Big Tech roundup: Tesla, Nvidia, Apple and more

0:08Pushkin. Stock returns, not just in the US, but in the entire world in 2023 have been dominated by just seven stocks, the magnificent seven, and you have definitely heard of them. NVIDIA, Apple, Google, Microsoft, Amazon, Meta, and Tesla. In July on Unhedged, two of our correspondents took bets on their favorite three of the magnificent seven tech stocks. Now with just a few weeks left in the year, we take stock of how they're doing. This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I'm reporter Ethan Wu here in the New York studio, joined by Rob Value This Armstrong.

0:47What up? And from a hotel room in Chicago, Elaine putting the Lex into Flex more. Hi. I decided to reprise both of your nicknames from the last time we did this draft style pick, but we thought we'd do kind of a mid-year check-in. We got a lot of stocks to run through. I mean, by far the most interesting one, I think, has been NVIDIA, which was controversial last time we talked about it. Rob thought the peak was kind of in for NVIDIA. Elaine thought there was a lot more to go. And it's been the best performer among the Magnificent Seven, up 11.5 % since we last recorded in July. Elaine, how does it feel to have picked the biggest winner?

1:25It feels amazing, but I have to give Rob some credit because in a way we were both right and both wrong. NVIDIA came out with some spectacular earnings between the time that we last spoke, which is what I was expecting and what they had hinted at. But the stock has been quite volatile. Things have stalled in the last couple of months. It's up, but I thought it would be up a lot more. I thought we would be talking about it sort of steaming straight ahead of everyone. Even the CEO has come out and talked about his company being always in peril. And a lot of that is to do with China. I mean, the fact was the earnings were unbelievable.

1:59Wall Street's expectations were sky high. They crushed even those. And in the immediate aftermath, the stock didn't move. So 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? Yeah. Two things I think that we're thinking about. And one is that they've just come out with a new AI chip. So if they can keep their position ahead of everyone else in AI going, then they should do very well. But also it just depends on what happens to the sale of their chips to China and if there's more tightening. Rob, you've been writing about some of the kind of longer term competitive pressures on NVIDIA, which I think people conventionally think of as other chip makers catching up.

2:42But your point, talking to some analysts, was that it's actually not NVIDIA. It's the other big techs that could – if NVIDIA has the luxury car of processors, Amazon or Google or Microsoft could give you the SUV. This is a long-term story. It's not going to affect what happens in the rest of this year or even next year. But the point is the people who are going to be selling artificial intelligence services are largely going to be the large platform companies you just mentioned. And for them, it is going to be a cost game. Artificial intelligence consumes an incredible amount of computer power, and they are going to want to build very cost-efficient ways to deliver that product to users.

3:29Is that solution they get to eventually, that cost-effective solution, going to use NVIDIA's highly specialized, very expensive, very high-performing products, or something that is cheap and cheerful and made in-house? I think that's the long-term question. But again, that ain't happening in 2024. Yeah. Well, let's talk about one of those companies, Google, another Elaine pick that performed very well in the last couple of months, up 11.2%. Google has been kind of a cloud store recently. That seems to be the big part of earnings that investors fixate on. Not just for Google. Not just for Google.

4:08But Google took a bit of a beating on its last earnings call. It had strong but decelerating sales in the cloud division and investors took a big chunk out of the price. Yeah. Incredibly unfair. Google Cloud up 22%. All right. That's the slowest pace of growth in a couple of years. But if you have one section of your business that everyone's interested in and it's up 22%, I don't think that's fair that The stock sells off so much after that. And it's also very important that despite murmurs that we are the fast growing US economy might just be slowing down, Google's business, advertising business, economically sensitive and it punched well.

4:49It punched its weight. So it was a good pick by Elaine, I hate to say. Thank you. Thank you so much. I guess they were really punished because they couldn't really point to anything to do with AI and cloud. If they had, I think it doesn't matter if it was the smallest amount of money, then I think the stock would have gone upwards. But just because they couldn't, then it didn't matter what other numbers it was showing. And the fact the overall business is growing very fast and things are going great. I mean, the one thing we should talk about maybe a bit is the regulation. So I don't think it's going to split Alphabet or Google apart, but it's really under pressure at the moment.

5:21It's got multiple cases against it across multiple parts of its business. And that's going to get more uncomfortable as the year goes on. Well, another Elaine pick that is also facing some regulatory scrutiny is Apple, which was the worst of the six tech stocks that you guys picked, down 2.3 % in the last few months. Apple's been having a lot of problems recently. I mean, its main manufacturing partner, Foxconn, is under investigation in China now, which people think could be a form of kind of Chinese government retaliation. And it has a variety of other antitrust problems in the West, too. The EU is looking at its iMessage business.

5:53It's got issues. And I unfortunately dragged down Aileen's portfolio a little bit as a result. Ethan, whose side are you on? I feel like you're not on my side. I'm a show for Rob's portfolio. People want them to pay their taxes. That is a problem. That too. There's a problem with sales in China. That is a serious problem. There's a reason that Tim Cook is flying out to Beijing and trying to show how the company's products are still popular with consumers because there has been government action to reduce sales of iPhones, although they are still the most popular smartphones in the world. That has to count for something.

6:26Apple hasn't really come out with anything new. We've got the virtual reality headsets coming. No one's that excited about it. There's no self-driving car. It still has this incredibly popular group of products and interlocking services. It's a huge company. There's no growth, but it's still incredibly profitable and it makes a lot of cash. I think it's a sort of almost safe stock, but safe massive stock. I don't know. It might not be the biggest company in the world next year. We'll see. Structurally, this is like the best company in the history of companies in terms of return, profitability, barriers to entry.

7:02I mean, it is a monster. It is not a coincidence that Warren Buffett has like a third of his total portfolio in Apple. He's looking at the structural characteristics of this business and saying, this is one that you can't screw up. Yeah. And Apple has an incredible history of proving that it can reinvent itself across multiple product lines and that don't even have that many similarities to each other. And it's a long, long history too. And so, you know, it has the people, it has the proven history of innovation, it has the resources and the cash and it has the brand. I mean, I think like Elaine's saying, there's a lot to be excited about even if markets have been a bit dumb.

7:39I knew I'd get you back on my side, Ethan. Didn't take long. I just wanted to push back against the idea I'm shilling for Rob. But let's move on to Rob's portfolio, the best performer of which in the past few months has been Amazon, up a sprightly 9.4%. I find Amazon incredibly hard to think about because it's just like these two totally unrelated businesses that are valued on God knows what. Yeah, but both of the businesses I think are doing fine. The online retail business is growing in kind of mid to high single digits and just sort of churns along and is very good. The AWS, the cloud business, goes significantly faster than that.

8:16Did well this quarter. The business just kind of churns along. And the reason to own the stock as an investor is that you think that they have dials they can turn where they can turn their quite low margins into higher margins. The fantasy is always you get Amazon's revenue and revenue growth and you put a Walmart-like profit margin on that. Right. And all of a sudden you're making loads of money. Now, all that said, the issue that has me tossing and turning in my bed at night as I think about having picked this stock is the fact that the fastest growing part of their business is the advertising part of their business.

8:56This is charging third parties to appear in certain positions or have ads appear on Amazon's own website. And this is like a$12 billion a quarter business. It's a huge business. It's growing like 25, 26%. It's a monster. It is also precisely the business that the FTC is suing them over, saying Amazon behaves anti-competitively, that it uses its dominant position in online retail to both keep its prices high and to kind of pick winners among the people who sell on its platform. It's a serious case. I don't know how it's going to go. We've all read the complaint. I mean, all I can tell you is it's Amazon's fastest growing business and the US government has it squarely in its sights.

9:51I would say the one thing it has on its side, or it's got lots of things on its side, but one of the things it has on its side is the fact that the new CEO, Andy Jassy, is supposed to have a good or a better relationship with policymakers of Washington than Bezos did. Less combative, better sort of mending bridges, and that's going to help. It was an issue that Bezos, who I think is the greatest businessman of our era. is also the world's most annoying person. In terms of dealing with regulators, that was an important fact, and it's good that it's different now. Yeah. Fewer leather jackets, fewer sunglasses, more friends in Washington.

10:27Another of Rob's picks that's done quite well in the past few months, Microsoft up 9.3%. This is another big cloud name. 24 % year-over-year growth in this cloud division, which was accelerating from Q2. The kind of bizarre thing is, like, in terms of growth rates, it's actually about the same as Google. And also the total revenue is like pretty comparable. But accelerating versus decelerating is like seems to be what markets care about in the cloud. I pick Microsoft first. It's boring. That's how I like it. It sells to big businesses. Big businesses are better insulated against economic turbulence than small businesses.

11:01It has a cloud business that's growing well. That's all you need to know. It's just going to sit there and win me this contest. I've got some numbers that I think are less boring about Microsoft. Okay. which are the fact that it has a possible$29 billion bill for back taxes. Well, who doesn't? Who among us? $75 billion deal for Activision Blizzard that it doesn't really want to buy anymore, but it kind of has to because, you know, it's gone on so long now. Now it really wants to be involved in open AI. So that's another few. It's a few potential more billions of dollars that it's going to invest.

11:34I should say that I actually, I like this stock and I think it could be one of the biggest, maybe the biggest company on markets next year. but spending a lot of money at the moment. Little known fact, the Unhedged podcast is a shell company designed for Rob Armstrong to avoid back taxes. Little known fact. All right. Final stock in Rob's portfolio, Meta, up 7.2%. I mean, this stock, you know, it took probably the biggest beating from higher interest rates and it's had the most spectacular comeback. But if I remember correctly, no one was particularly excited about this one when we last talked about it.

12:06Look, the stock chart tells the tale. December 1, 2021,$336 stock. And then Mark Zuckerberg starts talking about the metaverse all the time. Some months later, October 1st of 22, it's a$93 stock. Where's the moment where he came out with a picture of the avatar of him with no legs? I mean, it was just like it was a value destruction carnival that Zuckerberg was running there. But to his credit, it's now the year of efficiency. The year of efficiency. He calls it. He stopped talking so much about the metaverse, the product that no one wants. He has cut costs. He's articulated an AI strategy that makes a little bit more sense.

12:52And lo and behold, the stock is$330 again. The only thing that worries me about this is that the company might take a look at this and say that it's time to start throwing money away again. That 2024 is the year of stupidity. Zuckerberg's quite busy being beaten up in his martial arts program. So he may not have enough time in his hands to come and talk about reality lags. You joke, but I think there is something to be said. I think there should be said in general about companies. A CEO with time on his hands. Yeah. A CEO who is inclined to just do stuff because they want to do stuff, that is bad news.

13:35So let him enjoy his chokeholds and his whatever else they do in mixed martial arts and let the company just continue making money. If you're going to have all the voting power, I feel like you should maybe not put yourself in harm's way in this way, is my opinion. Yeah, fair enough. All right. Putting it all together, Elaine picked NVIDIA up 11.5%, Apple down 2.2%, and Google up 11.5%. for an average of 6.8%. Rob picked Microsoft up 9.3%, Amazon up 9.4%, and Meta up 7.2 % for an average of 8.6%. Winner, winner, chicken winner. A little bit at 1.8 % points ahead of Elaine. Rob, how does it feel to have 1.8 % points higher IQ than Elaine?

14:22Man, it feels good. We're midway through, Rob. I wouldn't cry. Yeah, I'll move. It'll be much too soon. No, no. No, to be honest with you, I'm looking at meta and knowing that my fate is in the hands of that stock. So we will see. You hear that, Zuckerberg? Well, we didn't talk about Tesla, which we definitely should because it's really been the most spectacular of the tech stocks in the past few months. It's down 17.4 % and both of you very wisely avoided picking it. Dumpster fire. Yeah. Disaster. I think we're scaredy cats. It moves around. I mean, it's up 100 % this year to date, but it's just that it's off a lot.

14:58in the last few months. It's all over the place. I would say you're not giving yourself credit. I think we should have some moment of self-congratulation, the two of us. The skeptical story on Tesla has always been very consistent, and it is this. Tesla makes a very good product that other very large, very capable companies are also going to try to make, and the barriers to entry, although they're there, are going to fall eventually. There is a lot of competition in electric vehicles. And lo and behold, why were Tesla's quarterly numbers not that good? They had to lower prices. Yeah, the price cuts are never.

15:36Why companies have to lower price? Because competition is coming in. So there was some, I agree with you, highly volatile stock. I would also argue some of this was foreseeable. These days, it seems like the Tesla bulls are increasingly talking about non-car business lines at Tesla. They're like, Tesla is going to get in the battery game. It's going to get in the software game. It's going to get in the robo-taxi game. Yeah, yeah. I wouldn't put it past Musk, by the way. Yeah. The guy's done incredible stuff. Absolutely. But Aswalt Demodaran, the valuation guru over at NYU, has recently done a valuation exercise looking at what those additional business lines could be worth.

16:11And Demodaran's argument is even if you make relatively optimistic assumptions about the growth potential in, say, robo-taxis, it's hard to justify a valuation higher than$185 a share. Tesla's currently at$225. So it's still, you know, even pressing a lot of good news at a pretty optimistic valuation. There's about to be a film about Elon Musk as well, or there's a film has been put into film rights for his life story. So I just feel like the way that he has been turned into a hero helps his own stock so much. And yes, who's going to play? Wait, wait, wait, who's going to play Elon Musk? Let's think about this for a second.

16:47Who's the palest actor? That's the name of the movie, actually. The palest actor. The Elon Musk story. All right. Well, we will check back in in just a couple months when the year is over to see how both of your portfolios did. So far, Rob, 1.8 percentage points in the lead. That's not a big margin. It could be very easily flipped. These are volatile stocks. We'll have to see if Elaine's bet on Apple will pay off in the last couple weeks of the year. All right, both. We'll be back in a minute with Long Short.

17:21Welcome back. This is Long Short. that part of the show where we go long a thing that we love, short a thing that we hate. Rob, are you long or short something? I'm long something. I'm long the Magnificent Seven. Oh, yeah. But not the stocks. The 1960 movie. Ah. Fantastic movie. Cast included Ewell Brenner, Charles Bronson, Steve McQueen, and James Coburn, which means there was more badassery in that movie than there currently exists in the entire world. Everyone should watch this movie. It's awesome. It's way better than the stocks. All right, Elaine, are you short something? Oh, can I go long as well?

18:03Yes, you can. Sure, yeah. This is my first trip to Chicago, so I'm long Chicago. Great city. I think it's one of the most fun cities I've been to in the US. My hotel feels like a cruise ship. I got here at 9 p.m. on a Sunday. Everybody was buzzed across the whole of the hotel. I love it. It's also affordable. It's really affordable, yeah. It's a proper big American city that you can afford to be in. It's interesting. You live in New York. Your bar is low. I know, but try San Francisco. I live in San Francisco. Yeah, yeah. Try London. Try any of these. Chicago feels like a global city, but it's priced like the Midwest.

18:36It's awesome. It's awesome. All right. Elaine, thanks for being here. We'll have you back very soon to review your either victory or defeat to Rob Armstrong's portfolio. Looking forward to it. Thanks both for being here. and listeners will be back in your feed on Thursday with another episode of Unhedged. Catch you then.

19:18Just go to ft.com slash unhedged offer. I'm Ethan Wu. Thanks for listening.