r/valueinvesting
The Problem with most MAG7 (AMZN, MSFT, META)
Author argues GOOGL is better than AMZN, MSFT, and META due to superior cloud growth, higher quality core assets, and better AI hardware.
- GOOGL's GCP cloud growth (64% YoY) significantly outpaces competitors like AWS.
- GOOGL's core businesses (Search, YouTube) are capital-light with higher margins.
- GOOGL benefits from Apple's AI integration and superior TPU hardware partnerships.
- AMZN's e-commerce is a low-quality, high-CAPEX, low-margin consumer discretionary business.
- META lacks consistent AI revenue and investors are tired of its heavy CAPEX bets.
The problem with AMZN, MSFT, and META is GOOGL.
My averages for these stocks AMZN ($215), MSFT ($360), META ($600), GOOGL ($160).
During Amazon's earnings, the cloud earnings growth was 28%, which is very impressive considering how big AWS already is. This is exactly what investors are looking for reacceleration of cloud growth for Amazon. Why is the stock experiencing weakness? Google's earnings. Google GCP growth look so unreal that I had to confirm from many data source that it actually real almost 64% YoY% growth. This just makes 28% seem insignificant when it really good, not to mention Apple entry into AI bringing in large amount of capital almost exclusively benefit Google from inference running on GCP to Gemini in Siri. I would say AWS as a software platform is superior than GCP from switching cost and first mover advantage, but Google hardware TPUs partnering with Broadcom is better than Trainium. Another problem is Amazon is the inferior source of core business, Amazon relies on AWS which many would argues is associated to AI risk, whereas Amazon e-commerce business is in consumer discretionary which is technically a low quality business due to high CAPEX of investment for low margin return selling commodities. Compare to Google, search engine and YouTube which are higher quality business being capital light and higher margins. Everything from core business being higher quality to vertically integrated, Google is almost OBJECTIVELY a better business.
Moving to Meta, this one is more obvious than Amazon. Meta just lacks hard core consistent AI revenue either from elite models (Gemini) or cloud business (GCP). Investors are tired of promises and beliefs in futuristic revenue growth from heavy CAPEX bets from Meta from failure of Metaverse. Headwinds from regulation and lawsuit banning young children from using social media to me is overstated, because weak contribution to almost none revenue contribution. The biggest problem with Meta is the lack of significant AI distribution compared to Google, Apple, and Microsoft. This is why Zuckerberg was so keen on Metaverse as a form of distribution but it failed to to Apple strengthening its moat. As someone invested in Meta and use LLMs regularly, it almost laughable why I would ever go on Instagram and use their models it a horrible form of distribution compared to ChatGPT, Claude, CoPilot (workplace), Gemini. The only thing about Meta that I am bullish although harder to see because it technically "under the hood" would be that AI is elevating Meta's revenue by A LOT in their core products with revenue growth over 30% making valuations look very cheap. These are the reasons why Google just look so much more compelling.
Lastly Microsoft, the biggest problem with Microsoft is that the strongest support point for this stock is that it very cheap relative to the quality of the moat, I think that is correct. I am a big fan of Chris Hohn and his investing philosophy, but I side with Bill Ackman on this one as it could literally be a successful investment based on cheap valuation and long lasting moat of distribution. There are many reasons why I think the stock "deserve" to underperform, first would be Copilot which is just so obviously behind Google Gemini. Another underrated point would be Microsoft Azure losing grounds, this is not obvious in the numbers, but if you keep a close look at OpenAI partnership becoming a huge mess for Azure. Almost 50% of cloud revenue is exposed to OpenAI, and countless articles building narrative that Azure is devastatingly technologically inferior to AWS. I do agree that M365 networking moat effects will be able to "shove" AI tools down throats of many corporations (I experience this first hand as a corporate worker), Copilot will succeed with distribution and many attempts to improve similar to how Zoom is completely displaced by Teams although competition seems extremely fierce. Overall, it just the lack of catalysts and overstated risk to M365 dragging the stock to the mud.
What is the point of this post? I agree with investment narratives of most MAG7, but Google is just the biggest problem to all of them. To me why would I ever invest in the other hyperscalers that could have weaknesses in business quality or lack of catalysts in the hope of futuristic outcome, when Google story is so strong and obvious. I really think this is why Berkshire Hathaway and TCI management piled money in Google, because the story is obvious.
When I bought Google, my thesis just includes how they have one of the best AI distribution in Search, Work Tools, and YouTube. They also have access to extremely rich data sources that can be advantageous to training elite LLMs. The threat to search is overstated looking at search data improving gradually. Google Cloud becoming a cash cow. I was correct like many other in this subreddit. However, I never imagine there would be a day where Google just become like the Thanos of the stock market holding arguably the best position in AI story. Google Gemini is comparable and competitive amongst AI labs like Anthropic, OpenAI. Google Cloud is growing at breakneck speed threatening market share of AWS, Azure. Google TPUs with Broadcom denting market share making NVIDIA reassure investors that ASIC won't be a problem. Not to mention, they got cash cow ad businesses like YouTube and Search that allow them to invest in cash burners like chips and AI R&D giving them higher quality position than OpenAI or Anthropic that have to raise a ton of debt. Not to mention, core products like YouTube killing traditional TVs threatening Netflix, core search growing. Most irrelevant point, Tesla investors being so cult-like bullish on robotaxis, but Waymo is just so prominent.
I’m glad for you or Sorry that happened
You completely misunderstood meta
Meta is the Only one that has proven revenues from ai no other company has that
How do you think meta revenue is growing 30% faster then any of mag7 except NVDIA
As Nvidia Chief puts it, noone does ai better then meta
Whole ad business is based on ai
GCP's growth is so high because it includes chip sales.
Meta has been monetizing AI internally for years. Thats how they were able to overcome the ios privacy changes so fast. And why revenue is growing 20%+.
I agree Copilot sucks compared to Gemini or Claude, but im not sure if it matters given MSFT's distribution.
The Europoors will come back to MSFT when they find out supporting clueless users on Linux is a huge drain. It has been tried again and again, hence the joke "Year of the Linux Desktop". We techies love Linux and don't mind dropping down to the shell to do some housekeeping. But not Françoise the office worker down at Marseille city hall.
Copilot has the advantage of being the only AI allowed in a corporate IT ecosystem that prioritizes security above all else. And that’s virtually every Fortune 500 company.
Google doc hasn’t made a dent on M365. As I said, F500 companies don’t mind paying licenses if the product has worked well in the past, they are repulsed to changes if things are up and running. The #1 issue is the headcount loss due to ai, meaning less licenses being sold but I can see MSFT changing their billing model for M365 if it makes a dent in their pocket.
somehow F500 is scared of a minuscule change from M365 to google workspace but at the same time ready to vibe code their own version 😂
You dont see many bringing up META or MSFT
MAG(YTD rtn) -4.3% , RSP(YTD rtn) +9.1% (still got all 7 stocks there). S&P(YTD return): +7.75%
My company just got like 3,000 m365 copilot licenses
My company just got like 3,001 m365 copilot licenses
Microsoft - The reason Microsoft is going to win is the same reason it wins at everything else. It has the deepest moat in business and it leverages to perfect even if the underlying product isn't that great.
Argument #1: Copilot vs Gemini - This really highlights your lack of research as the crux of your argument doesn't make sense. Copilot is AI agnostic while Gemini is an LLM. I think the AI agnostic pathway is a much smarter approach as studies show leveraging specific AIs to do specific tasks yield better results and can allow much lower costs. This is probably better long-term when you factor in how much cheaper per million tokens opensource Chinese models are. However, let's ignore that because today's Copilot is horrible. However, I think the important thing to remember is that Copilot is horrible AND it still crushes Gemini in terms of paid users. Microsoft's distribution network is unmatched.
Argument #2: Basically, all these arguments are stupid. You complain Microsoft is dependent on OpenAI but ignore the fact Amazon and Google are dependent on Anthropic and Gemini. The cloud argument doesn't really make sense since right now all cloud companies are at max capacity because OpenAI and Anthropic are growing so fast.
The idea that Azure is stalled is stupid. Prior to the find compute at all costs, Azure was clearly winning the cloud race. At this point, it doesn't matter because anyone who has cloud space will find a buyer.
GCP: 28,32,36,48,63
Azure: 33,31,40,39,40
AWS: 17,18,20,24,28
The technological superiority argument is also dumb. It's just different building philosophies. AWS gives a lot more control. Azure gives you simplicity, integration, etc. You go with what you like.
Microsoft and Google are my two biggest holdings. I think Google is a slightly better bet long-term but Google at 4.3T is so obviously a worst bet than Microsoft at 2.7T. This isn't defensible. Microsoft makes like 10B more in operating profit, hasn't recognized OpenAI's stake (Google recognized Anthropic and SpaceX), and is half the value. You're just being a blatant homer.
I was being sarcastic. Three of the four posts I can see on the homepage are msft related. Its an extremely interesting setup. Im in with about 50% of my taxable portfolio, 400 shares worth.
I think Google is going to be fine and both a recipient of AI tech improvement and a supplier of compute. They have the right ecosystem. MSFT as well. META is trying to become something beside an advertising company. Ai will help them more in targeting little girls who feel bad about themselves than it will be a pick and shovel company. The problem is Zuckerberg is unchecked and spending billions on a strategy that doesn’t have enough upside. Just like he did with Metaverse. If he focused on being a cash cow and milking it- this would be a $1000 stock.
And I bet those orgs aren’t using Azure. Once you sign up for the core Microsoft ecosystem, a lot of IT firms will sacrifice slight usability to ensure everything else is balanced.