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"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."
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.
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