Summarize this content to 2000 words in 6 paragraphs in Arabic Good morning. Yesterday morning we wrote about the risks posed by high growth expectations for Big Tech. Yesterday afternoon Microsoft reported that its cloud computing division increased revenues by only 19 per cent, a shade less than expected. Happily, the shares dropped only 4 per cent in late trading. Could have been a lot worse. Everybody breathe. And email us: [email protected] and [email protected]. The Mag 7 investment engine People, including the people who write this newsletter, talk a lot about how much of the value of the S&P 500 is in the Magnificent 7 tech stocks (31 per cent, as of now). But there is another area where the dominance of Big Tech is just as striking, and more important: investment. In their last fiscal year, the Mag 7 had capital expenditures of $177bn, or 18 per cent of the total for the S&P. Ten years ago the figure was just 5 per cent. While the spending last year was down a bit, in relative terms, from the pandemic spending bonanza of 2021-22, the figure will go up significantly again this year, according to the companies themselves. The only companies that are even remotely close to Big Tech in terms of capital spending are lower-returning businesses such as utilities, telecoms, oil companies and (to a lesser extent) auto manufacturers — plus Intel and Walmart. No one else is close.More impressive still, the Mag 7’s share of research and development spending was 40 per cent of the S&P’s total, or $242bn, last year. This number will rise this year, too.It should be noted that only about half of the companies in the S&P break out R&D as a separate line. But those companies are not particularly research intensive. So if the dominance of Big Tech is overstated here, it is probably only by a little bit. When you think about the massive value weighting to Big Tech within the market, the natural thought to have is: are these companies overvalued? When you look at the rate at which they are reinvesting money, you think: who could possibly compete with them? Are they valued highly enough? Combine capex and R&D, and the Mag 7 have reinvested $419bn last year. If the Mag 7 stand above all other companies in investment, Amazon stands above the Mag 7, with $53bn in capex and $86bn in R&D (what it calls “technology and infrastructure”) last year. This is a demonstration of the company’s true superpower: sinking most of the money it earns back into its operations, suppressing margins and fuelling long-term growth, somehow without angering investors. This highlights the link between return on equity and valuations. If a company earns high returns on equity, more money is available to reinvest — again, at a high rate — boosting its prospects for long-term growth. Companies, like the big techs, that have high ROEs should have high price/earnings ratios. There are companies in the S&P with higher ROEs than the Mag 7 (or rather the Mag 6; Tesla does not stand out here). But what is special about Big Tech companies is they achieve high ROEs while having an absolutely enormous amount of equity in their businesses. Google has an ROE of more than 25 per cent on equity of $300bn. That is mad, and suggests immense capacity to increase investment further, as needed.Of course, it could be that some or much of this reinvestment will not generate good returns and future growth will disappoint. It could be, for example, that all the money being pumped into AI capacity will not find profitable applications. This is for people who know more about tech to speculate about. But what these companies cannot be accused of is maximising short-term profits at the cost of investment. Is there a China trade?China’s economy is in a dilemma. Its miraculous growth has been driven by investment and exports. But its recent real estate crisis and mounting debt burden have reduced the return on its investments, and its exporting prowess has created tensions with its trade partners. Growth has fallen, and the outlook for its future growth has darkened. The obvious way out of this dilemma would be to boost domestic consumption. But most policies that encourage that shift would be expensive and take time, and not help boost growth in the short term. So while China is — for now — making an effort to break the infrastructure habit, it has doubled down on exports to keep growth up.This was on clear display at the Chinese Communist Party’s third plenum, a major policy conference, just a few weeks ago. China’s leaders made overtures to “high-quality development” and tech investments that would allow for faster, cheaper production, rather than focusing on consumption. But exports alone have not been able to haul up the economy. Its second-quarter GDP annual growth rate came out just one week later at 4.7 per cent — below expectations, and below the Chinese Communist party’s goal of 5 per cent for 2024.Just yesterday, the party announced that economic policies should “shift more towards . . . promoting consumption”. It recently cut interest rates by 10 basis points — in what some pundits see as a consumer-friendly shift — and announced that it would speed up a consumer-focused equipment replacement programme. Markets are not buying it. The CSI 300 index, down 40 per cent since it peaked in 2021, has sunk further since the third plenum, and took another 1 per cent dip in the hours after yesterday’s announcement. International investors remain sceptical that the party can manage the economy back to higher growth, or that it will resist the urge to meddle in corporate or industrial affairs as it has in recent years. Because the policies that would boost domestic consumption will not help China achieve its short-term growth goals, China is likely to resort to familiar tactics. Policymakers have been clear that they remain focused on boosting exports. But they might yet boost infrastructure investments, too. According to Mark Williams from Capital Economics: They have room for more fiscal stimulus. Based on [yesterday’s announcement], I think it is clear that money will not go to consumers, but towards infrastructure. That is quite telling – even though the [recent announcements] gave a high-profile nods to boosting consumption, when it comes down to it and there is pressure for growth, the only lever that works is to boost investment. China goes through infrastructure investment cycles, and this could be another one. Investors face a question: If China does more stimulus and Chinese companies benefit, will that be enough to lift Chinese equities? Or does the scepticism now run too deep? 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