Tech stock winners

Episode Summary

Executive Summary: In this episode of Unhedged, hosts Ethan Wu, Elaine Moore, and Rob Armstrong review the performance of the Magnificent Seven tech stocks from July to December 2023. They analyze each stock's returns, discuss key drivers like AI, advertising, and economic conditions, and compare the hosts' draft picks. Rob's portfolio (Amazon, Meta, Microsoft) outperformed Elaine's (Google, Nvidia, Apple) with an average return of 11.8% vs. 7.1%. The episode also covers Tesla's underperformance, the impact of AI and regulation, and offers predictions for 2024.

Main Topics: Magnificent Seven Performance Review (Priority: 5/5): Detailed analysis of each stock's total return from July 13 to end of December 2023, including Tesla's decline and the outperformance of Amazon, Meta, and Google. AI's Role in Stock Performance (Priority: 4/5): Discussion of how AI investments and products influenced stocks like Nvidia, Microsoft, and Google, and the potential for AI to disrupt Google's search business. Advertising Revenue Trends (Priority: 4/5): Examination of how advertising revenue drove Meta and Google's performance, with mentions of political campaigns and privacy changes like Google's cookie phase-out. Economic and Regulatory Factors (Priority: 3/5): Impact of economic conditions (no recession), antitrust challenges (Google, Apple), and trade tensions with China on the Magnificent Seven. Host Portfolio Competition (Priority: 3/5): Comparison of Rob and Elaine's stock picks, with Rob winning due to better diversification and avoiding Tesla. 2024 Predictions and Outlook (Priority: 4/5): Forecasts for the Magnificent Seven in 2024, including potential underperformance relative to the broader market and the role of AI monetization.

Key Arguments: Tesla's stock is overvalued and speculative, driven by retail investors and Elon Musk's actions, not fundamentals. Amazon's strong performance was partly due to luck from a robust economy, despite its economic sensitivity. Google's advertising business remains strong despite AI threats, but antitrust lawsuits pose a serious risk. Meta's cost-cutting and focus on ads, not the metaverse, have boosted investor confidence. Nvidia's AI chip dominance is secure, but competition and China export restrictions may limit growth. Apple's ecosystem lock-in and massive free cash flow make it a defensive stock, but antitrust actions could disrupt it. Microsoft's handling of OpenAI drama showed strong governance, supporting its AI leadership. The Magnificent Seven may underperform the broader market in 2024 due to high valuations and hype.

Data Points: Tesla total return: -10.6% - Worst performer among Magnificent Seven in second half of 2023 Amazon total return: 13.1% - Rob's best performer Google total return: 12.2% - Elaine's best performer Meta total return: 12.2% - Rob's second best pick Nvidia total return: 7.7% - Elaine's second best pick Microsoft total return: 10.2% - Rob's third pick Apple total return: 1.3% - Elaine's worst performer Rob's average return: 11.8% - Won the competition Elaine's average return: 7.1% - Lost the competition Magnificent Seven average return: 6.7% - Both hosts outperformed this average Nvidia 5-year return: over 1,000% - Best performing stock of 2023

Pivotal Quotes: "To give us some credit, we do know that as much as Tesla is an impressive and innovative company, its stock is a garbagey piece of speculative trash. Way overvalued." — Rob Armstrong: Explaining why Tesla was not picked and why it underperformed "The thing about Google is that although it invests quite a lot in artificial intelligence, AI could also potentially completely wreck the company. Because if you don't need to search for results, if you just use AI to come up with an answer, then you eliminate the search that powers Google's entire revenue-generating business." — Elaine Moore: Discussing the dual-edged nature of AI for Google "I think 2024 could be the year in which the S&P 493 outperforms the Magnificent 7. And this is based on no information whatsoever, except a lot of hype around the Magnificent 7, a lot of very high valuations, and a solid belief in the fact that weird things happen." — Rob Armstrong: Predicting potential underperformance of the Magnificent Seven in 2024

Implications: Investors should be cautious about the Magnificent Seven's high valuations and potential for underperformance in 2024. AI and advertising remain key drivers, but regulatory risks and economic shifts could impact returns. Diversification beyond these stocks may be prudent.