I’m very much alive to the possibility that the Mag7 stocks and the associated Artificial Intelligence (AI) craze are a bubble in the US equity market.
Equally, if AI delivers on its promise, they may be undervalued!
By comparison, there is no doubt – no doubt whatsoever – that the latest Australian entrant into the Mag7 universe (not for market cap but valuation), the Commonwealth Bank, is a fat and lazy bubble wonderfully typical of Australian equity flatulence.
CBA is not an AI stock. Given the geographic footprint of its service delivery, it is unlikely to benefit significantly from AI either. It’s not artificial. And certainly not intelligent.
Indeed, the CBA has spent years doing the complete opposite of good banking: chasing market share in mortgages at the expense of everything else, including margins.
I hate to have to tell the CBA and investors that banking is a margin, not volume, business.
This Human Stupidity (HS) became evident in the last (now forgotten) HS earnings report when the CBA mortgage book shrank, as did its margins and profits.
Looking ahead, it gets even better. The Australian consumer economy that CBA services is in outright recession. Its bad loans are going to climb in due course.
The leading indicators are clear:
These bad loans will be a part of the incoming surge in Australian unemployment, which is where the story really gets going for CBA margins.
The Reserve Bank of Australia (another HS organisation) will shortly be forced into a hard, dovish pivot and begin slashing interest rates earlier and deeper than anybody expects.
This will slaughter CBA margins faster than you can scream ‘stop those damned mortgage discounts’!
Nor will the CBA’s HS allow it to unilaterally bolster margins by holding back cuts, given Canberra’s fountaining opprobrium about the cost of living.
Yet, according to the HS Australian equity market, CBA’s shrinking HS prospects are now so red hot that it is considered the growth equal of AI leader and doyen, Google, at 21xNTM:
CBA is also now the most expensive AI HS stock in the known universe:
Perhaps it’s not so much AI or HS at work as it is Australian Stupid (AS).
Or is that a tautology?
