Yes and no, each case is unique, but in general I tend to disagree. In general, I think these businesses are now so large, dominant, and entrenched that the CEO is less important. NVDA and TSLA are exceptions because they have yet to achieve the network effects/ecosystem lock-in of the other 5. Not surprisingly they are the most volatile of the bunch as their futures are less certain IMO.
You make the point that "these businesses are huge and complex." I agree, but I think this also means that more management of the various business lines is delegated, and the talent bench and institutional knowldge at these companies is very deep. Another way you could look at this is to say in total the Mag7 has undergone 6 CEO changes by my count (Cook, Balmer, Nadella, Schimdt, Pichai, Jassy), and only one of those was a failure (Balmer). So a 5/6 record so far.
"They need to catch and respond to technology shifts or else they’re dead." Again, yes and no. I'd say the two big tech shifts we've gone through in the 2000s are mobile and cloud. Microsoft missed mobile (Balmer), but got cloud and revived themselves (Nadella). Facebook arguably missed mobile at the OS level, but they nailed the transition at the app level. I'd argue we're going through the 3rd shift right now with AI, and Google is at the largest risk of tech disruption if there is a web search to conversational AI shift underway, which I think there is. If they miss it, are they dead? It would definitely hurt, a lot, but I'd argue between YouTube and GCP they probably have enough to stand on even if the search business gets cannibalized by AI. Alternatively, I can see a future where AI expands the market as consumers begin asking new questions that they wouldn't have even asked search before. Time will tell.
"Where is META if they don’t shift to mobile and buy instagram? Amazon if they don’t lean into AWS? GOOGL if they don’t buy YouTube? MSFT if they stay dogmatically committed to Windows?" When META bought Instagram in 2012 it wasn't even public yet. When Google bought YouTube in 2006 it had a market cap of $150 billion. These businesses are in vastly more priveleged competitive positions today than at those times. Point being, yeah, they needed those moves at those times to achieve the heights they've gone on to achieve, but now, in part because of those moves, their positions at the mountain tops are unassailable. AMZN invented cloud, so it is kind of hard to say where they'd be without it, but I think their retail/marketplace/logistics/advertising businesses would be no worse for wear without cloud? MSFT reinventing themselves after Windows is a good point, and the Balmer failure and Nadella turnaround might be the exception that proves your rule!!
NVDA and TSLA I think are much, much more dependent on Jensen and Elon than the other 5 businesses.
NVDA I think is a one-off case study because they are uniquely purely B2B among the Mag7 and are trying to achieve the ecosystem lock-in and network effects (with CUDA/software) that AMZN, AAPL, META, GOOG, MSFT have already achieved. They are not there yet IMO. They are still a cyclical hardware business without network effects until proven otherwise. Jensen of course has seen (and invented) the future of compute clearer than anyone, so I don't about his ability to achieve this with NVDA. But for now their game is still selling as many GPUs as possible.
TSLA similarly does not yet have network effects. I think they are building toward a network effect business in robotaxi and I think they will get there with or without Elon. But I don't think their energy, robotics or AI efforts have nearly the same right tail without Elon at the helm.
In sum, I guess what you made me realize here is that I think there is a really a Mag5, not 7. This is already apparent in companies like TSLA and NFLX being included/excluded from the group over time, but the core 5 never change.
The 5 I think could be "run by an idiot" to use a Buffett tritism (not a slander at current CEOs, who I think are all either undeniably exceptional or deserve the benefit of the doubt at this time, with Pichai being the most tenuous).
NVDA and TSLA are more dependent on the vision and execution of their founders, and have a much wider range of outcomes than the others IMO. Thus, studying these two and only these two businesses and getting them "right" might be a big source of alpha for active managers.
I think Blackberry is a cautionary tell for Apple wrt mismanagement, probably Tesla as well.
The problem with Meta, Google, Msft, and Amazon is the amount of overlap/competition between them. If that weren't the case, these businesses can probably stand quite a bit of mismanagement. But the current set up means that the room for error is much smaller.
Excellent article, completely agree with your conclusions about founder mentality and critical importance in these companies. I’d add that Jensen Huang of NVDIA is a stand out, brilliant strategist and in many ways is like Steve Jobs.
Thought provoking! If I may...
Yes and no, each case is unique, but in general I tend to disagree. In general, I think these businesses are now so large, dominant, and entrenched that the CEO is less important. NVDA and TSLA are exceptions because they have yet to achieve the network effects/ecosystem lock-in of the other 5. Not surprisingly they are the most volatile of the bunch as their futures are less certain IMO.
You make the point that "these businesses are huge and complex." I agree, but I think this also means that more management of the various business lines is delegated, and the talent bench and institutional knowldge at these companies is very deep. Another way you could look at this is to say in total the Mag7 has undergone 6 CEO changes by my count (Cook, Balmer, Nadella, Schimdt, Pichai, Jassy), and only one of those was a failure (Balmer). So a 5/6 record so far.
"They need to catch and respond to technology shifts or else they’re dead." Again, yes and no. I'd say the two big tech shifts we've gone through in the 2000s are mobile and cloud. Microsoft missed mobile (Balmer), but got cloud and revived themselves (Nadella). Facebook arguably missed mobile at the OS level, but they nailed the transition at the app level. I'd argue we're going through the 3rd shift right now with AI, and Google is at the largest risk of tech disruption if there is a web search to conversational AI shift underway, which I think there is. If they miss it, are they dead? It would definitely hurt, a lot, but I'd argue between YouTube and GCP they probably have enough to stand on even if the search business gets cannibalized by AI. Alternatively, I can see a future where AI expands the market as consumers begin asking new questions that they wouldn't have even asked search before. Time will tell.
"Where is META if they don’t shift to mobile and buy instagram? Amazon if they don’t lean into AWS? GOOGL if they don’t buy YouTube? MSFT if they stay dogmatically committed to Windows?" When META bought Instagram in 2012 it wasn't even public yet. When Google bought YouTube in 2006 it had a market cap of $150 billion. These businesses are in vastly more priveleged competitive positions today than at those times. Point being, yeah, they needed those moves at those times to achieve the heights they've gone on to achieve, but now, in part because of those moves, their positions at the mountain tops are unassailable. AMZN invented cloud, so it is kind of hard to say where they'd be without it, but I think their retail/marketplace/logistics/advertising businesses would be no worse for wear without cloud? MSFT reinventing themselves after Windows is a good point, and the Balmer failure and Nadella turnaround might be the exception that proves your rule!!
NVDA and TSLA I think are much, much more dependent on Jensen and Elon than the other 5 businesses.
NVDA I think is a one-off case study because they are uniquely purely B2B among the Mag7 and are trying to achieve the ecosystem lock-in and network effects (with CUDA/software) that AMZN, AAPL, META, GOOG, MSFT have already achieved. They are not there yet IMO. They are still a cyclical hardware business without network effects until proven otherwise. Jensen of course has seen (and invented) the future of compute clearer than anyone, so I don't about his ability to achieve this with NVDA. But for now their game is still selling as many GPUs as possible.
TSLA similarly does not yet have network effects. I think they are building toward a network effect business in robotaxi and I think they will get there with or without Elon. But I don't think their energy, robotics or AI efforts have nearly the same right tail without Elon at the helm.
In sum, I guess what you made me realize here is that I think there is a really a Mag5, not 7. This is already apparent in companies like TSLA and NFLX being included/excluded from the group over time, but the core 5 never change.
The 5 I think could be "run by an idiot" to use a Buffett tritism (not a slander at current CEOs, who I think are all either undeniably exceptional or deserve the benefit of the doubt at this time, with Pichai being the most tenuous).
NVDA and TSLA are more dependent on the vision and execution of their founders, and have a much wider range of outcomes than the others IMO. Thus, studying these two and only these two businesses and getting them "right" might be a big source of alpha for active managers.
This was a really thoughtful reply. I'm not sure I agree with much of it, but thanks for taking the time
That's what makes a market!
I think Blackberry is a cautionary tell for Apple wrt mismanagement, probably Tesla as well.
The problem with Meta, Google, Msft, and Amazon is the amount of overlap/competition between them. If that weren't the case, these businesses can probably stand quite a bit of mismanagement. But the current set up means that the room for error is much smaller.
Excellent article, completely agree with your conclusions about founder mentality and critical importance in these companies. I’d add that Jensen Huang of NVDIA is a stand out, brilliant strategist and in many ways is like Steve Jobs.
“If it's trite, it's right.” -Charlie Munger