A Split Decision on the Mag Seven…

Dear Reader,

This is Dylan Jovine with Behind the Markets.

Happy Monday.

Today is Monday, August 3rd.

We've got a split decision on the Mag Seven.

Boy, oh boy.

The Meatball Arrives

Last Thursday, Microsoft added $480 billion in market cap in a single day.

That is a world record.

One company. One day. Nearly half a trillion dollars.

The stock — which we recommended around $390 — jumped 15% and is now sitting at $450.

Amazon followed on Friday. Up 10%, 15%, adding billions and billions in market cap.

Now let me tell you what that teaches us.

Wall Street had gotten so pessimistic on the Mag Seven that it became irrational.

And that's the great thing about investing when you do it long enough.

When you're patient, and you know what things are worth, investing becomes a game of waiting for the meatball.

You know what I mean?

It's like having a ten-year-old throw you an underhand softball.

A big fat pitch right down the middle.

You don't have to do anything fancy.

You just wait for that meatball and whack it.

That's what we try to do here at Behind the Markets.

We don't make it complicated.

What Microsoft and Amazon Proved

These companies have corporate cloud customers.

And they showed Wall Street something very important last week.

They're not spending this money willy-nilly.

Their S&P 1000 clients are clamoring for AI tools.

So they're building out the infrastructure to meet that demand.

And the returns are showing up.

That's why the stocks exploded.

The Split Decision

Now contrast that with Meta.

Meta is spending enormous amounts of capital but doesn't have the corporate infrastructure that Microsoft, Google, and Amazon have.

They don't serve corporate customers.

So their stock is getting hammered.

I'm not going to pretend I walk on water here.

Meta is a recommendation that hasn't gone the way I wanted — yet.

But let me tell you why I'm still patient with it.

Zuckerberg lost a lot of credibility with the metaverse fiasco a few years back.

He was spending $20 billion a quarter on something that went nowhere.

That sent the stock down to $96 a share.

Which, by the way, was the meatball.

I couldn't resist at $96.

And when the board reined him in and he tightened that spending, the stock ran to $700.

Something similar could happen here.

Right now, Zuckerberg is being vague about what he's going to do with all this compute and infrastructure.

Maybe he'll sell it to corporate customers like Microsoft and Google do.

Maybe he'll create tools so indispensable for his own users that he'll need every bit of it.

But the lack of clarity is crushing the stock.

And I'm a buyer.

Not because I think Zuckerberg is a genius — though he had one big trick in him with social media — but because the underlying business is a money printing machine.

This is the old Peter Lynch line that Buffett has repeated a hundred times.

Buy shares of a company so good that any idiot could run it.

Because sooner or later, an idiot will.

I'm giving him a little more time.

The underlying numbers still look strong.

The Smartest Player Nobody Is Talking About

Here's my contrarian take.

The smartest player in all of this might be Apple.

Apple has been quietly marching higher.

I haven't recommended it, which was probably a mistake.

But here's why I think they may be playing this better than anyone.

Apple is not spending money building AI infrastructure.

People give them a hard time for that.

But think about what they actually own.

Apple owns the bridge to consumer town.

In America, most humans interact with the internet through either an Android or an Apple device.

Apple owns the profitable end of that market — the high-margin, high-return-on-capital segment.

So Apple's strategy is brilliant in its simplicity.

Let everyone else spend trillions building their AI models.

Let them fight it out.

Destroy shareholder value competing with each other.

And when the dust settles, Apple decides how it all gets delivered to their customers.

Whichever model wins the fight, they still have to go through Apple to reach the consumer.

Apple is sitting back, waiting for the meatball.

Just like me.

Speaking of companies that collect a toll no matter who wins the AI race — there's one more player worth understanding.

Apple owns the bridge to the consumer.

But there's a company that owns the bridge to the chip itself.

Every AI chip that powers Microsoft's cloud, Amazon's data centers, Google's infrastructure, and yes, Apple's devices — almost all of them are built on the same blueprint.

One quiet company owns that blueprint.

It doesn't matter who wins the model war.

It doesn't matter whether Meta figures out its strategy or not.

Every chip that gets built to power this revolution pays a royalty to the same company.

Just like Apple, they're not fighting anyone.

They're collecting from everyone.

The Bottom Line

Of the Mag Seven companies that have reported so far, it's a split decision.

The ones with corporate cloud customers — Microsoft, Amazon, Alphabet — are showing Wall Street they're getting the return on their CapEx.

The ones without that corporate infrastructure are struggling to explain themselves.

But here's what matters for you as an investor.

While everybody is turned off to the Mag Seven, that's exactly why we've been recommending them.

Don't make investing harder than it needs to be.

Find great companies with strong chokeholds in their markets.

Wait for them to come to your price.

Then pop.

And go back to having fun.

Have a wonderful day.

I'll see you tomorrow.

“The Buck Stops Here,”