine policy uncertainties might modestly pressure vaccine manufacturers.

  • Biotech = net neutral to modestly positive (fear premium down, no major clampdown signaled).

Use this as a directional roadmap for positioning in healthcare equities given RFK Jr.’s near-certain confirmation.

GEO?

Long time readers know that GEO had been one of my favorite stocks. Sold it a bit ago just thinking that for a private prison stock it had gone about as high as it could go. Yesterday, Trump announced a prison deal with El Salvador that crushed the stock.

I asked GPT if it would buy the dip


Long-term, I’m wary. The potential for the U.S. to offload many of its most “profitable” (i.e., long-stay) inmates overseas is a legitimate threat to private prison operators’ future occupancy. If your horizon is several years, the safer path may be to watch from the sidelines or maintain a small, tactical position—rather than deploying a large chunk of capital on this dip.

EIX Short?

I’ve been short EIX for a bit based on the California wildfires and I’m up nicely on it. This morning Jeffries put out a positive piece on them, maintaining a buy. I asked GPT if I should worry about my short


Bottom Line for a Short Seller

  1. Short-Term Thesis Still Intact

    1. The report underscores a lack of near-term catalysts for EIX; ongoing wildfire headlines and fear of negligence are weighing heavily on the stock. No immediate reversal is expected.

  2. Watch Out for Legislative or Legal Surprises

    1. The biggest threat to your short likely comes from any favorable legislative reforms or a definitive legal outcome that fully absolves EIX of negligence in the Eaton Fire. Either event could spark a strong rebound.

  3. Volatility Likely to Persist

    1. Utility valuations are sensitive to macro factors (interest rates, risk appetite) and to each new development in the wildfire investigations. That can create both short squeezes and deeper sell-offs over time.

In short, there’s nothing in the report that spells an imminent end to the negative sentiment. From a near-term standpoint, the short thesis remains supported. But the analyst’s “Buy” rating is a reminder that EIX might ultimately be oversold if wildfires prove less damaging or the legislature enacts utility-friendly reforms. Keep an eye on that as a medium- to long-term risk to a continued short position.

Everything Else

I believe AI is a generational investing opportunity, but just like the internet boom, not everyone will be winners. Companies have to execute. At some point there will be a great dip buy on AMD, but so far, these guys aren’t executing
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More on PLTR earnings, which as I said yesterday, I think has implications across the AI spectrum
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“A lower cost of compute could bring down AI computing costs of sales and drive better margin on AI enabled offerings. More importantly, agentic application providers could pass savings on to enterprises via lower price, which could provide a catalyst for adoption/proliferation of agents,” wrote BofA Securities analyst Brad Sills in a recent research note.

I own NVO because of Ozempic, so this is good to see. At some point I am going to have to have GPT take a deep dive on whether RFK Jr. is a risk, last time it didn’t think so
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