Dear Reader,
The tech sector has sold off.
It might retest the lows.
It probably will.
The Dow is down 1,000 points, and honestly, so what?
There are a lot of opportunities here, in the private markets and the public markets.
Today I want to talk about the public markets, and some easy opportunities I see among the Mag Seven.
Meta, Alphabet, Amazon, and Nvidia all look cheap to me.
I’m not a day trader.
The Three Secrets
After 30-some years of doing this, I’ve learned there are three secrets to making money in the stock market.
First, find companies that earn high returns on capital.
Second, among those, pick the ones that look like they’ll keep earning high returns on capital for a very long time.
That means a durable competitive advantage.
Third, buy them at a good price.
If you can do all three, investing gets a lot easier.
Right now, three of the Mag Seven fit that description.
The Numbers
Meta is trading at about 17 times earnings, which is historically cheap.
Amazon is at about 21 times, and it usually trades closer to 40.
Alphabet is at about 14.7 times.
I’m adding Nvidia to the list too, at about 21 times.
Set Nvidia aside for a second and look at Meta, Amazon, and Alphabet.
Those three are trading at historically depressed multiples.
The reason is that they’re playing a game none of them really wants to play.
They have to invest heavily just to defend their franchises against the AI upstarts.
That means they will probably earn lower returns on capital in the future.
But these are still among the best businesses in the world, in my humble opinion, and they’re selling at cheap prices.
Wall Street sees them as dead money for a while.
They’re cash flow negative.
They’re borrowing and spending billions to build out AI infrastructure.
Why They Have To
Alphabet and Amazon have cloud customers.
Amazon has AWS, and Google has Google Cloud.
Those customers are coming to them and saying they need this infrastructure.
Revenue is going up, and the build-out isn’t optional.
Anthropic and OpenAI use their infrastructure too.
Meta is different.
It doesn’t have business cloud customers, though it’s starting a unit.
But Meta, more than any of them, is using AI to make its advertising business sizzle.
It’s probably taking share from Google.
Where Each One Stands
Alphabet’s underlying business is straining.
Its cloud business is doing great, but search is the problem.
Search growth is slowing because Gemini is cannibalizing it, and Google hasn’t figured out how to monetize Gemini yet.
That’s why it trades at 14.7 times earnings.
But if you don’t buy something when it looks absolutely terrible, you’ll never buy a bargain.
I’ll take Google at 14.7 times earnings.
I’m pretty convinced Google will figure out how to put little ads into AI.
They’ll test millions of little ways to do it.
It’s like shooting fish in a barrel.
All they have to do is observe human behavior.
Even if the yield is a bit lighter than it was, the franchise succeeds over time.
That’s my opinion.
Amazon is trading cheaply too.
Its retail business isn’t doing gangbusters, largely because of tariffs and what consumer spending looks like.
Its AWS business is doing gangbusters.
All three earn high returns on capital, have dominant competitive positions, and are at reasonable prices.
Full Disclosure
I own some of all of these companies.
I like to buy them cheap.
I’d been in them before over the years.
In April 2025, after the so-called Liberation Day tariff sell-off, I started buying them again at attractive entry points.
I see attractive entry points here too.
What you have to be is patient.
They’re going to keep investing.
I think the CapEx cycle goes out another couple of years, though it probably moderates a bit.
If it moderates, their cash flow improves.
AI isn’t going away, that’s for sure.
And if the spending does ease, these stocks are historically cheap.
And if you buy in when it’s cheap, you can get paid on these same stocks while you wait for the market to catch up.
There’s one company I’d put in the same class as these three.
High returns on capital. A competitive moat almost nobody can cross. And it’s in a buying window right now.
It’s the sole supplier of parts on nearly every commercial and military plane in the sky.
It has paid shareholders 12 special dividend checks.
I’ll give you the name, free, right here >>>
That’s my take.
Have a wonderful day.
I’ll see you tomorrow.
“The Buck Stops Here,”
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Written by Dylan Jovine