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The "Magnificent Seven," comprising Nvidia (NVDA), Alphabet (GOOG, GOOGL), Tesla (TSLA), Microsoft (MSFT), Amazon (AMZN), Meta (META), and Apple (AAPL), is in focus amid Big Tech earnings after news from Chinese artificial intelligence (AI) start-up, DeepSeek, fueled Monday's tech sell-off.
Harvard Law professor Mihir Desai sits down with Market Domination co-hosts Julie Hyman and Josh Lipton to explain why he compares Big Tech to a snake eating its own tail and what that means for investors.
"This is a really colorful metaphor that's been around forever of a snake eating its own tail, and I used it just to try to understand the most interesting puzzle of the day, which is: How can seven companies constitute more than a third of the market capitalization?" Desai shares.
He notes that while there are multiple possible explanations for the phenomenon, he believes that the "Magnificent Seven is being viewed as a safe asset."
Desai elaborates, "For investors around the world, they think to themselves: In a world of uncertainty, who do I trust? And the answer is Big Tech."
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"The problem with that, of course, is once you view them as a safe asset, then your expected returns go down, and managers there have been doing what you would expect them to do, which is with a really low cost of capital, they've been spending money like crazy and literally on each other and on themselves," he adds. "And that is a serpent eating its own tail, which is just a way of saying they've been spending money on each other."
Desai explains that this phenomenon will result in "pretty low returns."
To watch more expert insights and analysis on the latest market action, check out more Market Domination here.
This post was written by Naomi Buchanan.