Magnificent 7 profits exceed almost every country in the world. Should we worry? | Hacker News Reader

Magnificent 7 profits exceed almost every country in the world. Should we worry?

cnbc.com

42 pointsrntn37 comments

The headline is misleading. The comparison is of profits and market cap to those of national stockmarkets, not whole countries.

It does show there is a problem. The main one being that most of them do not face real competition - big tech companies can erect too many barriers to entry.

The other question is whether they are overvalued at these levels. The article quotes a 107% return over 2023 in these companies. Did something happen in 2023 to make them so much more valuable? Or was the market badly undervaluing them at the start of the year?

> Did something happen in 2023

AI ?

Some can be called AI stories. But Apple, Tesla? Probably not.

The US government is heavily propping up the strongest performer (NVIDIA), markets are reacting to this propping up action, and NVIDIA is reaping the benefits for being where they have always been.

The other companies are also expected to do well since they implement software on top of NVIDIA's hardware.

I think out of the list, only NVIDIA is overvalued given today's output and no indication of NVIDIA moving to US-only semiconductor production in my timeframe of ~5 years, but others could be looking at longer periods and justify it. Of course, I'm not an analyst whose opinion will drive buy/sell markers to anyone.

There are likely several problems. Such as headlines that feed obsessions. Such as comparing irrelevant numbers. Such as innumeracy. Such as easy obsessions which distract from real problems. etc, etc.

> big tech companies can erect too many barriers to entry.

It's easy to complain about this. But let's also keep in mind BOTH (1) That erecting a billion-plus actual legit revenue business is NOT easy. (2) That network effects can often amplify such businesses - but that this is not a new issue: remember "nobody gets fired for going with IBM" from way back. (3) That these unstoppable giants DO actually have a short lifetime: remember AOL, myspace, Sony consumer electronics, Yahoo, DEC, HP, GE, oh right IBM, and so many others, in fact most others.

So that one problem is looking at all this with a too short timeframe. In fact, NONE of these are sure bets or guaranteed ANY future. They have to keep performing. They have to keep avoiding fuckups. They will still not avoid better run, or more lucky competitors.

GE? If you mean General Electric I'm confused because they've been around like 130+ years

They have been around a long time, so has IBM, or HP, but they are not exactly at the peak of their glory. They are not in the running right now for "magnificent 8".

Its not a new problem, but i think it has got a while lot worse.

"Nobody got fired for buying IBM" is not really a network effect, and network effects have become far more widespread.

Lockin though network effects and technical measures to make switching hard are far stronger now.

>Did something happen in 2023 to make them so much more valuable? Or was the market badly undervaluing them at the start of the year?

https://ycharts.com/indicators/cme_sandp_500_consolidated_co...

April 2023 the shorts went up 6x over night (from average of 500k last 20 years to 3 million+).

The market is strangling those shorts and until those shorts are dead, the market wont fall. Few of them fell in the last week but the short positions are way too high.

Once those shorts are extinguished the markets will fall to "real" market values.

market was definitely undervaluing at end of 2022. compare to end of 2021 or even pre-pandemic (end of 2019) and returns are quite sensible.

Software, and now AI is at the top of the business pecking order. Software companies tell other companies how to run themselves, so concentration is natural. It will only get worse (or better , depending on point of view)

AI is certainly not at the top in revenue, not even close. Unless you are selling shovels (nvidia, cloud computing). It's fashionable and lots of people are betting on the potential. Remains to be seen how close and remunerative the products will be. And standalone or as middleware services, one winner or a sea of providers, etc?

I didn't say anything about revenue. They will be at the top of the power structure, which inevitably will make them the most revenue, (like finance did before software)

Who’s we? If you depend on one of those countries economies for your standard of living, probably.

To start the conversation off with the obvious: "Magnificent 7" reads like someone satirizing CNBC. I genuinely do not believe anyone worth listening to has used this phrase unironically. Absurd.

From the article,

> Magnificent 7 returned an incredible 107% over 2023, far outpacing the broader MSCI USA index, which delivered a still healthy but relatively paltry 27% to investors.

If I owned those stocks, I'd say that's magnificent.

But not for the reasons or mechanisms bandied about. The various members are magnificent for fairly distinctive reasons, meaning they seem to me run in very different manners. They have tech and valuation more or less in common - and that's about it.

I wouldn't say they are magnificent at all, but as a description of their production of wealth, especially in common news, it seems very fitting, considering they are 3-4x as "productive" as the alternative. I don't find the usage of magnificent "absurd" in context.

reminds me of oil industry analysts using descriptions of raw petro products that sound like the names of wines

I agree with your sentiment, but unfortunately it's become the common term to refer to a particular group of stocks. It was semi-ironically coined last year by a Bank of America analyst who was pointing out the risks of having such a concentration in so few companies, but at this point almost everyone in the media is using it unironically. It's possible that your rule of not listening to anyone who uses it should still stand. If it helps you view it a little more positively, consider the argument that at least "Mama Ant" didn't catch on: https://www.fool.com/investing/2023/07/31/mama-ant-helps-you...

Company profits are just unpaid wages.

I don't think things would work as well as they do now if everything was a non-profit.

I can't imagine trying to raise capital for my ideas if I had to tell investors that they would not get their money back. And I would not be able to do what I'm doing now without investors.

What if instead of a few founders and the investors getting crazy paydays, those proceeds were paid to those who do the work, workers wouldn't need investors to buy into their ideas unless they provided a lot more value than cash. The current system is flawed in that that small group of investors drain the company of all its value and then dump it on the stock market hoping retail and index funds will pick it up. The value proposition currently sucks.

Not really. Lots of business that can run profitably have obscenely high startup costs, and hence need investors.

This is because workers aren’t pooling their own money and agreeing to accept a full share of any losses. (Historically a few have done this; sometimes it works.)

A company shouldn’t blow all its revenue on labor for the same reason I don’t blow all my wages on pizza. I have many other needs, including the building I live in.

Especially in tech, this is impossible. Raise $10m, hire 20 people is a common scenario for instance. Where are you going to find 20 people willing to put in and probably lose $500k for your idea? What if you need to raise $100m later on, where are you going to find that many people?

It's just not gonna happen.

There is absolutely nothing today preventing workers from operating the way you want them to.

If your system is so successful, why aren't most companies running like that?

That is a really unhelpful way to think about business. Envision this scenario, you want to build a mine and have just enough money to build and operate the mine for a year. All goes.well and you hire miners and the mine makes a profit for the year. That profit is what you eat on for the next year while you're waiting for the next year's profit. Since the mine is profitable it is now worth more than when it first started, and you realize a return on your investment.

The miners benifit because they have jobs in their field, you benefit because you get to eat, and increase your net worth.

In the world where profit is unpaid wages, the mine never gets built because you don't sign up to starve.

You don't even have to envision this next scenario: Matchgroup owns 45 different dating apps. Does your logic still apply?

[Edit]

In theory all profits could be split amongst the owner and the workers, without any leftover profits. Like pirates and their captain split a bounty.

It does, but it looks wierd because the product of match group isn't apps, it's money. Essentially match group is a holding company whose workers aquire other companies. Since they are public their owners are you and me who invest our limited assets in the hope the profits grow them.

Regarding your split: Essentially that's what happens in real life. Profits that are not spent(paying wages is one way to spend them) or paid as tax get added to the balance sheet of the business. That increases the "book value" of the business so the value of the business increases and hence the return on investment increases.

It's a bit more complicated because hoarding cash isn't usually a great use of profit (inflation) so owners would typically like to hire more people and grow the business if they can.

Thus reaffirming profits are unpaid wages.

Replying twice, but you might be interested in the history of joint stock companies (what we call corporations). They started to deal with losses at sea, so a lot of your maritime piracy analogies are strangely fitting. This is the first o e https://en.m.wikipedia.org/wiki/Dutch_East_India_Company

The fundamental thing I think silicon valley got right is to make the employees shareholders and owners. Co-ops get that right too.

It's hilarious the first example is also, in the first paragraph, a monopoly. I don't have a problem with theoretical capitalism, but people would much rather use their resources to squash a competitor, or in this case, legally prevent, competition on talent.

[Edit]

People love to espouse the free market, but I'm not sure it ever existed.

I would say that the monopoly granted to EIC was more like the monopoly granted to patent holders. The risks to life and capital of the venture were extreme.

What a silly way to look at it.

Are losses overpaid wages too?

"Losses" are unpaid wages too. Profit only exists if you do not fully distribute revenue, it seems to me.

"Silly" - avoid swipes please.

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