Join the discussion
Write your take first — we'll ask for email only when you're ready to publish.
- Hacker News
- On slide 6, they list the Mag7 stocks (not defined in a foreword), but on slide 8 they list the free cash flow (FCF) of a somewhat different set of companies. Why not stick to the Mag7 FCF only? It muddies the waters.by patrickk
- the FCF slide is for hyperscalers - which excludes TSLA, NVDAby anonu
- True. This slide also struck me the most, but for the data it shows. Free cash flow for all the hyperscalers basically evaporated in the last couple of months, with Oracle in the minus. What does this mean?by enopod_
- Apple is not burning its cash on buildout, which would make their graph less interesting.by sroussey
- This feels like telecom "massive demand, bad returns".
If a good enough model can be swapped in every few months, the value moves away from the model and toward cheap inference. That is great for users, but not always great for returns on huge capex.
by guluarte - The only mag 7 that had a shooter chance with models is Google rn so doesn’t seem like there being good enough models will be that negative for mag 7. Might even be better since they are the providers for the inference
- 6 months ago when Mag7 was overperforming everyone was worried about it being too high a fraction of the S&P500.by gandalfgeek
- Exactly. As usual people are bullish at the top and bearish at the bottom.by andxor
- So many chart crimes, but aside from that.
Seems like we're seeing margin get eaten up by companies upstream of the buildout, and the costs have not been fully passed downstream yet. Eg most consumers still get free/cheap AI.
It'll take a few years to see what happens at scale when prices go up and purchasing behavior changes. Hardware, services etc all downstream of the buildout and supply constraints.
- The biggest fear of AI companies: that open source models will scale in such a way that renders these data centers obsolete.by neuralkoi
- Markets are obviously, rationally, not happy about the overspending.
But what gives me pause is that a some of the mag 7 (think Meta) could change their mind on AI build-out tomorrow, and 1-year from now have the same amazing free cash flow they always did.
- I don't think most people quite grasp the sheer size of the debt obligations Meta and specially Oracle have gotten into. Meta has done some clever tricks to keep it off the main books, but it IS there. If no AGI, its gonna drag them down for a decade.by 2748484848
- I tend to agree. I suspect if we look back a few years from now that there was some overspending but I still believe the risk of not investing and missing out is greater than the current historical trend of capex spend. I have not looked recently but has demand of compute started to slow down. It was just a few months ago when companies like Anthropic were throttling users because there was not enough of it.by infecto
- Nothing wrong, necessarily, but Tesla doesn’t belong to that seven they never have.by Danox
- What TSLA lacks in cashflow, they more than make-up in TAM. Make-up as in create out of thin air. We'll have self driving cars in a few months, robots, semi-trucks, etc., etc.by abirch
- Apollo should be smart enough to know that you can't draw any conclusions from 1 month of market data (especially when there was a big, relevant IPO).by mattas
- Actually it's almost 2 months /sby vb-8448
- I'm astoundingly unimpressed by the quality of this slide deck. There's no analysis except that crammed into slide titles, like it's designed to bombard a room full of analysts with so many graphs that they shut off their critical thinking. Could a freshman business student not make this? Could a freshman business student with an LLM not make something more convincing than this?
I agree with the headline, but this really feels like analysis-slop. It's only remarkable in terms of who is publicizing it.
by jackb4040 - It's more like a year of underperformance, sometimes longerby paulpauper
- Right, but they're smart enough to know how to manipulate the market short term with such "research" and then take advantage of it, all without breaking the law.by bradfa
- While I agree with other comments indicating that the headline is drawing on a small period of data, other data in the deck is pretty compelling.
Page 25 "The number of data centers in the US" gives an interesting insight as to the magnitude of the data center boom. 60% more data centers are being planned or are under construction. This might actually be underselling it in dollar amount, as I believe the average data center size under construction is larger than the average data center already constructed.
Page 27 "Cyclically adjusted P/E ratio near all-time highs" is certainly concerning and points to a near term correction.
by jnwatson - Ah yes, just what everyone needs: more data centers!by Creamsicle47
- Could outperformance of largest cap companies be partially explained by dividends paid by smaller caps? Reasoning behind this:
* Index investing raises in popularity, with index funds that automatically reinvest dividends being often preferred due to their tax efficiency.
* Large caps prefer to repurchase stocks, stock repurchases contribute fully towards a given company share price increase.
* Smaller caps still pay dividends, these dividends are then reinvested by index funds and the reinvestment is weighted by capitalization, so large caps share price benefits more from repurchases done with dividend cash paid by smaller caps. When dividend is paid, share price of a company that paid it is reduced, which further widens the performance gap between large and smaller caps.
by mixedbit - >* Large caps prefer to repurchase stocks, stock repurchases contribute fully towards a given company share price increase.
That doesn't work because indices are typically market cap weighted. A stock buyback might increase nominal stock prices, but not the market cap, otherwise it'd be a free money machine.
by gruez - That's not an effect. As both in the case of a dividedend and a stock buy back, the company's market cap drops by the amount of cash that's being distributed out, creating an identical re-buying situation in market cap-weighted index funds. Stock price itself is irrelevant for index fund rebalances (unlike for shareholder returns).by semanticc
- It is not accurate to say that reinvesting dividends offers tax efficiency. Dividends are generally taxed in year whereas capital gains are only paid when an equity is sold. I think what you're actually referring to is a slightly different phenomenon which is that index ETFs have this handy ability to rebalance funds between stocks in the index in a way that doesn't itself lead to capital gains taxes and this is a definite tax advantage of ETFs.
Anyway I just wanted to call out that Dividends are considered tax inefficient which is why stock buy backs became popular
by redwood - I like that the invisible hand of market is slapping the Mag-7 for capex which is the only way to discipline them. Investors are waking up to say: hey, you are spending all your profits on data-centers, where is the return for me ? But, it surprises me that there are vast pools of capital which we collectively call the "market" that makes these calculations, or maybe a simpler causal explanation is the missing stock repurchase bid. At some point, one of the hyperscalers (msft ?) will break from the pack and announce reductions to capex and increase stock repurchases to stem the decline.by bwfan123
- > increase stock repurchases
buy high, sell...whenever?
by ambicapter - Why is Apple included though?by ares623
- > increase stock repurchases
I just can't wait to get back to when innovation meant financialization, can you?
Building things? Real Jobs for real electricians? Real buildings? Real compute? Why would anybody want that!
by ctoth