7.7% of my savings for retirement are invested in one company – Microsoft, more than a quarter in one sector, US technology. By comparison less than 4% of my savings are invested in the UK.

When someone who runs a major US pension fund speaks about his/her confidence in US technology stocks, I read the article, frankly it matters rather too much for my comfort or anyone who is close enough to retirement not to be taking unnecessary risk.

Yes, I could stand a 10% fall in these stocks as Steven Meier predicts but I could not stand losing the amount of money that was lost at the beginning of the century when the “software” sector imploded.

The issue is whether to ride out corrections and keep confident that technology (AI as we see it today) will change lives permanently or whether we are in the froth and what sits beneath is pretty vapid. If the latter, many of us have retirement hopes buoyed by over-confidence.

Thanks to Mary McDougall for interviewing Meier and offering us some thoughts from someone who is changing jobs and currently in a position to speak his mind.

Steven Meier, chief investment officer at the $302bn New York City Retirement Systems, known as Nycers, told the Financial Times that “optimism” had been priced into tech stocks “but I wouldn’t call it euphoric at this point”.

Pricing optimism into shares is an American thing to do (maybe why so many British stock companies have sold out to America).

“I’m not overly concerned, I think we are in an investment supercycle,” Meier said, adding that AI “does just have an enormous potential to change the way we live, the way we work, we play, and hopefully with vast improvements in quality of life”.

I don’t hear much talk of the improvement of the quality of living that comes from the use of technology. But it is undoubtedly easier to do jobs such as mine with access to information made available through data centers.

However, he added that it “would not be a bad thing if we saw a 10 per cent correction, which is something we typically see every couple of years”.

Could I see a fall of 10% in the value of a quarter of my pension pot? That would be 2.5% in terms of direct holdings in technology plus the shake it would have in markets. But that is the kind of risk we take in a DC world where the risk is not shared , the pain not smoothed. It is risk that I can live with, I’m not so scared as to sell out and I may be regretting thinking and writing that in a month’s time!

Chipmaker Nvidia became the world’s first $5tn company this week after its shares gained more than 57 per cent in the year to date. Shares in Google owner Alphabet have risen more than 40 per cent, while Microsoft is up close to 30 per cent following big bets on AI and its associated infrastructure.

Some investors fear that valuations are increasingly outpacing AI’s real-world applications, and that the interconnectedness of companies is artificially inflating their share prices.

Where do you stand on this? Are you close to retirement and worried about the vulnerability of your pot? Wouldn’t you like to have exposure to the upside but someone managing the downside?

I think I would! The pot’s just too mysterious.

the mystery of the pension pot

Some facts for those interested in tech stocks… here’s Mr Armstrong of the FT

Three months ago, during the last Big Tech earnings season, Unhedged tried to explain the differences in performance among the big techs (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla). We concluded that the picture was pretty simple: the market likes revenue growth. “Grow sales . . . stock goes up. Occasionally the market is a pretty simple beast,” I wrote. This is the view that, for all their unimaginable size, the big techs still trade like start-ups. Investors want to see world domination (for which sales growth is a proxy) and are happy to worry about profits later.

I now think that’s wrong. Yes, sales growth monster Nvidia has performed the best, and near-growthless Tesla has performed the worst in recent years. But take out those two extremes, and the picture is muddier. A vivid recent example of this is the different market responses to the third-quarter earnings of Alphabet and Meta.

Alphabet announced a big increase in both revenue and earnings per share, and management warned that investment in artificial intelligence would lead to significantly higher operating and capital expenses next quarter and next year. Its shares rose 3 per cent on the news. Meta announced broadly the same thing, and its shares fell 11 per cent on the news. News reports focused on Google’s growth and on Meta’s expenses, but the numbers were not all that different. In fact, Meta’s sales grew more than Alphabet’s, in absolute terms and relative to expectations. Despite this, after the leap in Alphabet’s shares, they now trade at a 20 per cent premium to Meta’s on a price/earnings basis (and Meta, at 20 times forward earnings, is easily the cheapest of Big Tech stocks).

There were some important differences in the earnings per share results, if you look a bit more closely: Alphabet’s growth accelerated and crushed expectations, while Meta’s, although strong, decelerated and merely edged past expectations.

Widening the lens a bit makes the point clearer. Here is revenue growth over the past four quarters, and analysts’ expectations for revenue growth over the next four quarters, at five of the big techs:

Meta’s revenue is growing faster than Alphabet’s and is expected to keep doing so. And generally, all of the companies are expected to hold sales growth steady-ish in the year to come. Earnings are a very different story:

All five of the companies’ earnings are expected to slow significantly next year — partly because the past year has been exceptionally good cyclically, and partly (for all of the companies but Apple) because of heavy AI spending. At Meta and Amazon, profits are supposed to grind down to nearly nothing (though, after Amazon’s banner third quarter reported last night, estimates for next year seem likely to rise; Alphabet’s estimate may get a boost soon too). Meta is in a class of its own, however, when looking at estimates, for this year and next, for capital expenditures and free cash flow:

Meta is expected to increase its investments much more than its peers, in both dollar and percentage terms, and it is correspondingly the only one of the five that is expected to see free cash flow decline next year. The market is not giving carte blanche to the “AI hyperscalers” to spend what they want on data centres. Meta is the only company that is increasing spending faster than it is increasing free cash flow, and the market is punishing it accordingly.

This may seem crushingly obvious: of course markets care about earnings and free cash flow. But the AI boom narrative has been that it is a no-holds barred race for computing power and AI market share, profit be damned. This is absolutely not the case: Meta shares’ divergent performance shows that the market is setting guard rails for the big techs, and most of the big techs are respecting them.

(Armstrong)