Rajiv Thakkar, CIO of PPFAS Mutual Fund, justified the valuations of the shares of America’s leading 7 technology companies. These companies are called ‘Magnificent Seven’. These include Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. He believes that there is a big difference between these companies and new AI companies. He has described the American market as much safer from the investment point of view compared to the cheap shares of China.
Thakkar made several important points at the PPFAS Annual Shareholders Meeting in Mumbai on 22 November. He said, “Companies like Alphabet, Meta, Amazon and Microsoft generate huge cash flows. They should not be compared with heavily investing AI companies or cyclical chipmakers.” He said that the revenue of AI companies is much less than their cash burn.
He said that big companies manufacturing semiconductors also have to face ups and downs. He said, “NVIDIA is dependent on the chip cycle…Margins may come down. Hyperscalers are designing their own AI chips. This may impact the demand for Nvidia chips in the future.” He refused to compare the valuations of American technology companies with the valuations of Nifty 50 companies.
“The multiples are 20, 25, 30 times earnings—this is not bubble territory—and there is a lot of cash on the balance sheet. Berkshire Hathaway recently reported a $5 billion investment in Alphabet. If the valuations were like the Nifty companies, Berkshire would not have made this new investment,” he said. PPFAS’s sole equity fund has invested significantly in US technology stocks. PPFAS’s equity fund had 11 per cent investment in foreign stocks in October this year. In this, the stake of Alphabet Inc. Class A shares was 3.75 percent, Meta Platforms Class A shares was 2.7 percent and Microsoft was 2.68 percent.
On Chinese stocks, Thakkar said that their valuations are low, but the risk is very high. He said, “Shares of multinational companies of America or Europe are more attractive than shares of Chinese companies. There are risks regarding governance in China. Foreign ownership is banned in many key sectors in China. The risk for investors increases due to ADR structures. The owners of these ADRs do not have voting rights.”