Madrona's Matt McIlwain called it: A year later, Microsoft and Amazon are outpacing Apple

Venture capitalist Matt McIlwain's 12-month thesis on Big Tech performance dispersion has been validated, with Amazon up 25% and Microsoft up 15% versus Apple's 5% decline, attributing this divergence to market confidence in Microsoft and Amazon's AI strategies while Apple struggles. McIlwain emphasized that Big Tech no longer moves in lockstep, with increasing performance dispersion driven by fundamental business differences, making selective investment crucial ahead of the upcoming earnings season. He also cited Google's valuation uncertainty and the reopening IPO window.

Analysis

Venture capitalist Matt McIlwain's thesis of performance dispersion among Big Tech has materialized over the past 12 months, with Amazon (+25%) and Microsoft (+15%) significantly outperforming Apple (-5%). This divergence is attributed to the market's growing confidence in the artificial intelligence strategies of Amazon and Microsoft, while Apple is perceived to be lagging in this critical growth area. The trend of decoupling is expected to persist, signaling an end to the era where mega-cap tech stocks moved in unison. Alphabet (Google) presents a unique case, characterized by high uncertainty and a discounted valuation, trading at approximately 20x price-to-earnings compared to the 30x multiple of its peers, making it a particularly difficult stock to assess. This analysis precedes a critical earnings season, with Alphabet reporting this week, followed by Microsoft, Amazon, and Apple, which will provide crucial data points to either validate or challenge these prevailing market narratives.

Key Decisions for Investors

• Investors should abandon a monolithic approach to Big Tech and instead focus on selective stock-picking, prioritizing companies with clear and convincing long-term AI strategies.
• Consider maintaining or increasing exposure to Microsoft and Amazon, as they continue to demonstrate market leadership in AI, while a cautious or underweight stance on Apple may be warranted until it presents a more compelling AI narrative.
• Scrutinize Alphabet's upcoming earnings report for any clarity on its AI monetization and competitive positioning, as its current discounted valuation presents both a potential value opportunity and a significant risk.
• Anticipate heightened volatility around the upcoming earnings releases, which will serve as a key catalyst to either reinforce or reset the current performance dispersion among these tech giants.