While semiconductor giant Nvidia (NVDA) incited a broad-based market rally following its fourth-quarter earnings, which Magnificent Seven component stocks are the best positioned and the worst positioned coming off of earnings season?
Laffer Tengler Investments CEO and CIO Nancy Tengler and Steven Glass, Pella Funds Management Managing Director and Investment Analyst, make the case for their preferred tech companies.
“Clearly Nvidia is the winner, and will continue to win, I believe,” Tengler states. “But Amazon (AMZN) has yet to recast its highs and it’s a company that has done improved efficiency, growing the advertising business, cloud came in better than expected.”
Apple (AAPL) is “obviously… depending on services now. They are doing very well in services, but they had to justify that market cap. They don’t seem to have a large pipeline of new products coming through,” Glass explains. “It’s just not growing and it does not justify its valuation given its growth profile.”
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Editor’s note: This article was written by Luke Carberry Mogan.
Video Transcript
BRAD SMITH: We want to cut through the noise, break down which stock is best and worst position coming out of these earnings reports based on the fundamentals. So here with more, we’ve got Nancy Tengler who is the CEO and CIO of Laffer Tengler Investments. Also here, we’ve got Steven Glass, Pella Funds Management Managing Director and Investment Analyst. Great to have you both here with us today.
Nancy, I want to begin with you because you are looking specifically at one of the best positioned companies. We’ll start with the good. Then we’ll get to the bad.
Best position here, Amazon. Make the case for why Amazon even up against Meta and NVIDIA is the outperformer.
NANCY TENGLER: Well, it’s a game of relative performance from here. I think, I mean, clearly, NVIDIA is the winner. And will continue to win, I believe.
But Amazon has yet to hit– to retest its highs. And it’s a company that has done improved efficiency, growing the advertising business. Cloud came in better than expected.
And you have a CEO who is committed to taking the company to the next level. And so we think from here, you’ll get really solid performance out of Amazon. And so we’ve moved it into our 12 best ideas portfolio and continue to hold it across our large cap equity strategies.
SEANA SMITH: Steve, I’m going to ask the same question to you in terms of who is best positioned. It looks like you think NVIDIA is. What do you see as the upside there just in terms of how much more gain is still in play?
STEVEN GLASS: Well, it’s very difficult to actually have to have to force one to use their imagination. But the fact of the matter is this is a company on a 2% free cash flow yield, and it’s only expected to grow 20% in 2015. So really its valuation fundamentals remain very strong. And it can continue growing here.
I mean, Jensen Huang was commented on the size of the opportunity. It’s bigger than everyone expected. It’s a whole new industry. And it keeps on surprising. So in actual fact and royal valuation figures, it’s actually one of the better positioned of the Magnificent Seven.
BRAD SMITH: All right, I want to get to one that, Nancy, you believe is worse position. And, Steve, I’m going to bring you in on this as well because I know you’ve got some commentary on their positioning.
But it’s Google. It’s Alphabet. Nancy, why is this the worst position to you?
NANCY TENGLER: That’s a great question, Brad. Because it should by its recent performance at least be teed up to outperform going forward. But they keep stumbling.
So this latest issue with the images, on Gemini is the second hiccup since they’ve announced generative AI. They are behind at least in the intellectual capturing war with Microsoft. And so I think you want to be dubious.
Use weakness, maybe if you don’t own the position to add to it or initiate it. But we are holding firm and not adding to our holdings. Because we think it’s going to be a while before the company gets past these negative issues.
SEANA SMITH: Steven, do names that you see as worse position are Tesla and Apple? Tesla, I think, everyone can pretty much wrap their heads around just the fact that we’ve seen declining sales. The fact that margins have been under pressure. But why don’t you see Apple turning it around anytime soon?
STEVEN GLASS: Well, the fact is that that’s a fully penetrated market. I mean, obviously, we’re depending on services now. And they are doing very well in services.
But they have to justify that market cap, they don’t seem to have a large pipeline of new products coming through. And we’re not suggesting for a moment that Apple is a bad business. It’s just not growing, and it does not justify its valuation given its growth profile. One just has to accept that if they invest in Apple, they’re going to get based on the current valuation and growth profile quite Meager returns.
BRAD SMITH: What’s going to unlock the next supercycle? Just to follow up on that, Steven.
STEVEN GLASS: Supercycle for, which company?
BRAD SMITH: For Apple. We often talk about an iPhone supercycle, whether or not generative AI is part of the smartphone or the handset is actually going to propel. A wave of new people to go trade in, trade up, and get whatever the new iPhone is. What from your perspective can drive it?
STEVEN GLASS: That’s unlikely. Because actually at the moment, the AI is happening in the cloud rather than at the edge. So it’s not really a device, a personal device-driven market.
And even if that was to happen, I mean, it’s very well penetrated. So we’re just swapping a current user for a new user. So then you’ve got to ask yourself, OK, can they expand their margins on the iPhone? Well, no.
Can they grow more sales potentially? But then they’ve got the problems on the App Store. They rarely do in our view need to come out with a new product to justify their current valuation. They need some new growth vector.
And we don’t think it’s going to be the headset. So it’s based on what we can see right now. We can’t see where that new growth vector is going to come from.
And in actual fact, we actually think the App Store is at threat from this new– from we see the regulation around the world, we see it in Europe, we’ve seen some in the US. And maybe it’ll be more difficult for them to take their 30% cut on all app sales going forward.
SEANA SMITH: Nancy, one of the names that we have not mentioned yet is Meta. And I bring that up given the outperformance that we saw last year. Given the fact that the stock is up just about nearly 190% over the past year.
They declared their first dividend last quarter on the earnings report. Obviously, lots of excitement there. Why isn’t that one of your top names?
NANCY TENGLER: Yeah, well, we did own it, Seana. We owned it for many years. And we got out kind of in the high 300.
And then we missed this last run. But we instead owned a name like Spotify in its place. And that’s done extremely well also.
I love the dividend. I think that there is an opportunity for Google potentially to announce a dividend. I mean, they certainly have enough free cash flow.
But I think Meta, for me, it’s at this point, I’d rather jump into NVIDIA than into Meta because I think the model is not nearly as robust as NVIDIA’s model is. And I would just point out that I think one of the things that’s going to put a floor under all these stocks are share buybacks.
The Magnificent Seven have announced about $190 billion in share buybacks. As the stock sell off, that the companies are going to step in and put a floor under it for investors.
So I think you can’t go wrong owning any of them in my view. But I think our favorite right at this point is Amazon.
SEANA SMITH: All right, Nancy and Steven, great to get your insight here, especially on names that we know so many of our viewers want to own, would like to own, or closely follow here when it comes to some of the trends that we’re seeing in the broader market. Thanks so much. Have a great weekend.
