Transcript: Big Tech round-up — Tesla, Nvidia, Apple and more

This is an audio transcript of the Unhedged podcast episode: ‘Big Tech round-up: Tesla, Nvidia, Apple and more’

Ethan Wu
Stock returns not just in the US but in the entire world in 2023 have been dominated by just seven stocks, the “magnificent seven”, and you have definitely heard of them: Nvidia, Apple, Google, Microsoft, Amazon, Meta and Tesla.

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In July on Unhedged, two of our correspondents took bets on their favourite three of the magnificent seven tech stocks. Now, with just a few weeks left in the year, we take stock of how they’re doing. This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I’m reporter Ethan Wu here in the New York studio, joined by Rob “Bag This” Armstrong.

Robert Armstrong
What up.

Ethan Wu
And from a hotel room in Chicago, Elaine “Putting the Lex into Flex” Moore.

Elaine Moore
Hi.

Ethan Wu
I decided to reprise both of your nicknames from the last time we did this draft-style pick, but we thought we’d do kind of a mid-year check-in. We got a lot of stocks to run through. I mean, by far the most interesting one I think has been Nvidia, which was controversial last time we talked about it. Rob thought the peak was kind of in for Nvidia, Elaine thought there was a lot more to go. And it’s been the best performer among the magnificent seven — up 11.5 per cent since we last recorded in July. Elaine, how does it feel to have picked the biggest winner?

Elaine Moore
It feels amazing, but I have to give Rob some credit because in a way, we were both right and both wrong. Nvidia came out with some spectacular earnings between the time that we last spoke, which is . . . 

Robert Armstrong
Unbelievable.

Elaine Moore
. . . what I was expecting and what they had hinted at. But the stock has been quite volatile. Things stalled in the last couple of months. It’s up, but I thought it would be up a lot more. I thought we would be talking, you know, about it sort of steaming straight ahead of everyone. Even the CEO has come out and talked about his company being always in peril. And a lot of that is to do with China.

Robert Armstrong
I mean, the fact was the earnings were unbelievable. Wall Street’s expectations were sky-high. They crushed even those. And in the immediate aftermath, the stock didn’t move. So everybody knows this stock is killing it. The question is, is it so richly priced that it can’t possibly do anything to give the stock another leg up?

Elaine Moore
Two things I think that we’re thinking about, and one is that they’ve just come out with a new AI chip. So if they can keep their position ahead of everyone else in AI going, then they should do very well. But also it just depends on what happens to the sale of their chips to China, and if there’s more tightening.

Ethan Wu
Rob, you’ve been writing about some of the kind of longer-term competitive pressures on Nvidia, which, you know, I think people conventionally think of as, you know, other chipmakers catching up. But your point talking to some analysts was that it’s actually not Nvidia. It’s the other big techs that could, you know, if Nvidia has the luxury car of processors, Amazon or Google or Microsoft could give you the SUV.

Robert Armstrong
This is a long-term story. It’s not gonna affect, you know, what happens in the rest of this year or even next year. But the point is, the people who are going to be selling artificial intelligence services are largely gonna be the large-platform companies you just mentioned. And for them, it is going to be a cost game. Artificial intelligence consumes an incredible amount of computer power and they are going to wanna build very cost-efficient ways to deliver that product to users. Is that solution they get to eventually, that cost-effective solution, going to use Nvidia’s highly specialised, very expensive, very high-performing products, or something that is cheap and cheerful and made in-house? I think that’s the long-term question. But again, that ain’t happening in 2024.

Ethan Wu
Yeah, well, let’s talk about one of those companies: Google another Elaine pick that performed very well in the last couple of months, up 11.2 per cent. Google has been kind of a cloud story recently. That seems to be the big part of earnings that investors fixate on. And the stock . . . 

Robert Armstrong
Not just for Google.

Ethan Wu
Not just for Google. But Google took a bit of a beating on its last earnings call. It had strong but decelerating sales in the cloud division and investors took a big chunk out of the price.

Elaine Moore
Yeah, incredibly unfair. Google Cloud up 22 per cent. All right. That’s the slowest pace of growth in a couple of years. But if you have one section of your business that everyone’s interested in, it’s up 22 per cent, I don’t think that’s fair that that stock sells off so much after that.

Robert Armstrong
And it’s also very important that despite murmurs that we are the fast-growing US economy might just be slowing down, Google’s business, advertising business, is economically sensitive and it punched well. It punched its weight so it was a good pick by Elaine, I hate to say.

Elaine Moore
Thank you. Thank you so much. (Ethan laughs) I guess they were really punished because they couldn’t really point to anything to do with AI and cloud. If they had I think it doesn’t matter if it was the smallest amount of money, then I think the stock could have gone upwards. But just because they couldn’t, then it didn’t matter what other numbers it was showing. The fact the overall business is growing very fast and things are going great. I mean, the one thing we should talk about maybe a bit is the regulation. So I don’t think it’s gonna split Alphabet or Google apart, but it’s really under pressure at the moment. It’s got multiple cases against it across multiple parts of its business, and that’s gonna get more uncomfortable as the year goes on.

Ethan Wu
Well, another Elaine pick that is also facing some regulatory scrutiny is Apple, which was the worst of the six tech stocks that you guys picked — down 2.3 per cent in the last few months. Apple’s been having a lot of problems recently. I mean, its main manufacturing partner, Foxconn, is under investigation in China now, which people think could be a form of kind of Chinese government retaliation. And it has a variety of other antitrust problems in the west too. The EU is looking at its iMessage business. It’s got issues and unfortunately drag down Elaine’s portfolio a little bit as a result.

Elaine Moore
Ethan, whose side are you on? I feel like you’re not on my side.

Ethan Wu
I’m a shill for Rob’s portfolio.

Elaine Moore
This feels very unfair. Yeah.

Robert Armstrong
People want them to pay their taxes. That is a problem.

Ethan Wu
That, too.

Elaine Moore
There’s a problem with sales in China. That is a serious problem. There’s a reason that Tim Cook is flying out to Beijing and trying to show how the company’s products are still popular with consumers because there has been government action to reduce sales of iPhones. Although they are still the most popular smartphones in the world, that has to count for something. Apple hasn’t really come out with anything new. We’ve got the virtual reality headsets coming; no one’s that excited about it. Well, no, there’s no self-driving car. It still has its incredibly popular group of products and interlocking services. It’s a huge company. There’s no growth, but it’s still incredibly profitable and it makes a lot of cash. I think it’s a sort of almost-safe stock, but safe, massive stock. I don’t know. It might not be the biggest company in the world next year. We’ll see.

Robert Armstrong
Structurally, this is like the best company in the history of companies in terms of return profitability, barriers to entry. I mean, it is a monster. It is not a coincidence that Warren Buffett has like a third of his total portfolio in Apple. You know, he’s looking at the structural characteristics of this business and saying, this is one that you can’t screw up.

Ethan Wu
Yeah. And Apple has an incredible history of proving that it can reinvent itself across multiple product lines and that don’t even have that many similarities to each other. And it’s a long, long history, too. And so, you know, it has the people, it has the proven history of innovation, it has the resources and the cash and it has the brand. I mean, I think, like Elaine’s saying, there’s a lot to be excited about, even if markets have been a bit down.

Elaine Moore
I knew I’d get you back to my side, Ethan. It didn’t take long.

Ethan Wu
I just wanted to push back against the idea I’m shilling for Rob. But let’s move on to Rob’s portfolio, the best performer of which in the past few months has been Amazon — up a sprightly 9.4 per cent. I find Amazon incredibly hard to think about because there’s just like these two totally unrelated businesses that are value on God knows what.

Robert Armstrong
Yeah, but both of the businesses I think are doing fine. The online retail business is growing in kind of mid to high single digits and just sort of churns along and is very good. The AWS, the cloud business grows significantly faster than that, did well this quarter. The business just kind of churns along. And the reason to own the stock as an investor is that you think that they have dials they can turn where they can turn their quite low margins into higher margins. The fantasy is always you get Amazon’s revenue and revenue growth and you put a Walmart-like profit margin on that. All of a sudden you’re making loads of money.

Now, all that said, the issue that has me tossing and turning in my bed at night as I think about having picked this stock is the fact that the fastest-growing part of their business is the advertising part of their business. This is charging third parties to appear in certain positions or have ads appear on Amazon’s own website. And this is like a $12bn-a-quarter business. It’s a huge business. It’s growing like 25, 26 per cent. It’s a monster. It is also precisely the business that the FTC is suing them over, saying Amazon behaves anti-competitively, that it uses its dominant position in online retail to both keep its prices high and to kind of pick winners among the people who sell on its platform. It’s a serious case. I don’t know how it’s gonna go. We’ve all read the complaint. All I can tell you is it’s Amazon’s fastest-growing business and the US government has it squarely in its sights.

Elaine Moore
I would say the one thing it has on its side — or it’s all those things on its side — but one of the things it has on its side is the fact that the new CEO, Andy Jassy, is supposed to have a good or a better relationship with policymakers of Washington than Bezos did — less combative, better at sort of mending bridges — and that’s gonna help.

Robert Armstrong
It was an issue that Bezos, who I think is the greatest businessman of our era, is also the world’s most annoying person (Ethan laughs) in terms of dealing with regulators. That was an important fact, and it’s good that it’s different now.

Ethan Wu
Yeah. Fewer leather jackets, fewer sunglasses, more friends in Washington.

Robert Armstrong
Yes. Less flying into space in a giant dildo. (Elaine and Ethan laugh)

Ethan Wu
Can we say that?

Robert Armstrong
(Laughter) I don’t know. Moving on.

Ethan Wu
Moving on. Moving swiftly on. Another of Rob’s picks that’s done quite well in the past few months — Microsoft, up 9.3 per cent. This is another big cloud name: 24 per cent year-over-year growth in its cloud division, which was accelerating from Q2. The kind of bizarre thing is like in terms of growth rates it’s actually about the same as Google and also, the total revenue is like pretty comparable. But accelerating versus decelerating is like seems to be what markets care about in the cloud division.

Robert Armstrong
I pick Microsoft first. It’s boring. That’s how I like it. It sells to big businesses. Big businesses are better insulated against economic turbulence than small businesses. It has a cloud business that’s growing well. That’s all you need to know. It’s just gonna sit there and win me this contest.

Elaine Moore
I’ve got some numbers that I think are less boring about Microsoft, which are the fact that it has a possible $29bn bill for back taxes.

Robert Armstrong
Well, who doesn’t? Who among us? (Elaine and Ethan laugh)

Elaine Moore
$75bn deal for Activision Blizzard that it doesn’t really want to buy anymore but it kind of has to because, you know, it’s gone on so long now. Now it really wants to be involved in the OpenAI. That’s another few, it’s a few potential more billions of dollars that it’s going to invest. I should say that I actually, I like the stock and I think it could be one of the biggest, maybe the biggest company on markets next year. But spending a lot of money at the moment.

Ethan Wu
Little known fact: the Unhedged podcast is a shell company designed for Rob Armstrong to avoid back taxes. (Rob and Elaine laugh) Little known fact. All right. Final stock in Rob’s portfolio: Meta, up 7.2 per cent. I mean, this stock, you know, it took probably the biggest beating from higher interest rates and it’s had the most spectacular comeback. But if I remember correctly, no one was particularly excited about this one when we last talked about it.

Robert Armstrong
Look, the stock chart tells the tale. December 1 2021, $336 stock. And then Mark Zuckerberg starts talking about the metaverse all the time. Some months later, October 1st of ’22, it’s a $93 stock.

Elaine Moore
Where’s the moment where he came out with a picture of the avatar of him with no legs?

Robert Armstrong
Oh, God. I mean, it was just like, it was a value-destruction carnival that Zuckerberg was running there. But to his credit, it’s now the year of efficiency . . . 

Ethan Wu
Year of efficiency.

Robert Armstrong
. . . he calls it. He’s stopped talking so much about the metaverse, the product that no one wants. He has cut costs. He’s articulated a AI strategy that makes a little bit more sense. And lo and behold, the stock is $330 again. The only thing that worries me about this is that the company might take a look at this and say that it’s time to start throwing money away again, that 2024 is the year of stupidity. (Ethan laughs)

Elaine Moore
Zuckerberg’s quite busy being beaten up in his martial arts programme so he may not have enough time on his hands to come and talk about Reality Labs.

Robert Armstrong
You joke but I think there is something to be said.

Elaine Moore
That’s big problem.

Robert Armstrong
I think it, there should be said in general about companies: a CEO with time on his hands, a CEO who is inclined to just do stuff because they want to do stuff — that is bad news. So let him enjoy his chokeholds and his whatever else they do in mixed martial arts and let the company just continue making money.

Elaine Moore
But if you’re gonna have all the voting power, I feel like you should maybe not put yourself in harm’s way in this way, is my opinion.

Robert Armstrong
Yeah, fair enough.

Ethan Wu
All right. Putting it all together, Elaine picked Nvidia, up 11.5 per cent; Apple, down 2.2 per cent and Google, up 11.2 per cent for an average of 6.8 per cent. Rob picked Microsoft, up 9.3; Amazon, up 9.4 and Meta, up 7.2 for an average of 8.6 per cent.

Robert Armstrong
Winner, winner, chicken dinner. Woo!

Ethan Wu
A little bit at 1.8 percentage points ahead of Elaine. Rob, how does it feel to have 1.8 percentage points higher IQ than Elaine?

Robert Armstrong
Man, it feels good. (Ethan laughs)

Elaine Moore
We’re midway through, Rob. I wouldn’t crow. It would be much too soon.

Robert Armstrong
Yeah, no. To be honest with you . . . 

Elaine Moore
Keep a look on those Meta numbers.

Robert Armstrong
I’m looking at Meta and knowing that my fate is in the hands of that stock. So we will see.

Ethan Wu
You hear that, Zuckerberg? Well, we didn’t talk about Tesla, which we definitely should, because it’s really been the most spectacular of the tech stocks in the past few months. It’s down at 17.4 per cent and the both of you very wisely avoided picking it.

Robert Armstrong
Dumpster fire. Disaster.

Elaine Moore
I think we’re scaredy cats. It moves around. So, I mean, it’s up 100 per cent this year to date, but it’s just that it’s off a lot in the last few months. It’s all over the place.

Robert Armstrong
I would say you’re not giving yourself credit. I think we should have some moment of self-congratulation, the two of us. The sceptical story on Tesla has always been very consistent and it is this: Tesla makes a very good product that other very large, very capable companies are also going to try to make. And the barriers to entry, although they’re there, are going to fall eventually. There is a lot of competition in electric vehicles and lo and behold, why were Tesla’s quarterly numbers not that good? They had to lower prices.

Elaine Moore
Yeah, the price cuts are never . . . 

Robert Armstrong
Why companies have to lower price? Because competition is coming in. So there was some, there is, I agree with you, highly volatile stock. I would also argue some of this was foreseeable.

Ethan Wu
These days, it seems like the Tesla bulls are increasingly talking about non-car business lines at Tesla. They’re like, Tesla’s gonna get in the battery game. It’s gonna get in the software game, it’s gonna get in the robotaxi game.

Elaine Moore
Robots?

Ethan Wu
Yeah, yeah.

Robert Armstrong
I wouldn’t put it past Musk, by the way. The guy’s done incredible stuff.

Ethan Wu
Absolutely. But Aswath Damodaran, the valuation guru over at NYU, has recently done a valuation exercise looking at what those additional business lines could be worth and Damodaran’s argument is, even if you make relatively optimistic assumptions about the growth potential in, say, robotaxis, it’s hard to justify a valuation higher than 185 bucks a share. Tesla’s currently at 225, so it’s still, you know, even pressing a lot of good news, at a pretty optimistic valuation.

Elaine Moore
There’s about to be a film about Elon Musk as well, or there’s a film has been put into . . . 

Ethan Wu
Really?

Elaine Moore
Yeah. Film rights for his life story. So I just feel like the way that he has been turned into a hero helps his own stock so much. And I don’t know, if that’s what’s going to . . . 

Robert Armstrong
Yes. Wait, wait, wait. Who’s gonna play Elon Musk? Let’s think about this for a second.

Ethan Wu
Who’s the palest actor? (Rob and Ethan laugh)

Robert Armstrong
That’s the name of the movie, actually (Ethan laughs) — The Palest Actor: The Elon Musk Story.

Ethan Wu
All right. Well, we will check back in in just a couple of months when the year is over to see how both of your portfolios did. So far, Rob, 1.8 percentage points in the lead.

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That’s not a big margin. It could be very easily flipped. These are volatile stocks. We’ll have to see if Elaine’s bet on Apple will pay off in the last couple weeks of the year. All right both, we’ll be back in a minute with Long/Short.

Welcome back. This is Long/Short, that part of the show where we go long a thing that we love, short a thing that we hate. Rob, are you long or short something?

Robert Armstrong
I’m long something. I’m long The Magnificent Seven.

Ethan Wu
Oh, yeah.

Robert Armstrong
But not the stocks. The 1960 movie. Fantastic movie, cast included Yul Brynner, Charles Bronson, Steve McQueen, and James Coburn. Which means there was more badassery in that movie than there currently exists in the entire world. Everyone should watch this movie. It’s awesome. It’s way better than the stocks.

Ethan Wu
(Laughs) All right. Elaine, are you short something?

Elaine Moore
Oh, can I go long as well?

Ethan Wu and Robert Armstrong
Yes, sure. Yeah, sure.

Elaine Moore
This is my first trip to Chicago, so I’m long Chicago.

Robert Armstrong
Great city.

Elaine Moore
I think it’s one of the most fun cities I’ve been to in the US. My hotel feels like a cruise ship. I got here at 9pm on a Sunday. Everybody was buzzed across the whole of the hotel. I love it.

Robert Armstrong
It’s also affordable. It’s like a proper big American city that you can afford to be in.

Ethan Wu
You live in New York, your bar is low.

Robert Armstrong
I know, but try San Francisco.

Elaine Moore
I love San Francisco.

Robert Armstrong
Yeah. Yeah. Try London, try any of these. Chicago feels like a global city, but it’s priced like the Midwest. It’s awesome. It’s awesome.

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Ethan Wu
All right, Elaine, thanks for being here. We’ll have you back very soon to review either victory or defeat to Rob Armstrong’s portfolio.

Elaine Moore
Looking forward to it.

Ethan Wu
(Laughter) Thanks both for being here and listeners, we’ll be back in your feed on Thursday with another episode of Unhedged. Catch you then.

Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Jacob Weisberg and Jess Truglia. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to FT.com/unhedgedoffer. I’m Ethan Wu. Thanks for listening.

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