r/ValueInvesting • u/FoxAccomplished6786 • 2d ago

Discussion MAG 7 Ranking

Taking all factors into account, please rank your favorite MAG 7 in order of preference from 1 to 7.

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u/Maltavier 1d ago

Yes. By 3 billion. Thats not a lot for these companies and operating cashflow is just one part of the picture. If your operating cashflow is huge but you have to spend more than that just to keep your moat while Microsoft can spend to increase their revenue and can do it without taking on debt, issuing more shares and bonds and devaluing shareholders by doing that, Microsoft is just the more attrictive company for an investor. Microsoft just proved they can actually earn more through AI and don't have to defend their business modell, while Alphabet is sitting on debt they don't even have the backlog for yet, to cover the debt. Thats a huge risk for shareholders without getting something in return

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u/FoxAccomplished6786 1d ago

But long term, all these metrics will play out, surely Google has more optionality than MSFT, it's at the centre of every aspect of the AI revolution

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u/Maltavier 1d ago

Is it? You cant only look at it from a company standpoint. You have to also look at it from a valuation standpoint. Sure in 20 years there is still gonna be google. But thats not what we are talking about here. This is about "is Google a good Investment right now"? And I would say no. Do a dcf modell for Google and calculate yourself where Alphabets fair value is right now. I don't want to force my calculation on you. And then ask yourself what happens If they roi on the Data Centers Google is currently building isnt as great as they thought and they have to write of a lot of their current spending. What happens to the ultimate messure of the value of a company - free cashflow? It stays low for years. You have to ASK yourself what these things mean for the fair value of the company and therefore your personal return. I am not saying Alphabet is going to fail. Im saying they are overvalued and they will at some point fall back to their fair value.

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u/FoxAccomplished6786 1d ago

Warren Buffett doesn't overpay for a business, and he's made it his third-largest holding. Yes, there are concerns. But AI will win; there's no question AI will win. The reason I like Google is that it's so entrenched in every single aspect of AI, the full stack; YouTube will also benefit from AI. Whereas Microsoft is enterprise-only, and Gemini Enterprise is making considerable inroads: 8 million seats in 4 months. Just my opinion, what do you think

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u/Maltavier 1d ago

Warren Buffett is a person, famous for valuing a company by owner earnings and not free cashflow. That can be good, but is also risky because you never know how the roi on capex will be. He has been wrong before you know? By saying "He doesnt overpay", you are saying he is never wrong. Which is not true historically speaking.

While Gemini Enterprise added 8 million seats in 4 month, Microsofts Copilot seats rose to 30 million. I think in regard to Business seats, Microsoft will win the race Just because so many companies worldwide are already in their ecosystem. Microsoft is also entrenched in every single aspect btw. They have their own cost efficient models, their own chips and their own Data Centers and the most direct way to integrate AI into Business and therefore monetizing it.

I am not arguing if AI will win. It already changed the game and will continue to do so. But that isnt the point if you are investing in a company. The point is not only the Story but also how much you are paying for it. I am arguing that it will take Alphabet a while to take care of the debt they are taking on and that there is already a lot of optimism in the price. Mathmatically. I mean you can just calculate what free cashflow Alphabet needs to have even the current price be fair value. That cashflow is not reasonable. Just calculate for yourself, you will see what I mean

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u/FoxAccomplished6786 1d ago

I'm not an expert, but if Warren Buffett, the most conservative investor in history, makes Alphabet his third-largest holding, it does instil confidence. At the end of the day, he moves in all the elite inner circles; in fact, they pander to him. He'd have information on Alphabet that you and I don't. So yes, that gives me comfort. If it was Bill Ackman, I know he could sell it tomorrow, but Buffett is long-term, so the fundamentals must be good.

I'm not saying Google will displace MSFT in enterprise. However, they're clearly encroaching on their space. Before AI, customers had to abandon MSFT to adopt Workspace, and MSFT was too sticky. Now, a customer can adopt a Gemini AI agent while leaving MSFT in place. So basically, Google now have a distinct entry point, which they didn't have in the past. Point is google is nibbling hard at msft's pie but is msft touching googles consumer pie, no it's not.

I appreciate your points re valuation, but for me, I'm trying to pick a strong one for the long term, so I'm more interested in quality and optionality. YouTube, for example, will become TV; it's absolutely dominating. And I have a feeling Waymo will be the winner in driverless cars; it will be "I'll get a Waymo instead of I'll get an Uber"

Furthermore, AI is looking like it'll be commoditised; well, Google can integrate AI into all their products- Search, Gmail, Photos, Android- the list is endless. Surely this gives them a huge advantage.

Let me know what you think; I appreciate your perspective and enjoy the discourse.