'LOTS of upside': Stock market expert bullish on Big Tech despite selloff

Key Concepts

• Dow Jones Industrial Average (DJIA): A stock market index representing 30 large, publicly owned companies based in the United States.
• AI Spending: Investments made by companies in artificial intelligence technologies and infrastructure.
• Buybacks (Share Buybacks): A company repurchasing its own shares from the open market, reducing the number of outstanding shares.
• Dividends: A distribution of a portion of a company's earnings to its shareholders.
• Advertising Growth: The increase in revenue generated from advertising services.
• GDP (Gross Domestic Product): The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.
• Internet Build-out: The expansion and development of internet infrastructure.
• Stock Sell-off: A rapid and significant decline in the price of a stock or the overall market.
• Stock Fatigue: A period where a stock's price has risen significantly and may be due for a correction or consolidation.

Market Performance and Tech Earnings

The Dow Jones Industrial Average (DJIA) saw a significant increase of 200 points, with contributions from major companies like Goldman Sachs, Caterpillar, and Sherwin-Williams, which collectively added 193 points to the index. This positive market movement occurred amidst the release of earnings reports from major tech companies: Google, Microsoft, and Meta.

AI Spending and Investor Expectations

A key discussion point is whether the substantial investments in AI spending are yielding positive results for these tech giants. The market, according to Mike Lee, is primarily focused on tangible returns like buybacks and dividends, rather than long-term investment narratives.

Google's Performance

Google demonstrated strong performance, exceeding expectations across all business units. The company guided for 20% year-over-year advertising growth "as far as the eye can see" and beat all reported metrics, with the exception of a one-time "Cox bill" impact. This indicates Google is "firing on all cylinders."

AI Spending as a Percentage of GDP

The transcript highlights that current AI spending, while significant, is still relatively low compared to historical internet build-out phases. It is estimated to be around 60-70% of GDP relative to the 1990s internet boom, suggesting considerable upside potential for AI investments.

Meta's Stock Performance and Outlook

Despite its business growth, Meta experienced a sell-off. Mike Lee is taking a "hard look" at Meta due to this market reaction. While Microsoft's stock has been on a run, leading to some "fatigue," and the expectation is that selling pressure might be absorbed by buyers, Meta's situation is different. Over the last couple of quarters, Meta's stock has declined "substantially" even as its business has grown "substantially." This divergence is what makes Meta a point of focus for analysis.

Conclusion

The market is reacting positively to the Dow's performance, driven by established industrial companies. However, the focus for tech investors remains on immediate returns like buybacks and dividends, rather than long-term AI investments. Google is showing robust performance across its operations, particularly in advertising. While AI spending is seen as having significant future potential, Meta's stock performance, which has declined despite business growth, presents a notable anomaly and a key area for further scrutiny.