This is an audio transcript of the Unhedged podcast episode: ‘Magnificent 7 report’
Robert Armstrong
Just in the last week or so, four of the largest companies in the world have reported quarterly earnings: Alphabet, Meta, Microsoft, Tesla.
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Today we’re thinking about the Magnificent Seven, those four, and three more. We’re rethinking the whole category.
This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong, coming to you from Unhedged world headquarters in beautiful and unseasonably warm New York City. I’m joined today by a new colleague, John Foley, who is the new Lex writer here in New York, covering technology. He’s a man of deep wisdom and wide experience. Welcome to the show, John.
John Foley
Thank you for having me, Rob.
Robert Armstrong
So I propose that we take these in descending order of size, and I talked about the ones that just reported. But let’s talk about the big daddies first. Nvidia and Apple are both $3.5tn, numbers so large I can’t even conceptualise them. Where are we at on those two?
John Foley
Those two are the easy ones to start with. This story is all about AI. It’s all about who’s spending what and who’s making money and Apple and Nvidia are the two . . . They’re probably it’s easiest to say that they’re making money out of real stuff. But these are the two that sell objects, which distinguishes them from the others that we’re gonna talk about.
Robert Armstrong
And the object with Nvidia we talk about is they’re selling the shovel in the gold rush, to use everyone’s favourite metaphor. Everybody wants to be in AI, and to be in AI you’ve gotta buy bits of kit.
John Foley
You have to buy silicon. You need datacentres with chips and the chips are made by Nvidia and all of the other companies that we’re talking about basically to varying degrees are buying stuff from Nvidia today to build these enormous datacentres.
Robert Armstrong
I find Nvidia the scariest stock for a number of reasons. It’s run up in the last five years something like 2,600 per cent. It’s like when does the gold rush end with them? You’re kind of guessing either when do people stop trying to super-invest in AI or when does somebody else have a chip that’s almost as good as an Nvidia chip so their monopoly is broken?
John Foley
That is a great question. And there are companies that are trying to build chips that are decent rivals to Nvidia. They’re just not doing very well at the moment because chips, it’s just one of those businesses that the more you do, the better you are obviously. And Nvidia, which kind of got where it is by accident, used to make these chips that were used for graphics, basically.
Robert Armstrong
Yes. It was a videogame chip company.
John Foley
It was a videogame chip company. And then they . . . Well, they didn’t even discover, other folks discovered that these chips were perfect for the kind of repetitive calculations that you need to do AI. And Nvidia is now, as you say, a $3.5tn company. But there are companies that are trying to nibble away at the edges. They’re just not making much impact.
Robert Armstrong
It’s weird that the two biggest of the Magnificent Seven, Nvidia is by far the fastest growing. You know, it’s just, you know, like sales over the last three years are like plus-60 per cent a year, 70 per cent a year. The other biggest company, Apple, same market cap, is by far the slowest growing. So it’s going along at single-digit growth levels and it’s worth $3.5tn. It’s sort of an interesting contrast.
John Foley
And if you think that Nvidia is the purest play investment in AI right now, Apple is kind of, in very broad terms, it’s like the opposite of that. I mean, it’s obviously deeply connected to the fortunes of AI through its handsets, through its smartphones, which will be AI-enabled. But at the same time, it’s not investing quite as much in these kind of very speculative large language models that Meta, Alphabet, Microsoft they’re kind of tossing tens of billions of do