Mag Seven drawdown creates attractive entry point
The guest argued that the recent drawdown in Magnificent Seven stocks, driven by overblown inflation fears and AI CapEx concerns, represents a compelling entry opportunity as valuations compress.
The argument
The guest reasoned that inflation will decline in Q3 and Q4 as energy prices cool, leading to multiple expansion. Furthermore, actual AI CapEx is expected to come in lower than feared, while structural demand for AI remains robust.
The thesis, stress-tested
✓ What validates it
- ✓Q3 and Q4 inflation data showing a downward trend
- ✓Mag Seven earnings reports showing actual CapEx coming in below prior guidance
- ✓Google or other Mag Seven multiples expanding relative to historical averages
▸ Risks discussed
- ▸AI demand fails to meet high expectations
- ▸Overbuilding of data centers and compute capacity
- ▸Persistent energy price shocks keeping inflation high
Hear it yourself
"And I even explain exactly how I think about investing right now in public and private markets, and I talk about some of the investments that I've allocated to in my portfolio. Here's my latest conversation with John Pompliano. Alright, John. What's first topic? Alright. Mag seven sell off recently. Is this a valuation reset, or is this the market kind of rethinking this whole AI trade? Well, I think the big reason why the Mag seven's been selling off is because, they're long duration assets, so they're very sensitive to inflation. And people were very worried about the Iran war, the spiking energy prices, and they thought that inflation was coming."
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