The Ouroboros of Big Tech: How the Magnificent 7 Are Eating Themselves Alive
The Biggest Single-Day Loss for a Public Company
On Monday, Nvidia, the artificial intelligence giant, suffered a massive loss of nearly $600 billion in value, the largest single-day loss for a public company on record. This sudden and dramatic decline has left many investors wondering how the fortunes of one of the leading companies in the tech industry could fall so far so suddenly.
The Ouroboros: A Pervasive Mythological Symbol
The image of the ouroboros, a serpent eating its own tail, is a remarkably durable and pervasive motif across ancient cultures, symbolizing the cyclic nature of life, the totality of the universe, and fertility. Today, the more resonant lesson from the ouroboros is that it helps us understand the most significant financial puzzle of our day.
Big Tech: A Self-Cannibalistic Cycle
I believe Big Tech is eating itself alive with its component companies throwing more and more cash at investments in each other that are likely to generate less and less of a return. This self-cannibalistic cycle is reflected in the staggering disjunction in valuations between Big Tech and the rest of the stock market. The Magnificent 7, comprising Microsoft, Apple, Amazon, Nvidia, Tesla, Meta, and Alphabet, still constitute more than 30% of the market capitalization of the S&P 500, while the Unmagnificent 493, the rest of the market, have much more moderate valuations.
The Myth of the Ouroboros: A Cautionary Tale
The myth of the ouroboros suggests an alternative outcome. The first step in understanding this analogy is to return to some finance basics. Stock prices don’t always rise because the future prospects of companies improve. They also rise when investors judge certain companies to be a safer bet than others and don’t penalize them for taking longer to generate returns for their money.
The Ouroboros of Big Tech: A Cycle of Self-Cannibalization
The image of the ouroboros helps us understand the self-cannibalization of Big Tech. The Magnificent 7 are pouring more and more cash at investments in each other, which are likely to generate less and less of a return. This self-cannibalization is reflected in the massive spending on infrastructure, the buying of products and services from one another, and the practice of stock buybacks.
A Slow Grind of Low Returns on Excessive Spending
This excessive spending on a technological future that will not be nearly as revolutionary or imminent as promised may just yield correspondingly low returns. The self-cannibalization will not just reveal itself to be a mediocre investment but a shaky bet on an illusion propagated by a mythical and messianic belief in technology and these companies.
A Cautionary Tale: The Rail Industry of the 19th Century
Similar dynamics have shaped previous periods in American history. The remarkable expansion of railroads in the 19th century gave rise to similar magical thinking. However, after a few decades of frenzied investment, the rail industry’s low yields fueled spending on steel, and ultimately, the creation of the huge conglomerate U.S. Steel in 1901. What followed? Remarkably low profits from these companies and mediocre returns from the stock market overall.
Conclusion
The ouroboros of Big Tech is a cautionary tale of self-cannibalization, where companies are eating themselves alive with excessive spending on investments in each other. This cycle of self-cannibalization may ultimately yield correspondingly low returns and expose the illusion of the Magnificent 7 as a shaky bet.
Frequently Asked Questions
Q: What is the ouroboros?
A: The ouroboros is an ancient mythological symbol of a serpent eating its own tail, symbolizing the cyclic nature of life and the totality of the universe.
Q: What is the connection between the ouroboros and Big Tech?
A: The ouroboros helps us understand the self-cannibalization of Big Tech, where companies are pouring more and more cash at investments in each other that are likely to generate less and less of a return.
Q: What is the significance of the Magnificent 7?
A: The Magnificent 7, comprising Microsoft, Apple, Amazon, Nvidia, Tesla, Meta, and Alphabet, still constitute more than 30% of the market capitalization of the S&P 500, while the Unmagnificent 493 have much more moderate valuations.
Q: What is the implication of the ouroboros for the future of Big Tech?
A: The ouroboros suggests that the self-cannibalization of Big Tech may ultimately yield correspondingly low returns and expose the illusion of the Magnificent 7 as a shaky bet.
