The last time I was on Bloomberg, I told people to skip the “magnificent seven” going into earnings. The print shows I was right. Just do the math.
Most of the mega techs have guided 10-11% revenue growth in the coming year: MSFT, META, GOOG, AMZN. That’s good but it isn’t what I’d consider disruptive and it might actually shock people who think these companies are still in exponential expansion mode.
We’re a long way from the iPod era now. No expansion curve can project indefinitely without flattening out sooner or later as the company finally grows into its addressable market OR something gets in its way.
Look at AAPL. Yes, services are the hot spot but that side of the business is only growing 16% a year . . . just 3 points faster than NFLX. And it’s still only 1/4 of the overall revenue footprint, too small to move the overall needle.
Here’s the thing about AAPL. There’s only so much financial engineering Tim Cook can conjure up before the underlying business needs to start making visible progress again. As it is, margins are already going DOWN, which means every point of incremental sales growth becomes less meaningful to the bottom line.
Services is a good business. But the company as a whole fails the “rule of 40” test . . . a negative revenue growth rate (-3%) and 25% margins don’t add up to the 40 smart investors want to see. Tim, if you’re listening, surrender. Spin out services, break up the platform and let the phones go.
Even when the companies are growing fast, margins are declining. TSLA is a great case in point. Sales in the coming year may be tracking 58% higher than 2022 like Elon says but at that point the company is literally sacrificing the bottom line in order to capture sales and keep inventory moving.
Again, do the math. When 58% sales growth translates into what we think will be a 17% earnings lift, you are cannibalizing yourself. Sometimes that works in the long run but sometimes it’s a sign of distress. When you’re buying the Big 7, are you really here for distress? Is that a good thing?
There are better companies. Do a screen for stocks that are boosting revenue 13% and more in the current year. I think you’ll like what you see. They’re the giants of the future.