Mixed performance - a week of big tech's performance.

This Thursday, US stocks will be closed for an unscheduled holiday, resulting in a shorter trading day that may have impacted the pricing of important Options such as the $NASDAQ 100 ETF (QQQ).

The most important macroeconomic data will be the December non-farm payrolls released on Friday, as the Federal Reserve's focus on the labor market is much higher than on inflation, meaning the December non-farm data could have a greater impact than the upcoming FOMC meeting.

However, the current market consensus is that the probability of a rate cut this month is virtually zero. As a result, the dollar is very strong, and the US Treasury yield curve continues to steepen.

Currently, US stock valuations are also at historical highs, and with market uncertainty increasing in 2025, this is bound to bring greater volatility. Trump's policies may become a significant source of that uncertainty.

As of the close on January 8, in the past week, the performance of large tech companies has started to diverge (also a reflection of uncertainty). Among them, $Apple (AAPL)$ -3.08%, $NVIDIA (NVDA)$ +4.33%, $Microsoft (MSFT)$ +0.72%, $Amazon (AMZN)$ +1.24%, $Google (GOOG)$ $Google A (GOOGL)$ +2.45%, $Meta Platforms, Inc. (META)$ +4.31%, $Tesla (TSLA)$ -2.2%.

Core trading strategies that affect asset portfolios - big tech's core views of the week.

Microsoft in 2025: The "Prisoner's Dilemma" of Capital Expenditures & The Post-Moonlighting Era with OpenAI

Compared to Apple and NVIDIA, Microsoft has been the most low-profile member of the "3 trillion club" over the past year—affected even less by the Large Cap market and its influence on the market has also diminished. Why has MSFT gradually become less significant among big tech firms? What opportunities and risks lie ahead in 2025?

Highlight 1: Has Capital Expenditure Become a "Prisoner's Dilemma"?

Microsoft plans to invest 80 billion to 90 billion dollars in AI datacenters by 2025, marking a shift to a capital-intensive model. In fact, in 2024, Microsoft was a major chip buyer, purchasing 0.485 million NVIDIA Hopper chips, nearly double that of the second place, META.

For investors, concerns about profitability and free cash flow have begun to surface. A substantial amount of capital expenditure has already started impacting depreciation and amortization, as evidenced in Amazon's 24Q3 fiscal quarter, and it is only a matter of time before it affects Microsoft. Additionally, related operating costs will also rise accordingly, which will directly impact free cash flow and even buybacks.

Currently, a "Prisoner's Dilemma" has arisen among big tech in terms of capital expenditure.

Many companies have the choice of both "cooperation" and "competition." Each company can benefit from controlling excessive spending; however, if one company chooses to invest heavily while others do not, it may gain significant market advantages. This results in a situation where all companies feel pressured to make more investments than they might have originally chosen, leading to inefficiency in investments, excessive competition, and market saturation.

Imagine if the market really needs so many "functionally similar" but "differently branded" AI tools.

Highlight 2: What happens after the honeymoon period with OpenAI?

Microsoft was one of the first to benefit from the rise of OpenAI, but now ChatGPT and Copilot also represent direct competition. At the same time, the relationship between Microsoft and OpenAI is not "unbreakable," as the latter also faces cash flow issues; of course, there are still many companies looking to invest in OpenAI. OpenAI and Microsoft are negotiating several key issues, including equity distribution, exclusive cloud supply relationships, intellectual property usage periods, and revenue sharing ratios.

According to a non-public agreement reached between Microsoft and OpenAI, AGI is only considered achieved when the system developed by OpenAI can bring the earliest investors like Microsoft their due maximum total profit, totaling about 100 billion dollars. In other words, without a new agreement, Microsoft will not be able to use the technology developed by OpenAI after reaching the AGI stage, which is also a threat issued by OpenAI to extricate itself from obligations to Microsoft.

Highlight 3: Can Azure's growth continue to exceed expectations?

The increase in AI workloads in the cloud infrastructure unit and cloud application business is an important driving factor. Currently, the market expects Azure to grow in the second half of the 2025 fiscal year. On one hand, Microsoft has made progress in procuring more GPUs and increasing cloud capacity, while on the other hand, enterprise customers are increasing their adoption of OpenAI software and recovering non-AI cloud workloads.

The expected growth rate for Azure in Q1 2025 is +34%, similar to the 35% from the previous quarter, mainly constrained by capacity.

Highlight 4: The application rate of Copilot.

Compared to Google and META, Microsoft finds it easier to monetize advertising efficiency, with Copilot being an important avenue for AI monetization, which will also enhance marketing efforts to increase daily active Copilot users. New features have been released for the Dynamics suite, followed by price increases.

Microsoft has forcefully integrated the AI assistant Copilot into Microsoft 365 consumer subscription services in Australia and several Southeast Asian countries, while also raising subscription prices; additionally, they are promoting Copilot to enterprise software customers at a price of $30 per person.

Furthermore, the adoption rate of Copilot in the coding field is expected to be very high, which will drive revenue growth for GitHub.

Highlight 5: Key metrics and Financial Estimates for FY 2025.

Due to the impairment of Cruise and investment losses in OpenAI, the EPS starting in Q2 of fiscal year 2025 may decrease, affecting the EPS expectations for fiscal years 2025 and 2026 (below revenue growth, YoY +10.7%), but the revenue expectations for 2025 and 2026 remain unchanged at $278.5 billion (YoY +13.6%) and $318.3 billion respectively.

Option Observer - Big Tech Option Strategies.

This week we focus on: NVIDIA's 'sharp turn'.

Due to the lack of a workday, Options Trading in the first two days of this week was relatively concentrated. NVDA became the best-performing large Technology stock due to CES and once rose to an all-time high. In the Options set to expire this week, many are betting on a new High Stock Price of 150-160, resulting in a large number of new Orders. However, Wednesday's significant pullback nearly shattered the bullish expectations, leading to a current state of unrealized losses. If Friday's non-farm data does not bring major surprises, it might also be difficult to see a rise of nearly 10% in one day. As for next week (with expiry on the 17th), there are no substantial Orders above 150 for Calls, so short-term speculative sentiment is beginning to rise, reflecting the increasing expectations of market uncertainty.

What is the reason to hold positions in large cap tech stocks, and why does the "TANMAMG" portfolio outperform the sse mega-cap index?

The Magnificent Seven forms a portfolio ('TANMAMG' portfolio) with equal weight, adjusting weights every quarter. The backtest results since 2015 have significantly outperformed the S&P 500, achieving a total return of 2490%, while the SPY return was 241.67%, resulting in excess returns of 2248%.

Although the large tech stocks experienced a pullback this week, their returns since the start of the year still stand at 61.82%, exceeding SPY's 24.89%, with excess returns reaching a new high of 41.45%.

The Sharpe ratio of the portfolio has risen to 2.54 over the past year, compared to 1.64 for SPY, while the portfolio's information ratio is 2.19.