Mag 7 value drops $2.3tn as ‘Great AI Reckoning’ begins: deVere CEO
Around $2.3tn has been wiped off the value of the Magnificent 7 this month, but investors should prepare for an even more profound shift: within five years, today’s Magnificent Seven could become the ‘Magnificent Three’, warns the CEO of global financial advisory giant deVere Group.
Nigel Green’s analysis comes as investors increasingly question whether the world’s largest technology companies will ultimately capture the extraordinary economic rewards of the artificial intelligence revolution or simply absorb the staggering costs of building it.
As second-quarter earnings season approaches in July, markets are preparing for what could be the most important reality check yet for the AI trade.
He says: “We’re going into a more demanding phase for the tech trade.
“The easy phase of the AI investment story is over. Investors were happy to fund the biggest infrastructure buildout in corporate history while the narrative was simple, and the share prices kept rising.
“Now they want evidence.
“The next few weeks matter enormously because second-quarter earnings season will force markets to confront the question they’ve spent the last year avoiding: where are the returns?
“Microsoft, Amazon, Alphabet and Meta are collectively spending hundreds of billions of dollars building artificial intelligence infrastructure.
“The spending isn’t slowing down. If anything, it’s accelerating. But markets have reached the stage where ambition alone is no longer enough.”
As he commented last week, Nigel Green believes that the era of the Magnificent Seven as a unified market trade is coming to an end.
“I believe the Magnificent Seven will become the Magnificent Three.
“Within five years, investors will conclude that only a handful of today’s mega-cap technology companies truly capture the economic upside of artificial intelligence. The others will remain extraordinary businesses. They will remain profitable. They will remain globally important. But markets will increasingly view them as consumers of AI infrastructure rather than the primary beneficiaries of it.”
The deVere CEO notes that while the Magnificent Seven have shed more than $2.3 trillion in value during June, semiconductor and memory companies have continued to surge as investors increasingly back the suppliers rather than the buyers of AI infrastructure.
“The market is already voting.
“The companies spending hundreds of billions on artificial intelligence have come under pressure. The firms supplying the chips, memory, computing power and infrastructure needed to build AI systems have been among the best-performing assets in the world.
“This is not an accident. It’s a recognition that owning an AI strategy and owning the economics of AI are two very different things.”
He continues: “Apple’s decision to raise prices because of soaring memory and storage costs was a hugely important moment.
“It wasn’t simply a pricing announcement. It was an acknowledgment that even the world’s most powerful technology companies may no longer control the economics of their own ecosystem.
“We’re watching an entirely new hierarchy of power emerge inside global tech.”
The deVere CEO argues that investor nerves are likely to intensify before they settle.
“Markets are being asked to finance one of the largest capital expenditure cycles in history while accepting that the ultimate winners remain uncertain. Of course, this creates volatility, anxiety, and also periodic crises of confidence.
“We should expect more of them.”
He stresses that this is not a bearish call on tech itself.
“This is not a prediction that Big Tech fails.
“Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia and Tesla remain among the greatest companies ever created.
“My argument is simply that markets will stop rewarding all of them equally.”
Nigel Green concludes: “The recent sell-off in the Magnificent Seven is not going to be the last reckoning for the AI trade.
“I expect further volatility, further fragmentation and further reassessment in the months ahead.
“The AI revolution is absolutely real. The mistake was believing that everyone participating in it would come out as an equal winner.
“They won’t.”