The Magnificent Seven have just revealed the lowest total quarterly cash flow since the first quarter of 2024.
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New trading tool for AMZN bullsQuantity Not Quality
According to AJ Bell Investment Director Russ Mould, who has poured over the recent figures from Apple (AAPL), Tesla (TSLA), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN) and Meta (META), the quantity of earnings reported may have been good, but he questions the quality.
“The aggregate stock market capitalisation of the so-called Magnificent Seven of Alphabet, has hit a new record high of $22.5 trillion, finally passing last October’s peak as investors laud a strong set of quarterly results from the six to have reported so far,”he said.
However, he added that the issue of shrinking free cash flow will not go away. “Capital expenditure across the six to have reported surged by 75% year-on-year to $136.6 billion for the quarter as the spending race on AI continued,” he said. “As a result, free cash flow across the sextet fell by more than a sixth year-on-year and ebbed to just 7.9% of quarterly sales – only the fourth time in the past decade that free cash flow has dipped below 10% of quarterly revenues.”
Shrinking Share Buybacks
This, he warned is hitting sharebuybacks with Alphabet and Meta have stopped their buyback programmes and those at Apple and Microsoft both shrank in the last three months. Nvidia also reduced its share buyback in the quarter to the end of January.
As such, he argued, as formidable as the Mag7 still look in terms of their competitive positions, sales growth and profit momentum, there are questions hanging over some of the facets which make them so attractive to investors.
“Namely, they are switching from asset-light to more capital-intensive business models thanks to the AI splurge, with the exception of Apple and Nvidia, as the former declines to play and the latter outsources production to TSMC (TSM). Their cash flow is drying up and their fortress balance sheets are in some cases taking on debt, which increases risk,” he said. “It will be interesting to see if these doubts start to weigh on share prices and valuations.”
What are the Best Magnificent Seven Stocks to Buy Now?
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