Big Tech roundup: Tesla, Nvidia, Apple and more

Episode Summary

Executive Summary: In a mid-year review of their July bets on the Magnificent Seven tech stocks, FT's Unhedged correspondents Rob Armstrong and Elaine Moore assess performance. Elaine's picks (NVIDIA, Google, Apple) average 6.8% gains, while Rob's picks (Microsoft, Amazon, Meta) average 8.6%, putting Rob 1.8 percentage points ahead. Key discussions center on NVIDIA's volatility despite strong earnings, Google's cloud growth punished for deceleration, Apple's regulatory and growth challenges, and the competitive dynamics among big tech in AI. The episode also touches on Tesla's 17.4% decline and closes with Rob going long the 1960 film 'The Magnificent Seven' and Elaine going long Chicago.

Main Topics: NVIDIA's Performance and Competitive Pressures (Priority: 5/5): NVIDIA is the best performer among the Magnificent Seven since July, up 11.5%, but volatility persists. Analysts debate its valuation richness and long-term threats from big tech firms building in-house, cheaper AI chips instead of NVIDIA's expensive, high-performance ones. Google's Cloud Business and Regulatory Pressure (Priority: 4/5): Google Cloud sales grew 22% but decelerated, causing the stock to sell off despite strong advertising revenue. Google faces multiple antitrust cases in the US and EU, creating uncertainty. Apple's Growth and Regulatory Issues (Priority: 4/5): Apple is the worst performer, down 2.3%, due to antitrust probes in the EU, China tensions, lack of new products, and Foxconn investigation. Despite this, analysts note its strong brand, profitability, and history of reinvention. Amazon's Advertising Growth and Antitrust Suit (Priority: 4/5): Amazon's stock rose 9.4%, driven by robust AWS and retail margins. Its fastest-growing segment is advertising ($12B/quarter), which is also the target of an FTC antitrust lawsuit. CEO Andy Jassy is seen as more regulator-friendly than Bezos. Microsoft's Steady Cloud Growth and Spending (Priority: 3/5): Microsoft's cloud division grew 24% year-over-year (accelerating). The stock rose 9.3%. Concerns include a possible $20B back-tax bill, the $75B Activision Blizzard deal, and heavy investments in OpenAI, but analysts like its enterprise focus and stability. Meta's Turnaround and Risks of New Ventures (Priority: 3/5): Meta stock recovered from $93 (Oct 2022) to $330, driven by cost cuts and an AI strategy. The risk is that Meta might revert to spending on metaverse projects (Reality Labs). CEO Zuckerberg's martial arts hobby is seen as potentially distracting. Tesla's Decline and Valuation Concerns (Priority: 3/5): Tesla plunged 17.4% amid price cuts and competition in EVs. Analyst Aswath Damodaran's valuation suggests a $185/share fair value even with optimistic robo-taxi assumptions, yet the stock trades at $225. The Elon Musk 'hero' narrative is noted.

Key Arguments: NVIDIA's earnings crushed expectations but the stock didn't move because it is already priced at a level that discounts perfection. Long-term, the big tech firms (Amazon, Google, Microsoft) may develop cheaper in-house AI chips, challenging NVIDIA's dominance in a cost-sensitive market. Google's 22% cloud growth was unfairly punished by investors because it lacked an explicit AI narrative, even though overall business is growing fast. Apple remains structurally the best company in history by profitability and barriers to entry, justifying its high valuation despite near-term growth issues. Amazon's fastest-growing advertising business ($12B/quarter) is precisely the focus of the FTC's antitrust lawsuit, creating regulatory risk. Microsoft's cloud revenue growth is accelerating (24% YoY) and it benefits from selling to large, resilient businesses, making it a 'boring' but safe bet. Meta's spectacular comeback from $93 to $330 shows the market rewards cost-cutting and a clear AI strategy, but the company may relapse into spending on the metaverse. Tesla faces predictable competition in EVs and its valuation above $185 per share is hard to justify even with robo-taxi potential.

Data Points: NVIDIA stock gain since July: +11.5% - Best performer among Magnificent Seven picks. Google Cloud sales growth: +22% - Despite this, stock sold off due to deceleration from prior quarters. Apple stock change since July: -2.3% - Worst performer among the six picked stocks. Amazon stock gain since July: +9.4% - Driven by AWS and retail performance. Amazon advertising revenue: $12 billion per quarter - Growing 25-26%, but targeted by FTC antitrust suit. Microsoft cloud revenue growth: +24% year-over-year - Accelerating from Q2, in contrast to Google's deceleration. Microsoft potential back-tax bill: $20 billion - A concern raised as a risk to the stock. Meta stock price recovery (Oct 2022 to present): From $93 to $330 - Reflects turnaround from metaverse losses to 'year of efficiency'. Tesla stock change since July: -17.4% - Price cuts and competition hurt performance. Damodaran's fair value estimate for Tesla: $185 per share - Even with optimistic robo-taxi assumptions, below current $225 price. Rob Armstrong's portfolio average gain: +8.6% - 1.8 percentage points ahead of Elaine's average of +6.8%.

Pivotal Quotes: "Everybody knows this stock is killing it. The question is: is it so richly priced that it can't possibly do anything to give the stock another leg up?" — Elaine Moore: Discussing NVIDIA's earnings beat but lack of stock price move. "Structurally, this is like the best company in the history of companies. In terms of return, profitability, barriers to entry... It is not a coincidence that Warren Buffett has like a third of his total portfolio in Apple." — Rob Armstrong: Defending Apple's long-term value despite recent weakness. "The fastest growing part of their business is the advertising part... This is like a $12 billion a quarter business... It is also precisely the business that the FTC is suing them over." — Rob Armstrong: Highlighting the regulatory risk to Amazon's most profitable growth segment.

Implications: The Magnificent Seven are diverging: NVIDIA's AI dominance faces long-term commoditization risk, while Apple and Tesla show vulnerability to regulation and competition. Cloud growth deceleration matters more than absolute revenue. For investors, diversification among these names is crucial, as single-stock outcomes hinge on regulatory decisions and AI cost dynamics.