The Magnificent Seven have been dragging their feet, at least relative to the rest of the tech scene in the past year. And while the semiconductor basket is the new leadership group that could continue to do more of the heavy-lifting as more investors crowd into the “pick and shovels” plays that are profiting in the moment, rather than spending heavily now with no clues as to what kind of monetization there will be in the future, I do think that the tides could turn and in a sudden manner that could once again crown the Magnificent Seven names as magnificent again. Because, of late, they’re anything but magnificent, especially when it comes to the hyperscalers that are raising the bar on CapEx.
Why the Mag Seven might be ready to take the lead again as semis step back
Moving into the new year, the fear is that CapEx will go higher again for the broad basket of names, but what happens if the coming increase to the bill is already priced in? And what happens if the CapEx for next year comes in lighter than investors anticipate? Perhaps that could cause a massive reversal from the big AI money-makers (the chip plays) to the big spenders (the hyperscalers and Mag Seven).
Even if spending does keep moving higher, we can’t forget about the monetization factor, which many like to doubt, but might actually surprise everyone as the Mag Seven become more focused on finally bringing in cash flow from AI efforts, rather than just spending aggressively.
Meta Platforms‘ (NASDAQ:META | META Price Prediction) move to sell AI compute to others is just one of many moves that could bring some of the enthusiasm back to the Mag Seven as the market views them as not only big spenders, but big beneficiaries as the AI monetization wave looks to hit.
As always, though, the timing of such a wave remains a question mark, but for long-term investors, I’d say the risk/reward on much of the Mag Seven is just too good to ignore right now.
Dan Ives likes the Mag Seven setup; doesn’t seem to mind the high CapEx
I’m not the only fan of the Mag Seven at these prices. From Pershing Square’s Bill Ackman, who recently helped himself to a big stake in Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) last quarter, to the great Dan Ives, who recently departed Wedbush Securities to pursue a new venture, as well as many other hedge funds, there’s a lot of belief in the Mag Seven.
In a recent sitdown with Bloomberg, Dan Ives said that he expected the Mag Seven cohort to outperform “significantly” in the second half of the year. That’s big. And we’ve already seen glimmers of magnificence from the group in the past week, with Meta Platforms blasting off as Meta Compute was unveiled, while Apple (NASDAQ:AAPL) rocketed close to 5% on Thursday, while much of the semiconductor plays sagged lower.
I think this semi-to-Mag Seven rotation is just getting started as investors move on from just the picks and shovels. Ives justified the CapEx the Mag Seven is paying, comparing it to the construction of the Las Vegas Strip way back in the day. I think he’s right. They aren’t just “spending to spend,” as Ives put it.
The bottom line
There’s a grand plan in place from some of the smartest minds in the tech world. And I think it makes sense to stick with the group, even as they fall relatively out of favor. While I like the broad basket, Microsoft definitely stands out, even after soaring nearly 10% in a week. The firm really “owns the enterprise,” as Ives put it. He’s absolutely right.
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