March 4, 2024

Taylor Daily Press

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“This leads to a lack of competition. This will only worsen the consumer situation.”

“This leads to a lack of competition. This will only worsen the consumer situation.”

Amazon, Tesla, Alphabet, Nvidia, Apple, Meta, Microsoft: the so-called Magnificent Seven are pushing the S&P to record highs. Why did you sleep so much?

Big Tech companies have suffered greatly in 2022. To give extreme examples: Netflix lost 60% of its stock market value, and Facebook lost up to 75%. These companies have already recovered well in 2023 and this recovery has continued at the beginning of this year. Despite everything, they generate huge amounts of cash. They remain the companies of the future. Netflix was able to take advantage of new subscribers because it imposed restrictions on sharing passwords. Facebook has completely reduced its investment in the underperforming company Metaverse.

Does this have nothing to do with artificial intelligence hacking?

“That provided another bonus, but even without AI stocks would be much higher. The low interest rate has a lot to do with this. The company that will see huge growth because of AI is Nvidia. It is the absolute pinnacle in video card and chip production, which will only grow in importance in the future.” The company has managed to double its profits in recent years: which is exceptional. However, the value of the stock market has increased by only 300 percent. I am convinced that Nvidia is still undervalued. Investors do not always notice this. Another reason is that “More and more people are investing in ETFs, which simply track the stock market. The market for these trackers is already larger than the market for traditional mutual funds. This enhances everything even more.”

The combined market capitalization of The Magnificent Seven has risen to €11,000 billion, nearly three times Germany's GDP. Don't they become too dominant?

“Of course, this means that there is no room for competition. This makes things worse for consumers: they pay too much for their products. Republicans and Democrats in the United States think so too. In the near future, there is a good chance that Microsoft and the ABCs of this world will be divided into smaller companies. This The problem does not arise in Europe, because we do not have such large mastodons here.

Pascal Pipin, Professor of Banking and Stock Exchanges at the University of Leuven.Photo by Sophie Silberman

Will big tech companies continue to grow at this speed in the coming decades?

“No, I don't expect it. These will become old cash cows in the coming years. The dominance of a particular sector or region usually lasts about a decade. Big tech has been around for some time. In the future, raw material suppliers or environmentally conscious companies may take over.” “Or maybe China will have the upper hand if it allows profits and ownership. Unfortunately, I can't predict that.”

If the stock price suddenly rises that quickly, there is immediately the possibility of a bubble. Should we be afraid of this in this case?

“No, again: these companies make a lot of money and have almost no debt. So they won't get into trouble. It was different for Amazon twenty years ago: they didn't make any profit then. So I expect the show will do very well.” this year.”

What should we do now: buy or sell more shares?

“You should always buy stocks spread over time and space. Then you are always assured of a good return in the long term. Specific advice? I think Chinese stocks are very low at the moment. There are still some profits to be made. But stocks in big technology companies They remain interesting, too. And they may no longer grow at 50 or 100 percent, but they will become boring, gray companies with average annual returns of 8 to 10 percent. Still much better than a savings account.

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