BIG TECH WEEKLY | Google's still cheapest of Mag7?

Big-Tech’s Performance

The Christmas rally intensified in December, with Big Tech hitting new highs this week, from Tesla, which has been languishing for six months and is starting to hit new all-time highs, to Google, which has been treated with caution by investors.In addition, the cryptocurrency market pushed up related risk sentiment, with the Christmas market often being a yearly earnings sprint.

However, risk events have not diminished, due to concerns about the Fed's "hawkish rate cuts", the dollar rose, U.S. bonds under pressure, gold also began to recover.

To close on December 13, the past week, the big technology companies as a whole rose. $Apple(AAPL)$ +2.02%, $NVDA-5.32%, $Microsoft(MSFT)$ +1.57%, $Amazon.com(AMZN)$ +3.82%, $Alphabet(GOOG)$ $Alphabet(GOOGL)$ +11.19%, $Meta Platforms, Inc.(META)$ +3.59% and $Tesla Motors(TSLA)$ +13.16%.

Big-Tech’s Key Strategy

A couple of big moves from Google, stealing business from the giants

1 Quantum chips, another way out?

Google has just unveiled its new quantum computing chip, Willow, and emphasized its achievements in "outperforming classical computing": exponentially fewer errors and exponentially higher performance.According to QC's report, the quantum computing market will be close to $30 billion by 2035, with healthcare and AI being the main beneficiary sectors, which are still in their early days but could drive Google's revenues to $138 billion.

Many investors will compare it to Nvidia chips.Quantum Computing (QC) and Artificial Intelligence (AI) are both revolutionary technologies, but are actually very different.It can be simply understood: AI is a software revolution and quantum computing is a hardware revolution.Of course, the line between software and hardware is becoming more and more blurred these days; AI is defined as a computer program, but one that would be difficult to implement without an NVDA GPU.

So quantum computing chips aren't going to replace GPUs, but will take the capabilities of computers to a new level.It can be said that Google has taken a differentiated route, but quantum computing is still a long way from commercial use.

2 The Battle of the Big Models

Gemini 2.0 was released, with a full shift to Agents and support for multimodal input and output, twice as fast as 1.5 Pro.What's more, images and audio can be generated natively, along with support for text generation, and third-party apps and services can be used, enabling access to Google search, code execution, and other features, which largely increases the monetization cap.

Compared to OpenAI's o1 Pro model, Gemini has a cost advantage.

Google can bridge hardware and software systems, Gemini 2.0 can also be trained on his sixth-generation TPU Trillium, compared to Nvidia's GPUs can be more efficient to meet the support and optimize specific frameworks.

3 AI devices?

Google also showed off an updated version of Project Astra, a system designed for smartphones and smart glasses, this week, as well as plans to partner with Samsung on new smart glasses and VR headsets as a way to compete with Apple's Vision Pro and Meta's collaboration with Rayban'sglasses to compete.

4 Impact of the DOJ's offer

The remedy proposed by the DOJ in response to the browser search monopoly case was that Google would syndicate search ads to partners at a 25% "reach" for one year, and would be required to eliminate contracts with browser and device companies and push partners to seek out alternatives, such as with Bing, for which Google could licensees tocharge a 10% marginal cost.

If this happens, 1. Apple's existing search revenue sharing agreement with Google will be terminated, and Apple may be required to accept a lower revenue share, such as 50% or less; and 2. in the second year, if Bing closes the "revenue per query RPQ" gap with Google, Apple's revenues may be close to the previous level.

Implications for Google: If the RPQ gap narrows to less than 50% and Apple is able to capture a more favorable share of revenue, it may gain, otherwise it will face a decline in revenue.

Google's PE (TTM) is also currently among the lowest among Big Tech companies.

Big-Tech Portfolio

This week we look at: year-end pressure on NVDA at 150?

Compared to Google and Tesla's backwardation, NVDA has been consolidating at a high level since November, with the current PUT/CALL ratio dropping to 0.76 and the volume ratio to only 0.5. Whether or not it can break above 150 is an important test for the end of the year from the perspective of the December monthly options.Currently the chips tend to be relatively concentrated, trading momentum is relatively shrinking.

Big-Tech Portfolio

The Magnificent Seven form a portfolio (the "TANMAMG" portfolio) that is equally weighted and reweighted quarterly.The backtesting results are a far outperformer of the $.SPX(.SPX)$ since 2015, with a total return of 2,546.59% and a $SPDR S&P 500 ETF Trust(SPY)$ return of 249.11% over the same period, for an excess return of 2,297.48%.

Big tech stocks underperformed this week, but year-to-date returns are still there to 67.31%, outperforming the SPY's 28.35%, with a record high excess return of 38.96%.

The portfolio's Sharpe Ratio over the past year has rebounded to 2.26, the SPY is 2.4, and the portfolio's Information Ratio is 1.23.