Core Concepts
The author discusses the strategic imperatives and lessons learned from the performance of the Magnificent Seven stocks, highlighting the shift in cost structures and the importance of leveraging scale in today's business environment.
Abstract
The article delves into the concept of 'The Magnificent Seven' stocks, including Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. It explores how these companies have driven significant gains in the S&P 500 due to their unique business models and cost structures. The discussion emphasizes the shift from variable to fixed costs in modern businesses and how this impacts strategic imperatives. Additionally, it touches on the importance of leveraging scale for competitive advantage in high-fixed-cost industries. The variability across the M7 companies is analyzed based on their variable/fixed cost ratios, showcasing different approaches to scaling and profitability. Furthermore, the article highlights that low variable costs are not the sole factor for success and discusses how companies like Meta and Tesla face challenges despite their cost advantages. Lastly, insights are shared on where-to-play/how-to-win strategies within the M7 group.
Stats
The S&P 500 advanced 24% in 2023.
The Magnificent Seven (M7) surged ahead by 107%.
COGS was 72% of revenue in 1972.
By 2012, COGS were down to 51% and SG&A up to 24%.
Quotes
"Groups of companies are rarely as homogenous as they seem."
"Lists like this never last forever."