00:00 Brad Smith
Big Tech and AI have dominated market conversations over the last few years, with the NVIDIA chipmaker being regarded as a favorite of space. The action is over 1000% in the last 5 years. But our next guest says that the history of the dominance of big technologies is not new. Here with more we have Ahmed Banafa, who is a teacher of the Faculty of Engineering at the San Jose State University of State University. Ahmed, it’s great to be here with us. Translate us through the history of concentrated market leadership as you have studied it and how it compared to today.
00:47 Ahmed Banafa
I talk to you good, Brad. Well, I’ve watched this movie before. Here’s what happened. We are talking about Nifty 50 in the 70s of the last century, and then we moved to the end, you know, in the technology giants in the late 1990s, when we had.com. And then we saw something about Fang, Faang, you know, in 2010, and now we’re talking about magnificent seven. So, concentration is not something new. This is a matter of what they present. Now this thing about the cycle itself and what we saw in these seven fantastic seven here is basically what they offer. I want to say, in a few words, I want to say that they dominate certain areas that touch every level of economy, which is AI, cloud calculations, semiconductors, and the consumer platform. That’s why it’s really significant.
02:21 Brad Smith
So, with this in mind and I’m glad you raised Fang because we saw that this hit so many different iterations. It was difficult to keep track of. We saw that he was moving from Fang to Fangman to Batman and at one point. I want to say that there are so many different iterations from them, but one thing that is really interesting that came to the top of my mind for this conversation, which is how these companies are different than they were when we talked about the exquisite 50s of the day?
03:13 Ahmed Banafa
This is a good question. There are three things that distinguish the seven, the magnificent seven, you know, except for Tesla, because they are now going through hard weather, but it is still a solid company. The number one is that they make that they make money. They have a lot of profit. And we saw, uh, you know, Meta $ 42 or $ 43 billion and the same thing from Amazon, $ 143 billion and $ 70 billion coming from and came from Microsoft. And today we will hear from Apple. This is number one. They make a lot of profit. Number two, they have money. They have a reserve that this is cash, you know, a rich reserve. And number three, they are global. They are not limited within, you know the United States or a particular geographical area. That’s what he does, you know, the seven are different from those before.
04:56 Brad Smith
So about 30% of the S&P 500 is now just these seven shares. How big is this for the average investor?
05:14 Ahmed Banafa
This is a really high risk in this case. The reason for this, everything you only need two of them to stumble. And you know, they have a bad profit or have a bad, you know, a future look and now we will have 30% of them from the S&P 500 that really suffer from it. The key thing about him is that investors look at a very important point here, which is AI. I want to say that AI is not only what the products that the company will sell or services. This is what they do inside the companies. For example, Brad, uh, you know, yesterday, Microsoft CEO, he said that 30% to 30% of the UH code in Microsoft is done by AI. The same goes with the alphabet or Google. Moreover, about 25% of the code is written by AI, which means that they do not need so many people, which will reduce the cost of the company to increase sales of services outside the company. This is the difference.
07:00 Brad Smith
So, what does these seven companies make so difficult to reject from their place essentially at the top of the type of chain that really leads so much of the flames on the market right now?
07:37 Ahmed Banafa
Well, what they offer and their position in the market and the market share they have. You talk about a company like Amazon. I look at their market share and what services they offer. Take a look at Nvidia, I want to say, the King of the semiconductor, especially the AI chips. Every time we think we reach the end, they invent a new chip and then you can start the one with meta. Meta is trying to expand by having its AI services or has other services they offer to users. They understand that competition is really difficult and everyone looks at them as who will be next, you know, from this seven and then they will take their place. But they understand this. They spend, you know, billions of dollars in research and development, billions of dollars to make sure they understand the market and they will be the first to be on the market with an artificial intelligence product, as we see that this is actually the future on the market.
09:04 Brad Smith
Ahmed, thank you very much for taking the time here with us. A really insightful discussion. Appreciate it.
09:12 Ahmed Banafa
Thank you.