More Tales From Nvidia: The Pathway to Lower Margins (Issue #208)
As I wrote yesterday, it is astonishing that the markets have, until recently, ignored the clear transformation from capital light to capital intensive occurring in most Mag 7 constituents.
Hyperscalers (“check writers”) vs. Chips (“check receivers”):
Remember the debates with some subscribers in the Comments Section in which my concerns were dismissed by glibly repeating AI responses to AI skepticism and/or by the notion and defaulting argument that the stocks are buys and holds (and investors should be unconcerned with shifting (fundamental) sands and weakening absolute and relative stock performance?
In contrast I have provided opinions of skeptics (Marcus et al) combined, especially in my first 100-150 “More Tales” with my own primary analysis (though recognizing that I am not a technology specialist). I did so because I thought there was value to a skeptical view — at a time in which such gross overweight of Mag 7 was an accepted condition in business media discussions and in portfolios writ large.
The Harder They Come, The Harder They Fall
It was lonely living outside the herd and opposing “Group Stink” but look at the share price falls since:
$META $780 to $545
$AMZN $275 to $225
$MSFT $550 to $335
$GOOGL $410 to $330
I have been writing about elevated multiples (discounting only bullish outcomes), the evisceration of free cash flow at Amazon (AMZN), Microsoft (MSFT), Google (GOOGL), et al and the mismatch between immediate revenue recognition (at Nvidia ($NVDA)) and the deferral of costs (unrealistic and lengthy depreciation schedules) incurred by the hyperscalers, but it wasn’t until a few months ago that the markets began to catch on to the jig.
And, since then its been a developing period of absolute and relative performance for Mag 7. Now that the narrative has changed and many have accepted and are concerned about the multiple head winds I related in “More Tales” and in other columns — the stocks may have finally discounted these concerns. I purchased Google, Microsoft and Amazon over the last two trading sessions.
Here’s more:
Position: Long AMZN (S), GOOGL (S), MSFT (S)
