Podcast Summary
Tech Giants' Dominance in US Stock Market: The seven tech giants, Apple, Microsoft, Google, Meta Platforms, Amazon, NVIDIA, and Tesla, make up 29% of the S&P 500 and have collectively delivered impressive returns, with an average of 105% as of November 2023, outperforming the broader market amid economic uncertainties.
The seven tech giants, referred to as the Magnificent Seven, which include Apple, Microsoft, Google (Alphabet), Meta Platforms (Facebook), Amazon, NVIDIA, and Tesla, have significantly influenced the US stock market, S&P 500, in 2023. With a combined market capitalization of over $12 trillion, these companies make up 29% of the S&P 500 and have delivered impressive returns for investors. The average return for these stocks was 105% as of November 20th, 2023, with some, like Nvidia and Meta, experiencing even more significant gains. This outsized influence has contributed to the S&P 500's overall rise of around 17% in 2023. In comparison, an equal weighted S&P 500 index has only returned 3% this year, highlighting the resilience of these tech giants amid broader economic uncertainties and fears of a recession.
The Magnificent Seven's 2023 Rebound: Despite losses in 2022, the 'Magnificent Seven' stocks, including Amazon, Meta, Nvidia, and Tesla, have rebounded strongly in 2023 due to financial strength and alignment with secular trends like AI and EVs. They remain attractive long-term investments despite high fees and risks.
The "Magnificent Seven" stocks, which include companies like Amazon, Meta, Nvidia, and Tesla, had dismal performances in 2022 with an average loss of 46%, but have bounced back strongly in 2023 due to their financial strength and ability to weather economic downturns, as well as their alignment with secular trends such as artificial intelligence and electric vehicles. These trends are expected to continue growing in the future, making these companies potentially attractive long-term investments despite their high fees and risks. Trading 212, with its wide range of investments and low fees, can help investors diversify their portfolios and take advantage of opportunities like these.
Tech Giants Invest Heavily in AI: Nvidia leads in AI chip production, Microsoft and Google focus on open AI and data, Tesla and Google invest in self-driving cars, Meta and Amazon develop AI learning models, Apple is absent but faces challenges, AI stocks grow in 2023
The seven tech giants, including Nvidia, Microsoft, Google, Tesla, Meta (Facebook), and Amazon, are heavily investing in artificial intelligence (AI) to drive growth and innovation. Nvidia leads the pack due to its expertise in producing chips for AI models. Microsoft and Google have significant stakes in open AI and possess vast data for model building. Tesla and Google invest in self-driving car technology, while Meta and Amazon are developing their own AI learning models and investing in cloud computing for AI applications. Apple, however, is noticeably absent from the AI race, with its focus on maintaining its brand and market dominance, particularly in the smartphone market, despite the iPhone facing regulatory issues in China and a high valuation. The trend towards AI is reflected in the stock market, with the AI-focused companies experiencing growth in 2023.
Apple's growing services sector and resilience make it a compelling investment: Apple's services sector drives growth and higher profitability, making it an attractive investment despite current revenue decline and falling hardware sales. Individual company performance and market conditions should be considered before making investment decisions.
Despite Apple's current revenue decline and falling hardware sales, its growing services sector and higher profitability from these services make it a compelling investment. The company's resilience and involvement in secular trends, such as AI, also contribute to its long-term growth potential. However, the market's harsh treatment of Google, which has underperformed the S&P 500 since the start of 2022, raises questions about the fairness of valuations. Ultimately, investors should approach stock decisions with caution, considering individual company performance and market conditions. In our case, we hold Apple and some of the other "Magnificent Seven" stocks, including Google and Tesla, through our diversified index funds. Our personal views on these stocks are to hold Apple for its growth opportunities and consider selling Google due to its recent underperformance. Remember, this is not financial advice, but rather a discussion between two individuals.
Apple vs Amazon: Different Valuations and Investment Strategies: Apple, with a stable business and potential growth in services, has a lower PE ratio of around 30. Amazon, with its rapidly growing business and high-margin services, has a higher PE ratio of over 70. Investor's risk tolerance and strategy determine whether to buy or hold.
While both Apple and Amazon are successful companies, their valuations, as measured by their PE ratios, differ significantly. Apple, with a PE ratio of around 30, is considered expensive but stable due to its expensive hardware and potential growth in services. Amazon, with a PE ratio of over 70, is seen as a high-risk, high-reward investment with its rapidly growing business and high-margin services like AWS. Despite the high PE ratio, some investors, including the speaker, are still bullish on Amazon due to its strong performance and growth in the past year. However, the decision to buy or hold ultimately depends on an investor's risk tolerance and investment strategy.
Selective Stock Picking based on Values, Growth, and Profitability: The speaker invests in stocks based on a company's values, growth potential, and profitability, willing to pay higher ratios for growth-focused companies like Amazon and Google.
The speaker is selective about which stocks they add to their portfolio based on their values and the company's business practices, as well as its growth potential and profitability. For instance, they are willing to pay a higher price-to-earnings ratio for Amazon due to its focus on growth and the expectation that its profits will increase significantly in the future. Similarly, they have recently bought Google stock, despite its reliance on advertising, due to its strong offerings in YouTube, data, and Google Cloud. Overall, the speaker's investment decisions are guided by a careful consideration of a company's values, growth prospects, and profitability.
Understanding the cyclical nature and secular trends of tech businesses: Google Cloud's secular trend and high demand make it a stable and robust part of Alphabet's business, while NVIDIA's high valuation and potential demand bottlenecks make it a hold. Companies are exploring self-chip production to reduce dependence on third parties.
While many tech companies, including Amazon, Apple, Meta, Microsoft, and NVIDIA, have seen growth in their respective industries, the cyclical nature of their businesses makes their future success uncertain. However, Google Cloud, which primarily serves businesses, is seen as a more stable and robust part of Alphabet's business due to its secular trend and high demand. NVIDIA, a leader in AI chip manufacturing, has had an exceptional year, but its high valuation and potential demand bottlenecks make it a hold rather than a buy for some investors. Companies are also exploring the possibility of producing their own chips to reduce dependence on third parties like NVIDIA. These factors highlight the importance of understanding the cyclical nature of tech businesses and the role of secular trends and company-specific factors in shaping their future success.
NVIDIA and Tesla: Industry Risks and Personal Uncertainties: Speakers express concerns about NVIDIA's potential displacement in the chip industry and uncertainty regarding Tesla's brand and price cuts, leading them to consider selling or holding their respective shares
NVIDIA's strong position in the industry, driven by high demand for its chips, is notable. However, there are potential long-term risks as technology giants like Tesla, Microsoft, and Apple are developing their own chips in-house, which could reduce NVIDIA's demand in the future. The speaker's personal uncertainty about the industry and NVIDIA's potential displacement is preventing them from buying its shares. Similarly, regarding Tesla, both speakers hold it in their portfolios but have reservations. The speaker intends to sell some of their Tesla holdings due to concerns about Elon Musk's impact on the company's brand and reputation, as well as Tesla's frequent price cuts. The other speaker rates Tesla as a hold but closer towards a sell, sharing concerns about Musk and price cuts.
Tesla's falling prices and potential brand damage concern investor: An investor expresses uncertainty about Tesla's future due to price cuts and potential brand damage, while viewing Microsoft as a solid hold with strong leadership.
The speaker expresses concerns about Tesla's falling prices and potential brand damage, which could impact the company's ability to maintain premium pricing. The speaker is a Tesla investor and admires Elon Musk's vision for the future, but is hesitant due to these uncertainties. Microsoft, on the other hand, is seen as a strong and well-diversified company with a brilliant CEO, but the speaker has not yet researched it enough to make a definitive buy decision. Tesla's price cuts and Musk's political stance have raised concerns about potential brand damage and decreased sales, making the speaker uncertain about the long-term outlook for the company. Despite this, the speaker remains hopeful that Musk will avoid further controversies and that Tesla will continue to be a leader in the shift towards electric vehicles. Microsoft, with its diverse offerings and strong leadership, is viewed as a solid hold, but the speaker plans to learn more about the company before making a buy decision.
Microsoft's Impressive Growth with Productivity Suite, Azure, and AI: Microsoft's growth is fueled by its productivity suite, Azure cloud service, and investment in artificial intelligence, leading to double-digit revenue growth and a reasonable PE ratio.
Microsoft, despite being a seemingly established and older tech company, continues to grow rapidly with impressive double-digit revenue growth. Microsoft's productivity suite, Azure cloud service, and investment in artificial intelligence are key drivers of this growth. The PE ratio is reasonable considering the growth rate, and the management is good. However, due to personal reasons, the speaker chooses not to add Microsoft to their portfolio. The least favorite stock among the "magnificent 7" is Meta Platforms (Facebook), with concerns over social media and potential ethical issues. The favorite stock is Microsoft, but the speaker already owns Google instead. In the upcoming episode, they will discuss the stocks they bought in December.
Amazon and Microsoft's Dominant Positions in Retail and Cloud Computing: The speaker is bullish on Amazon and Microsoft due to their dominant positions in retail and e-commerce, as well as cloud computing, respectively. Both companies offer nice secular growth trends that should boost their profits in the future.
The speaker is bullish on both Amazon and Microsoft due to their dominant positions in retail and e-commerce, as well as cloud computing, respectively. Amazon's unmatched retail division and fulfillment network make it a leader that is expected to stay dominant for decades. Microsoft, on the other hand, is relatively uncontroversial, making it an attractive investment option despite ongoing investigations into its proposed acquisition of Activision Blizzard. Both companies offer nice secular growth trends that should boost their profits in the future. The speaker also emphasizes the importance of supporting the podcast by sharing it on social media and leaving positive reviews to help it reach a wider audience.
