At What Price Are the MAG7 Value Stocks? NVDA, MSFT, AAPL, META, GOOG, AMZN, TSLA (Intrinsic Values)

Intrinsic Value Analysis of the Magnificent 7 Stocks

Key Concepts:

• Intrinsic Value: The true, underlying value of a company, independent of its market price.
• Margin of Safety: The difference between the intrinsic value and the market price, providing a buffer against errors in valuation or unforeseen events.
• P/E Ratio (Price-to-Earnings Ratio): A valuation metric comparing a company’s stock price to its earnings per share.
• Discount Rate: The rate used to calculate the present value of future cash flows, reflecting the time value of money and risk.
• Terminal Multiple: The P/E ratio assumed for a company’s future earnings beyond the explicit forecast period.
• Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets.
• Depreciation: The accounting method of allocating the cost of a tangible asset over its useful life.
• Dilution: The reduction in ownership percentage resulting from the issuance of new shares.

I. Value Investing Principles & Return Expectations

The video begins by establishing the core principles of value investing. The speaker emphasizes the expectation of a minimum 10% annual compounded return over the long term. This return is predicated on several factors: quality of the business, a long-term growth runway, shareholder-friendly capital allocation (prioritizing owners over management), and low risk. The analysis focuses on determining the price at which the “Magnificent 7” stocks – Nvidia, Microsoft, Apple, Google, Meta, Amazon, and Tesla – would qualify as value investments based on these criteria.

II. Nvidia: High Growth, High Valuation

Nvidia’s current market capitalization is $4.66 trillion with a P/E ratio of 47 and no dividend yield. Despite the high valuation, the speaker acknowledges the exceptional year-over-year growth expected (560% and accelerating), projecting earnings per share to more than double by 2028.

Intrinsic Value Scenarios:

• Normal Case: 15% growth for the first five years, 10% thereafter, a 10% discount rate, and a terminal P/E of 20.
• Best Case: 25% growth for five years, a P/E of 25, justifying the current stock price.
• Margin of Safety (Worst Case): Growth stalls, a low P/E of 15, resulting in a current value investment perspective at $30 (acknowledged as extreme).

To achieve a 10% return over 10 years, Nvidia’s market capitalization would need to reach $12 trillion, potentially driven by widespread adoption of its technology ("Nvidia chips even in our toilets"). However, the speaker cautions against complacency, referencing Amazon’s 85% decline during the dot-com bubble as a reminder of potential downside risk. A realistic long-term return is estimated at 5%, potentially reaching an $8 trillion market cap.

III. Accounting Considerations & Capex Impact on Tech Companies

The speaker highlights a concerning trend in tech company accounting: extending the depreciation period of assets from 3 years to 6 years to improve reported financials. This, coupled with significant construction in progress ($70 billion), raises concerns about potential margin compression as depreciation expenses increase. Microsoft’s projected depreciation expense increase from $20 billion to $80 billion is cited as an example. This increased depreciation could negatively impact Nvidia if big tech companies reduce their semiconductor spending due to competition or cheaper alternatives.

IV. Individual Stock Analyses: Microsoft, Apple, Google, Meta, Amazon, Tesla

A. Microsoft: P/E of 12 in 2013 versus the current valuation. Growth rates are expected to be double digits, potentially lowering the P/E ratio. The personal computing segment is a cash cow funding reinvestment into future growth areas. A 10% return requires a 40-50% downside.

B. Apple: P/E of 32. Even with 7% growth and a P/E of 20, the intrinsic value is half the current stock price. A 50-60-70-80% decline is possible.

C. Google: Doubled in the last year despite initial concerns about ChatGPT. 8% growth with a P/E of 20 yields an intrinsic value half of the current price. A 10% return was nearly achievable in April 2025.

D. Meta (Facebook): P/E of 30. Previously traded at a P/E of 9. Future growth is expected to be double-digit.

E. Amazon: Market capitalization of $2.66 trillion, P/E of 44. Focus on profitability is leading to declining free cash flow due to increased capital expenditure. Share dilution of 1% per year requires $26 billion in buybacks. A 10% return scenario requires a price of $109, while a best-case scenario reaches $176. The speaker references previous analyses valuing Amazon at $1 trillion as a good risk/reward proposition.

F. Tesla: Market capitalization of $1.3 trillion (potentially $2.6 trillion with SpaceX and AI integration). Earnings per share are $1.08. A no-growth scenario with a P/E of 10 yields an intrinsic value of $10 per share, compared to the current price of $421. Even with 10% growth and a P/E of 20, the intrinsic value is only $30. The speaker expresses skepticism due to the lack of sustained profitability and the threat of competition, particularly from Chinese manufacturers. Robo-taxis are a potential future revenue stream, but their success is uncertain.

V. Overall Assessment & Value Investing Strategy

The speaker concludes that the Magnificent 7 stocks currently offer limited value investment opportunities, with potential returns of 5-6% requiring significant declines (50% or more) to reach a 10% return threshold. He emphasizes the importance of patience and consistently monitoring 40 businesses to identify potential value buys. He also notes the difficulty in finding buying opportunities on YouTube due to the scarcity of ideas and the tendency for commenters to dismiss any potential value. He references Berkshire Hathaway’s recent stock sales, noting Buffett’s potential interest in the oil sector.

Notable Quote:

“Value investing is about if I’m wrong I get, I don’t know, 8% return if I’m right I get 20% returns. That’s value investing.” – The speaker, defining the risk/reward profile of value investing.

Conclusion:

The video provides a detailed, quantitatively-driven analysis of the Magnificent 7 stocks, highlighting the challenges of finding value in currently high-growth, high-valuation companies. The speaker stresses the importance of conservative assumptions, margin of safety, and a long-term perspective, advocating for a disciplined approach to value investing that prioritizes downside protection and realistic return expectations. He also points out the accounting nuances and potential risks associated with capital expenditure and depreciation that investors should consider when evaluating these tech giants.