Historically stocks that had a good run then tended to underperform:
> […] Since 1926, the median ten-year return on individual U.S. stocks relative to the broad equity market is –7.9%, underperforming by 0.82% per year. For stocks that have been among the top 20% performers over the previous five years, the median ten-year market-adjusted return falls to –17.8%, underperforming by 1.94% per year. Since the end of World War II, the median ten-year market-adjusted return of recent winners has been negative for 93% of the time. The case for diversifying concentrated positions in individual stocks, particularly in recent market winners, is even stronger than most investors realize.
> Historically stocks that had a good run then tended to underperform
This is more of a mathematical axiom than a financial effect, because you're defining "underperform/overperform" with respect to an average that contains them.
I am invested in some of the companies that are downstream of the capital expenditures of Big Tech (e.g., COHR), so I have nothing to complain about.
I am really struggling to see what's the investment thesis behind Google valuation increasing 2x in response to AI, though. Assuming no magical AGI singularity, by the end of the day, they're still selling the same services, but the services have gotten more expensive for them to provide. Everyone was already using Google Search, but now, provisioning AI summaries on top of requires more compute. Everyone was already using Google Docs and Meet, but now, AI features cost Google more. Etc, etc.
The only place where they stand to make money is selling AI compute to enterprises. But with the current supply-chain challenges, the margins there are probably getting thinner.
`I am really struggling to see what's the investment thesis behind Google valuation increasing 2x in response to AI`
Google is basically Nvdia (TPUs), Tesla (Waymo Self-Driving), Hyperscaler, Netflix (YouTube) and a massive VC (Anthropic, Databricks, SpaceX, etc.) all rolled into one.
Their valuation isn't really a 2x'ing so much as a reversion from halving.
It's frequently said that vonglomerates usually carry through as their valuation, the multiplier of the lowest holding. If that's the case, Alphabet is worth more broken up. Similarly that makes their current valuation (and nay any valuation) theoretically too low.
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.
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.
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.
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.
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.
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 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.
I think page 4 is a little disingenuous, I'm pretty sure you could pick lots of windows and show the mag 7 deviating negatively, but then later trends positive. I believe this whole thing will pop, but I'm not quite convinced it is just yet.
Page 8 for Oracle's free cash flow trending negative is really quite impactful. The Bloomberg AI bubble diagram [1] shows how this could really blow up. If Oracle falls they could take the whole market with them. We're just waiting on the mag 7 or any closely linked companies to fail to raise investment.
Page 16 really outlines how insane these evaluations are. I think most countries see it, hence aggressive selloffs of US bonds [2]. But everybody is just too insanely heavily exposed to it all now, it's going to wipe out everything. It's going to be a very awful time when heavily debt strapped countries can't issue debt anymore.
I think what we're going to see is some insane moves to keep these companies afloat longer in some desperate attempt to delay the pop, which will just make a bigger bubble. I could see Nvidia for example issuing bonds in excess of $100bn soon if the market has appetite for it [3].
What has been the best way to determine return on the AI specific capex for hyperscalers?
I would naively expect Microsoft’s to be the highest since they are probably mainly just selling access to their capex through cloud since they aren’t seriously pursuing frontier AI, I’d imagine Google to be in the middle (selling TPUs, general cloud GPUs, Gemini, revenue lift on ads from better AI) but also spending heavily on infra to compete with OAI/ Anthropic, and then Meta to be on the low end since they are likely getting serious revenue lift from AI but not monetizing their models by API.
as soon as you start calling a group of stock tickers the “magnificent 7” they’re destined to underperform, as that’s a feelings based assessment and many investors will continue to buy the feelings long past the value being fair.
“Do they make money? I don’t know but I know they’re magnificent!”
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.
Yes but the Mag 7 is the main focus, suddenly switching to a different set of companies is comparing apples to oranges. That slide belongs in an annex.
> The once high-flying "Magnificent Seven" are looking more like the Dreadful Seven.
> The why: Wall Street is growing increasingly impatient with Big Tech's astronomical capital expenditures on artificial intelligence, projected to balloon 70% to exceed $700 billion this year.
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.
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
This is probably a hot take and I am by no means a financial expert and this is probably quite wrong. I personally think that attempting to value these companies using the same methodology as the history of all American companies is fundamentally wrong. Sure, some mom and pop small local regional business that overperformed is probably more likely to underperform. But when it comes to big tech companies, these companies are operating a data and capital flywheel that doesn't easily just slow down. I mean, you look at the history of these computer tech companies, especially software companies. They really haven't slowed down. Like, look at Microsoft. It's just been growing from the very beginning, pretty much.
This seems healthy to me. A market where returns are less dependent on seven mega-cap names is probably more stable, not less. If earnings growth broadens out and capital starts flowing back toward quality and free cash flow outside the obvious AI winners, that should reduce concentration risk and make the whole market less fragile.
they are building new narritaves with made up BS name like mag 7 this, that. it used to be faang BS but they updated so lower IQ folks gets into new narratives. Marketing dep. and fin. engineering working together. Another older one was ZIRP that, ZIRP this and you see lower and avg. IQ folks talk about it along with lots of bots. ZIRP bots stopped so MAG whatever bots can take over.
Waiting for next game, bets are open, any new names? O A S I S? upcoming IPOs and new names needed so they can exit scam
You can tell these guys know nothing about LLMs or how they’re provided. I love how they show OpenRouter’s graph of token usage as if it speaks for usage across the board. DeepSeek looks like the king because people who use Anthropic and OpenAI use them on either a direct basis or AWS Bedrock …
And the bar chart for token costs, really? As if that’s information? Their sources are the API docs ffs. If they had at least modeled something to estimate token costs that would be interesting, but showing the public prices and calling it research is dumb.
Apollo Group has $1T assets under management, I believe them over most folks on HN. Their argument that the Mag 7 is burning up all of their free cash flow is factually accurate, as the returns are not materializing for the investments being made (ie underperformance).
One is not spending anything out of the ordinary up until this point in comparison to their competition. But the Apple Silicon design group might start spending some money on something practical, something that might begin the typical Apple long-range process of replacing two or three existing companies within their current supply chain, but that’s nothing new over the last 25 years.
It is a bit unfair to lump Apple in with everyone else in the Mag7, as their strategy is arguable reasonable and prudent for the current position of the hype circle. Apple Silicon was a spectacular decision and investment. Everyone else has lost their damn mind.
Not based on the evidence of how they allocate capital. Meta wasted $80B on the Metaverse, for example. Apollo allocates capital as their day job. Mag7 allocates by vibes.
I have an opinion based on the data, yours may differ. Favorite this thread for when the music stops. It has before (1999-2000, 2007-2008), it will again.
I'm objecting to your categorization of the job of running one of the Mag7s as something other than "capital allocation". The CEO of Meta or Amazon or any of these other companies allocates capital all day long. They do it differently than an asset manager like Apollo for sure, and sometimes make worse decisions. But it's in the same category.
> Apollo Group has $1T assets under management, I believe them over most folks on HN
If only that's a measure of if they know how to time the stock market. The real measure is how much they earn not if their sales or marketing department manages to get more customers.
Historically stocks that had a good run then tended to underperform:
> […] Since 1926, the median ten-year return on individual U.S. stocks relative to the broad equity market is –7.9%, underperforming by 0.82% per year. For stocks that have been among the top 20% performers over the previous five years, the median ten-year market-adjusted return falls to –17.8%, underperforming by 1.94% per year. Since the end of World War II, the median ten-year market-adjusted return of recent winners has been negative for 93% of the time. The case for diversifying concentrated positions in individual stocks, particularly in recent market winners, is even stronger than most investors realize.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4541122
> Historically stocks that had a good run then tended to underperform
This is more of a mathematical axiom than a financial effect, because you're defining "underperform/overperform" with respect to an average that contains them.
I mean these stocks have been performers for decades. If you posted this 10 years ago you'd look really wrong.
Yes, but when their run ends they tend to underperform.
Every time.
If a stock market observation has no predictive power, then it's worthless.
I look forward to your weather report too: "It's always sunny outside until one day it starts raining. Every time."
ye, the stock market isn't magic, it's just a collection of what people think. and people can be very wrong in a big way.
Buddy I think you missed the joke.
Off topic, but I love your username.
hey he hacked my computer his user has a home folder inside of /dev
Many people who replied to you seem to have missed your joke. I appreciated it.
Once you lose, you have lost. Ok, but how does that help us predict when something will lose?
Seems somewhat tautological.
“When the stocks don’t go up they don’t match the market which generally goes up”
I am invested in some of the companies that are downstream of the capital expenditures of Big Tech (e.g., COHR), so I have nothing to complain about.
I am really struggling to see what's the investment thesis behind Google valuation increasing 2x in response to AI, though. Assuming no magical AGI singularity, by the end of the day, they're still selling the same services, but the services have gotten more expensive for them to provide. Everyone was already using Google Search, but now, provisioning AI summaries on top of requires more compute. Everyone was already using Google Docs and Meet, but now, AI features cost Google more. Etc, etc.
The only place where they stand to make money is selling AI compute to enterprises. But with the current supply-chain challenges, the margins there are probably getting thinner.
`I am really struggling to see what's the investment thesis behind Google valuation increasing 2x in response to AI`
Google is basically Nvdia (TPUs), Tesla (Waymo Self-Driving), Hyperscaler, Netflix (YouTube) and a massive VC (Anthropic, Databricks, SpaceX, etc.) all rolled into one.
Their valuation isn't really a 2x'ing so much as a reversion from halving.
It's frequently said that vonglomerates usually carry through as their valuation, the multiplier of the lowest holding. If that's the case, Alphabet is worth more broken up. Similarly that makes their current valuation (and nay any valuation) theoretically too low.
Google is a money printing machine, and their Q1 revenue and profit were up significantly vs last year.
The market runs on memes, hype and fraud. Fundamentals haven’t mattered for a long time.
I guess Google’s Q1 earnings of $62 billion were just hype.
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.
Why is Apple included though?
Share repurchases also aren't great I guess?
Markets generally love buybacks.
The market is both happy that Apple didn’t spend all its cash on AI build-out, but also at the same time angry that Apple is “missing AI”.
Not to mention the grumblings that Apple has peaked.
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).
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.
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.
This was my reaction, as well. It's almost entirely technical analysis mumbo jumbo.
Actually it's almost 2 months /s
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.
Nothing wrong, necessarily, but Tesla doesn’t belong to that seven they never have.
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.
Always a few months away. The nuclear fusion of products portfolios.
Don't forget that no auto manufacturer in the world, and certainly not in China, is poised to capture any of that TAM.
That free cash flow drop at AMZN is surprising.
Some of this might be mechanical since so much money went into the chip companies.
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 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.
6 months ago when Mag7 was overperforming everyone was worried about it being too high a fraction of the S&P500.
Exactly. As usual people are bullish at the top and bearish at the bottom.
I think page 4 is a little disingenuous, I'm pretty sure you could pick lots of windows and show the mag 7 deviating negatively, but then later trends positive. I believe this whole thing will pop, but I'm not quite convinced it is just yet.
Page 8 for Oracle's free cash flow trending negative is really quite impactful. The Bloomberg AI bubble diagram [1] shows how this could really blow up. If Oracle falls they could take the whole market with them. We're just waiting on the mag 7 or any closely linked companies to fail to raise investment.
Page 16 really outlines how insane these evaluations are. I think most countries see it, hence aggressive selloffs of US bonds [2]. But everybody is just too insanely heavily exposed to it all now, it's going to wipe out everything. It's going to be a very awful time when heavily debt strapped countries can't issue debt anymore.
I think what we're going to see is some insane moves to keep these companies afloat longer in some desperate attempt to delay the pop, which will just make a bigger bubble. I could see Nvidia for example issuing bonds in excess of $100bn soon if the market has appetite for it [3].
[1] https://archive.is/0bYLS
[2] https://sg.finance.yahoo.com/news/china-japan-uae-india-sell...
[3] https://uk.finance.yahoo.com/news/nvidia-raises-over-21-5bn-...
What has been the best way to determine return on the AI specific capex for hyperscalers?
I would naively expect Microsoft’s to be the highest since they are probably mainly just selling access to their capex through cloud since they aren’t seriously pursuing frontier AI, I’d imagine Google to be in the middle (selling TPUs, general cloud GPUs, Gemini, revenue lift on ads from better AI) but also spending heavily on infra to compete with OAI/ Anthropic, and then Meta to be on the low end since they are likely getting serious revenue lift from AI but not monetizing their models by API.
as soon as you start calling a group of stock tickers the “magnificent 7” they’re destined to underperform, as that’s a feelings based assessment and many investors will continue to buy the feelings long past the value being fair.
“Do they make money? I don’t know but I know they’re magnificent!”
OMG - ridiculous to evaluate it based on the last 3 mo.
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.
Apple is not burning its cash on buildout, which would make their graph less interesting.
the FCF slide is for hyperscalers - which excludes TSLA, NVDA
Yes but the Mag 7 is the main focus, suddenly switching to a different set of companies is comparing apples to oranges. That slide belongs in an annex.
Hyperscaler free cash flow chart is interesting, but why does it omit Apple?
This is like a straightforward Red Queens Race story, isn't it?
The dumps on memory/hardware stocks when these companies scale back purchasing is going to make Trump's shitcoins look sovereign bonds
-signed a bitter somebody that had to buy a new SD card for my camera last week.
See also:
https://finance.yahoo.com/markets/article/magnificent-7-stoc...
> The once high-flying "Magnificent Seven" are looking more like the Dreadful Seven.
> The why: Wall Street is growing increasingly impatient with Big Tech's astronomical capital expenditures on artificial intelligence, projected to balloon 70% to exceed $700 billion this year.
Planned Capex for 2026:
Amazon $200B
MS $190B
Alphabet $175B-$185B
Meta $115B-135B
Apple is nowhere to be found.
$14B (!!!)
https://finance.yahoo.com/news/apple-lazy-ai-strategy-could-...
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.
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
I guess "nothing lasts forever".
Of course. The rest 'n vest people at FAANG companies will tell you its lasts forever 6 years ago. Now they are scared for their jobs.
This is why we are seeing a correction at those companies, perks and free food going away with constant layoffs and all time low morale.
Now the party is at Nvidia. But I will tell you that that will not last forever either.
Everything reverts to the mean in the long term.
Maybe even the state of unprecedented relative peace we had enjoyed.
It is less that the Mag 7 is starting to underperform and more that a market correction is likely and coming very soon.
This is probably a hot take and I am by no means a financial expert and this is probably quite wrong. I personally think that attempting to value these companies using the same methodology as the history of all American companies is fundamentally wrong. Sure, some mom and pop small local regional business that overperformed is probably more likely to underperform. But when it comes to big tech companies, these companies are operating a data and capital flywheel that doesn't easily just slow down. I mean, you look at the history of these computer tech companies, especially software companies. They really haven't slowed down. Like, look at Microsoft. It's just been growing from the very beginning, pretty much.
This seems healthy to me. A market where returns are less dependent on seven mega-cap names is probably more stable, not less. If earnings growth broadens out and capital starts flowing back toward quality and free cash flow outside the obvious AI winners, that should reduce concentration risk and make the whole market less fragile.
they are building new narritaves with made up BS name like mag 7 this, that. it used to be faang BS but they updated so lower IQ folks gets into new narratives. Marketing dep. and fin. engineering working together. Another older one was ZIRP that, ZIRP this and you see lower and avg. IQ folks talk about it along with lots of bots. ZIRP bots stopped so MAG whatever bots can take over.
Waiting for next game, bets are open, any new names? O A S I S? upcoming IPOs and new names needed so they can exit scam
You can tell these guys know nothing about LLMs or how they’re provided. I love how they show OpenRouter’s graph of token usage as if it speaks for usage across the board. DeepSeek looks like the king because people who use Anthropic and OpenAI use them on either a direct basis or AWS Bedrock …
And the bar chart for token costs, really? As if that’s information? Their sources are the API docs ffs. If they had at least modeled something to estimate token costs that would be interesting, but showing the public prices and calling it research is dumb.
"I love how they show OpenRouter’s graph of token usage as if it speaks for usage across the board."
I'm not sure what was said during what looks like a deck of a presentation? I'm hoping it wasn't this, because that's an obvious misfire.
Apollo Group has $1T assets under management, I believe them over most folks on HN. Their argument that the Mag 7 is burning up all of their free cash flow is factually accurate, as the returns are not materializing for the investments being made (ie underperformance).
The Mag 7 spending around $700B on capex this year, expected around a trillion next year.
That's more than their combined FCF, and they're borrowing to bridge the gap.
One is not spending anything out of the ordinary up until this point in comparison to their competition. But the Apple Silicon design group might start spending some money on something practical, something that might begin the typical Apple long-range process of replacing two or three existing companies within their current supply chain, but that’s nothing new over the last 25 years.
It is a bit unfair to lump Apple in with everyone else in the Mag7, as their strategy is arguable reasonable and prudent for the current position of the hype circle. Apple Silicon was a spectacular decision and investment. Everyone else has lost their damn mind.
If we're doing money=smart, the mag 7 control almost $4T in assets and cash, so wouldn't you trust them even more?
Not based on the evidence of how they allocate capital. Meta wasted $80B on the Metaverse, for example. Apollo allocates capital as their day job. Mag7 allocates by vibes.
https://finance.yahoo.com/sectors/technology/articles/mark-z...
https://www.nytimes.com/2026/03/19/technology/mark-zuckerber... | https://archive.today/iEGAj
> Apollo allocates capital as their day job. Mag7 allocates by vibes
Lol what in the world? Is running a trillion dollar corporation anything other than allocating capital?
You can argue that Meta made a poor capital allocation decision with VR and perhaps continues to do so with AI.
I have an opinion based on the data, yours may differ. Favorite this thread for when the music stops. It has before (1999-2000, 2007-2008), it will again.
I'm objecting to your categorization of the job of running one of the Mag7s as something other than "capital allocation". The CEO of Meta or Amazon or any of these other companies allocates capital all day long. They do it differently than an asset manager like Apollo for sure, and sometimes make worse decisions. But it's in the same category.
> Apollo Group has $1T assets under management, I believe them over most folks on HN
Ah, the old _argumentum ad giletum Patagoniae_
in pecunia veritas , an old HN favorite.
> Apollo Group has $1T assets under management, I believe them over most folks on HN
If only that's a measure of if they know how to time the stock market. The real measure is how much they earn not if their sales or marketing department manages to get more customers.