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Mag 7 starting to underperform [pdf]

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Re: Mag 7 starting to underperform [pdf]

#141

Post by brainwad »

zerobees wrote: post #31

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 f…

GCP has wild YoY earnings growths and it has accelerated since cloud AI became a thing. AI is finally bringing Google a real second line of business besides ads.

Re: Mag 7 starting to underperform [pdf]

#142

Post by ctoth »

bwfan123 wrote: post #14

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…

> 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!

Re: Mag 7 starting to underperform [pdf]

#143

Post by symfoniq »

TravisJamison wrote: post #35
tomrod wrote: post #25

Earlier quoted context omitted.

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.

And did you see Apple’s recent price increases?

Re: Mag 7 starting to underperform [pdf]

#144

Post by mixedbit »

gruez wrote: post #108
mixedbit wrote: post #91

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…

>* 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.

You are right, but if stock repurchase does not increase market cap, dividend payment still decreases it (unless it would be fully reinvested in the same stock, which it is not, it is largely reinvested in largest caps).

Re: Mag 7 starting to underperform [pdf]

#147

Post by semanticc »

mixedbit wrote: post #91

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…

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).

Re: Mag 7 starting to underperform [pdf]

#148

Post by redwood »

mixedbit wrote: post #91

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…

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

Re: Mag 7 starting to underperform [pdf]

#150

Post by dheera »

gruez wrote: post #126
antoinealb wrote: post #114

Earlier quoted context omitted.

Shouldn't you look at the YoY change instead, to compare to stock returns ? Otherwise that's like comparing market cap, and then it is obvious that a big company tends to stay big.

>Shouldn't you look at the YoY change instead, to compare to stock returns ? This might work for the G7 case[1], but not the US vs DRC case, where it's an obvious case of sloping up vs sloping down. Granted, the case is contrived, but the original claim was that it was an "mathematical axiom", so it should still hold. [1] though even in the G7 sample, you can find counterexamples. If you switch to "relative growth" y…

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