| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
New West Capital analyzes whether the Magnificent Seven's trillion-dollar AI infrastructure spending spree is creating or destroying shareholder value by measuring each company's return on invested capital against its cost of capital. The analysis reveals three distinct groups. Nvidia and Apple represent the winners: Nvidia as the AI buildout's primary supplier has seen returns multiply to 84% while Apple has chosen a capital-light approach, with both avoiding the economics squeeze. Microsoft, Meta, and Alphabet form the middle tier as archetypal builders whose returns have compressed from the low forties to mid-twenties, yet still earn 2.5 to 3 times their cost of capital, shifting from extraordinary to merely excellent. Amazon and Tesla represent the strugglers, with Amazon barely above its hurdle rate and Tesla now destroying value with returns below its cost of capital. The analysis also examines share count management, finding that the five companies clearing their hurdle with room to spare have all shrunk share counts, while the two strugglers have allowed significant dilution. The conclusion: capex spending itself is not the risk, but rather spending that fails to earn above the cost of capital.
The trillion-dollar AI capital expenditure wave across the Magnificent Seven is not a uniform story of value creation or destruction, but rather three distinct narratives based on returns on invested capital versus cost of capital: suppliers like Nvidia and capital-light players like Apple are thriving, builders like Microsoft, Meta, and Alphabet are compressing but still excellent, while Amazon and Tesla struggle at or below their hurdle rates.
The analysis concludes that the dispersion within the Magnificent Seven is widening as AI spending continues, creating opportunities for long-term investors to distinguish between companies buying growth versus those merely buying capacity. The returns on invested capital and share count management separate durable compounders from capital destroyers, with most of the group remaining among the most productive deployers of capital even at the peak of the AI build cycle.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 14 2026 | 2026 Q2 | AAPL, AMZN, GOOGL, META, MSFT, NVDA, TSLA | AI, Capital Allocation, Capital Expenditures, Cloud, Mega-cap, semiconductors, technology | - | The Magnificent Seven's trillion-dollar AI buildout reveals stark divergence in value creation. Nvidia and Apple thrive as supplier and capital-light player respectively. Microsoft, Meta, and Alphabet compress from extraordinary to excellent returns while still earning 2.5x their cost of capital. Amazon barely clears its hurdle while Tesla destroys value. The dispersion creates opportunity for investors distinguishing growth buyers from capacity buyers. |
| Jul 14 2025 | 2025 Q2 | GOOGL, MGNI, PUBM | Advertising, Antitrust, Options, semiconductors, special situations, tariffs, volatility |
MGNI PUBM MGNI PUBM |
New West Partners generated 41.38% YTD returns through volatility arbitrage and special situations investing. A semiconductor options strategy provided downside protection during tariff-induced selloffs, while concentrated bets on Google antitrust beneficiaries Magnite and PubMatic delivered outsized gains. The fund is transitioning to SEC registration to offer more targeted investment strategies. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
AIThe Magnificent Seven technology companies have collectively spent over one trillion dollars on AI infrastructure over the past three years. The analysis examines whether this massive capital expenditure wave is creating or destroying value by measuring returns on invested capital against each company's cost of capital. The verdict is mixed: some companies like Nvidia are benefiting as suppliers, while builders like Microsoft, Meta, and Alphabet are seeing return compression despite still earning well above their hurdle rates. |
Data Centers Cloud Semiconductors Capital Expenditures |
Capital MarketsThe analysis focuses on capital allocation discipline across the Magnificent Seven, examining both returns on invested capital and share count management. Five of the seven companies have shrunk their share counts through buybacks, concentrating ownership, while Amazon and Tesla have allowed significant dilution. However, even among the disciplined capital allocators, buyback activity has softened recently as stock-based compensation has climbed, with Alphabet's buybacks roughly halving over the past year. |
Buybacks Share Repurchases Dilution Stock-Based Compensation | |
SemiconductorsNvidia stands apart as the AI buildout's primary supplier rather than payer, with its capital base growing several times over while profits grew even faster. The company's return on capital has multiplied rather than thinned, though the path wasn't linear, with the spread nearly closing in early 2023 during the gaming and crypto downturn before the AI cycle sent it vertical. The key question is whether Nvidia's exceptional economics can persist beyond the initial AI infrastructure wave. |
Nvidia GPUs AI Infrastructure Chip Designers | |
CloudMicrosoft, Meta, and Alphabet represent the archetypal cloud infrastructure builders, and their returns on capital have compressed as spending runs ahead of realized profits. Microsoft's invested capital has grown more than 2.5 times in four years while its return on capital fell from the low forties to high twenties. Despite this compression, all three still earn roughly 2.5 to 3 times their cost of capital, representing a shift from extraordinary to merely excellent economics rather than value destruction. |
Data Centers Infrastructure Spending Microsoft Alphabet Meta | |
| 2025 Q2 |
VolatilityManager exploited systematic underpricing of risk in options markets through delta hedging strategy on semiconductor industry. The implied volatility was less than realized volatility, allowing insurance to be purchased at below fair value and potentially for free through rebalancing gains. |
Options Delta hedging Risk pricing Insurance |
AdvertisingGoogle antitrust trial regarding monopolistic behavior in digital advertising created opportunity for beneficiary companies like Magnite and PubMatic. These companies were forced to operate in Google's shadow but stand to benefit from increased market share if Google is required to cease monopolistic practices. |
Antitrust Digital advertising Market share Monopoly | |
SemiconductorsSemiconductor industry was the target for volatility hedge strategy due to underpriced options. The sector experienced significant volatility during tariff-induced market drawdown, validating the directionally agnostic insurance approach. |
Options Volatility Tech sector Tariffs |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Jul 14, 2025 | Fund Letters | Kyle Tushaus | MGNI | Magnite, Inc. | Communication Services | Communication Services | Bull | NASDAQ | adtech, advertising, antitrust, Digital, Margins, Programmatic, Publishers, Streaming | Login |
| Jul 14, 2025 | Fund Letters | Kyle Tushaus | PUBM | PubMatic, Inc. | Information Technology | Communication Services | Bull | NASDAQ | adtech, advertising, growth, marketplace, Publishers, Scalability, Streaming, valuation | Login |
| Jul 14, 2025 | Fund Letters | New West Capital | MGNI | Magnite Inc | Communication Services | Interactive Media & Services | Bull | NASDAQ | Ad Tech, antitrust, digital advertising, EBITDA Conversion, Google, market share, Monopoly, Multibagger, Options Strategy, Special situations | Login |
| Jul 14, 2025 | Fund Letters | New West Capital | PUBM | PubMatic Inc | Communication Services | Interactive Media & Services | Bull | NASDAQ | Ad Tech, antitrust, digital advertising, EBITDA Conversion, Google, market share, Monopoly, Multibagger, Options Strategy, Special situations | Login |
| TICKER | COMMENTARY |
|---|---|
| NVDA | Nvidia is the buildout's supplier, not its payer. Its capital base has grown several times over, but the profit it earns on that base has grown faster still. So its return on capital has multiplied rather than thinned. However, the path wasn't a straight line. The spread nearly closed in early 2023, in the depths of the gaming and crypto downturn, before the AI cycle sent it vertical. When the rest of the world is buying your chips to build their data centers, the capex wave becomes your revenue line, not your cost. Notably, even before AI, Nvidia has always ranked high in our approach, clearing the high quality bar as far back as 2001. Whether that continues past the initial AI wave is the real question to ask. |
| AAPL | Apple is the mirror image. It has chosen to rent the AI era rather than build it — leaning on partners and the cloud instead of capitalizing its own campuses. Its invested capital has barely moved in four years, and the return on that capital has quietly climbed, with a distinct step up in the past several quarters. Neither company's economics are being squeezed by AI spending. If anything, both are on the receiving end of it. Apple has shrunk its share count by nearly a tenth over the past four years. |
| MSFT | Microsoft is among the archetypal builders, and its returns on capital have compressed. Microsoft's invested capital has grown more than two-and-a-half times in four years, and its return on that capital has fallen from the low forties to the high twenties. Even after the compression, Microsoft still earns roughly two-and-a-half to three times its cost of capital. A business whose return falls from 42% to 27% against a cost of capital near 9% has not stopped creating value — it has gone from extraordinary to merely excellent. Microsoft has shrunk its share count, though by less than some peers. |
| META | Meta is among the archetypal builders, and its returns on capital have compressed. Meta's arc is more dramatic than a single number suggests. Its spread dropped hard through 2023's year of efficiency, then recovered. Even after the compression, Meta still earns roughly two-and-a-half to three times its cost of capital. Meta has shrunk its share count by six to eight percent over the past four years. However, Meta's share count has quietly ticked back up over its last few quarters as stock-based compensation has climbed, and the buyback offset that made net dilution negative is thinning. |
| GOOGL | Alphabet is among the archetypal builders, and its returns on capital have compressed, though Alphabet's arc has been the steadiest in the entire group. Even after the compression, Alphabet still earns roughly two-and-a-half to three times its cost of capital. Alphabet has shrunk its share count by six to eight percent over the past four years. However, Alphabet's buybacks have roughly halved over the past year while its stock-based pay has climbed toward twenty-six billion dollars, and the offset that made net dilution negative is thinning. |
| AMZN | Amazon has run the same capital-heavy playbook, and for years it earned roughly its hurdle and no more. Its spread even dipped below zero in 2022. It climbed clearly above the line in late 2023 and looked to be building a real cushion. But the most recent quarters cut the other way. As its invested-capital base has surged past half a trillion dollars, the spread has thinned back toward its hurdle. Amazon is creating value again, but the current capex wave is pressing on that margin in real time, not relieving it. The verdict here is genuinely open. Amazon has let its share count drift up around six percent, buying back nothing while paying its people some twenty billion dollars a year in stock. |
| TSLA | Tesla is the cautionary tale the other six aren't. It ran an aggressive buildout while the return on that capital collapsed from the low thirties to single digits. Against a cost of capital its own volatility keeps elevated, it now sits below the line. For the moment, its capital spending is consuming value rather than creating it. Same capex-heavy pattern as the builders; the opposite answer. If it truly is a technology company, perhaps a reversal is in order. If it is in fact a car company, this is not out of the ordinary. Tesla's share count has swelled more than twenty percent, with a sharp jump in late 2025. |
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