The 2023 Unhedged stock draft

Episode Summary

Executive Summary: A Financial Times and Pushkin draft-style debate pits two analysts against each other to pick the best-performing Magnificent Seven tech stocks for the rest of 2023. Elaine chooses NVIDIA, Apple, and Alphabet, arguing AI demand, cash generation, and low valuation support further upside. Rob picks Microsoft, Amazon, and Meta, favoring resilience, cloud strength, and relatively less-stretched valuations. Tesla is left unpicked as too risky and overextended.

Main Topics: NVIDIA as the AI trade leader (Priority: 5/5): Elaine argues NVIDIA should be first because AI adoption is still accelerating and NVIDIA is the essential supplier of compute and semiconductors. Rob agrees on the hype but views the stock as most vulnerable to disappointment because expectations and valuation are already extreme. Microsoft as the defensive tech pick (Priority: 5/5): Rob selects Microsoft for its business customer base, cloud resilience, modest valuation, and ability to perform well even in a slower economy. He frames it as the safest way to win in a choppy second half. Apple’s cash flow, brand power, and high-end positioning (Priority: 5/5): Elaine and Rob both like Apple for its dominant smartphone franchise, high-margin services, massive cash generation, and relatively low expectations heading into the second half. Amazon’s optionality versus investor skepticism (Priority: 4/5): Rob chooses Amazon despite value-investor hesitation, arguing that strong AWS, potential retail surprises, and management’s ability to improve profitability make it attractive after years of stagnation. Alphabet as a low-multiple AI beneficiary and search risk (Priority: 4/5): Elaine picks Alphabet because of its strong balance sheet, reasonable valuation, and improving ad market, while acknowledging AI could eventually disrupt its search business. Meta and Tesla as the weakest remaining options (Priority: 5/5): Rob takes Meta largely because he refuses Tesla, arguing Meta’s gains are mostly from cost discipline and market re-rating. Tesla is rejected by both due to valuation, margin pressure, and macro sensitivity.

Key Arguments: NVIDIA is likely to keep rising because AI spending is still early and every company wants compute power, which only NVIDIA can supply right now. Rob’s counterargument is that NVIDIA already reflects peak investor excitement, making it vulnerable to a small setback after a huge run-up. Microsoft is favored as a steady, business-facing company that can outperform if the macro environment weakens and tech stocks wobble. Apple is attractive because of its dominant high-end smartphone position, huge free cash flow, and the ability to absorb expensive experiments without endangering the core business. Amazon remains compelling because AWS is strong, Prime Day showed retail strength, and management could use the long-stagnant share price as a signal to improve profitability. Alphabet is described as a good compromise between growth and value: cheapish, financially strong, and still dominant in search despite AI risks. Meta is seen as okay but mostly priced in after a massive run-up driven by cost cutting and a shift away from metaverse excess. Tesla is viewed as the riskiest name due to lofty valuation, price cuts hurting margins, and dependence on consumer demand in an uncertain economy.

Data Points: Magnificent Seven stocks: 7 - Alphabet, Meta, Apple, Microsoft, Amazon, NVIDIA, Tesla NVIDIA second-quarter 2022 EPS: $0.51 per share - Trivia question used to determine first draft pick NVIDIA bottom-up analyst estimate for second-quarter 2023 EPS: $2.06 per share - Trivia question result showing quintupled earnings expectations NVIDIA price return for the year: almost 200% - Discussion of how far NVIDIA had run before the draft NVIDIA valuation: 60 times earnings - Rob’s argument that the stock is expensive and vulnerable Microsoft price return for the year: 40% - Used to support the case that Microsoft had run less than peers Apple cash and marketable securities: $166 billion - Used to emphasize Apple’s financial flexibility Apple free cash flow vs Meta: 5x Meta’s size - Elaine’s argument about Apple’s cash-generating strength Meta stock performance this year: 150% - Described as a huge rerating after cost-cutting and metaverse restraint Tesla stock performance this year: 123% - Rob’s reason for avoiding Tesla as a value investor Tesla earnings estimates this year: fallen - Not quantified, but cited to show price gains were valuation-driven rather than fundamentals-driven Meta metaverse spending: at least $37 billion - Used to criticize Meta’s prior capital allocation Amazon streaming spend: $7 billion - Referenced in criticism of Amazon’s entertainment investments Prime Day sales: first day was its biggest sales day ever - Used to suggest Amazon retail demand may still surprise positively

Pivotal Quotes: "I'm starting strong." — Elaine: Elaine announces her first pick, NVIDIA, to signal confidence in the AI trade "We are at peak AI hype." — Rob: Rob argues NVIDIA may be most exposed to a reversal after its huge rally "I am taking Meta, and I'm taking Meta because I'm not taking Tesla." — Rob: Rob explains his final pick, preferring Meta as the less risky alternative to Tesla

Implications: The debate suggests the 2023 winners may be the giants with pricing power, cash, and strategic optionality—not the most speculative names. Investors should watch whether AI enthusiasm broadens beyond NVIDIA and whether expensive leaders can keep outperforming if growth slows.