The Race to a Trillion

https://www.aboveavalon.com/notes/2018/7/11/the-race-to-a-trillion

by allenleein • 8 years ago

98 62 8 years ago

Due to multiple QEs and low interest rates in developed economies across the globe, a Trillion won't be what it used to be by the time these companies reach that milestone.

(Just like a Million ain't what it was anymore at family level[1]).

[1] https://www.statista.com/statistics/300451/us-millionaire-ho...

adventured• 8 years ago

a Trillion won't be what it used to be by the time these companies reach that milestone

That's a far fetched premise given several of those companies are likely to hit that line in the next few years. It's not like Apple is $800b away from the line. Their stock needs to merely move up 7%. Amazon needs to move 15%.

At a minimum Apple, Amazon, Google, and Microsoft look poised to easily hit a trillion dollars in the not very distant future, obviously barring a market crash (and nobody knows when that is coming). A trillion dollars will still be a trillion dollars, so to speak, in five years.

dannyw• 8 years ago

What GP means is presumably, $1 trillion may be say 0.00x% of the monetary supply back in 2007.

But today, $1 trillion may only be 0.000x% of the monetary supply today.

It’s true that government measures of inflation has been fairly low. But those measures (since the 2000s) have been hedonstically adjusted; meaning say a laptop that’s 10% faster is considered 10% cheaper even if the price is the same.

j88439h84• 8 years ago

Paywalled

earenndil• 8 years ago

a Trillion won't be what it used to be by the time these companies reach that milestone

The article mentions this:

An arbitrary race that many have been following on Wall Street is, which company will be the first to reach a trillion dollar market capitalization? [...] the race to a trillion dollars ends up hiding a much more interesting development that has been unfolding on Wall Street

(emphasis mine).

raphinou• 8 years ago

Some expect a correction to happen soon. Isn't the fact that people focus on that trillion achievement an indication that (some) investors currently don't focus on the fundamentals? We've seen some very high volatility of Facebook and Twitter stocks last week, even when fundamentally the news triggering these drops in value was not dramatic. Is that another indication?

If there's a big correction, these stocks might get back to a point where the trillion goal is again very far.

Anyone knowledgeable willing to share further insights and opinion?

wahern2• 8 years ago

Personal wealth, globally, is nearing USD $300 trillion. See https://www.credit-suisse.com/corporate/en/research/research...

That's personal wealth, not including assets held by corporations. The fundamentals are that there's a surfeit of cash to invest globally. The predominate driver of growing wealth is the emergence of the developing world, not QE and other monetary policies. A correction will come, but it won't be so dramatic as to take the bottom completely out from underneath existing assets prices (not unless there's some global financial calamity), especially strong ones like Facebook or Amazon (Twitter is a different story). There's just too much money and not alot of places to park it with stable markets and/or high rates of return. The U.S. offers both. I wouldn't be surprised if in the next downturn stocks like Facebook remain buoyant and its everybody else that suffers.

TheSpiceIsLife• 8 years ago

That's personal wealth, not including assets held by corporations.

Are not all assets held by corporations also personal wealth in the form of shares?

I'm not well versed in corporate finance, so correct me if I'm wrong, thanks.

3pt14159• 8 years ago

It depends on how China reacts when its debt bubble pops. Personally, I'd err on the side of letting the recession play out with some intervention, but only where really needed. If they over-inflate the Renminbi the knock on effects are going to be pretty dramatic globally.

I sold almost everything. I don't try to call the very tops of markets, it's too hard. Having things ready when the pullback happens is good enough for me.

berns• 8 years ago

There's just too much money and not alot of places to park it

That's correct. But is all that money a representation of real wealth or is it a bubble?

adwn• 8 years ago

Apple is a design company selling tools that empower people. [...] Microsoft is an enterprise-focused services company focused on helping people get work done. [...]

Oh dear, what drivel. By that logic, BP is not an oil and gas company, it's logistics company helping people and goods get to where they're needed the most. And Deutsche Bank isn't a bank, it's a charity focused on making people's and companies' dreams come true (for a small fee).

Please spare me this bullshit.

doyoulikeworms• 8 years ago

I think the sentiment is true, though, that the giant tech companies are a diverse set of businesses. There’s overlap between them, but they focus on different things and are successful in (mostly) each their own market.

nextstep• 8 years ago

I agree that the broader point is true: each giant is using software (and hardware in some cases) to build massive infrastructure businesses (logistics, cloud, communications, advertising/search, etc.).

But I think this analysis overlooks the ways where these tech companies do sort of compete: search advertising is a duopoly between Google and Facebook; search has some (very weak) competition from Microsoft and Amazon; cloud services are competitive between Google and Amazon... I think the stronger pattern is Alphabet is in everything and in some way competing with every other giant.

agumonkey2• 8 years ago

yeah it can be stretched too far, but at the same time, I think in the case of Apple and MS, they had different views on what was the goal of their (for profit) business. MS rapidly tried to be the platform. Apple felt a bit closer to people usage.

Ntrails• 8 years ago

The goal is to make as much profit as possible. It's the only goal that they're aiming for, and it's consistent. Everything else is just about how to get there

meritt• 8 years ago

You must have never read anything from Neil Cybart before. The entire purpose of his newsletter, Above Avalon, is to support a long-only viewpoint of Apple. Just take a look at some of his daily updates: https://www.aboveavalon.com/dailyupdates/

specialist• 8 years ago

McDonald's saw (see?) themselves as a real estate company.

The problem with this article, the drivel, is projecting nonsensical narratives onto these entities.

So while Google is certainly not a customer facing data services company, I still have no idea how they see themselves. Which would be useful information.

A better (actionable) external narrative is Scott Galloway's The Four. I have no idea if Galloway's analysis is closer to the mark. But at least it's self-consistent. [http://www.thefourbook.com]

cm2187• 8 years ago

What they are is what they are making most of their money at. Everything else is a hobby or supporting that business. Apple is selling iphones, google and facebook selling ads, amazon a retailer and a cloud provider. Microsoft selling software licences to businesses and cloud provider.

One thing that should be worth looking at given where we are in the economic cycle is how procyclical these businesses are. They didn't suffer much in the 2008 crisis as they were in full expension mode, but now these businesses are starting to be mature. Ads and retail are certainly very procyclical. $1000 smartphone too I presume. Cloud should be more stable, depending on how much of their income is VC funded loss making startups. Business license should be fairly stable.

keymone2• 8 years ago

i wonder what did races to 1, 10 and 100 billion look like?

sverige• 8 years ago

One way to think of it is that Bezos' personal wealth is still short of what Carnegie or Rockefeller accumulated when adjusted for inflation or viewed as a percentage of total personal wealth. The Gilded Age was still more excessive than what we see today -- but not by much.

mikorym• 8 years ago

By "or", do you mean that both options are true?

cryoshon• 8 years ago

from what i recall, rockefeller's inflation adjusted wealth would be roughly equivalent to a trillion dollars in today's money.

keymone2• 8 years ago

found something relevant: https://www.winton.com/longer-view/what-was-the-first-billio...

titzer• 8 years ago

Umm, wat. Alphabet has two classes of shares that trade under different ticker symbols, GOOG and GOOGL. Together they add up to $1.6t. The fact the author has overlooked this is astonishing.

[edit: sorry, my mistake: the market cap reported is not actually outstanding shares times price, pointed out below]

CamelCaseName• 8 years ago

Uhh, what?

You are right that there are two public tickers for Alphabet, GOOG and GOOGL, however the market cap you see when you search for their ticker is for the whole company, not the class alone.

Also, Alphabet has 3 classes of shares. A (GOOGL), B (privately held), and C (GOOG)

I assure you, the market cap is roughly $870B as of this writing.

paidleaf• 8 years ago

[edit: sorry, my mistake: the market cap reported is not actually outstanding shares times price, pointed out below]

Actually, market cap is outstanding shares times price. It is a value per company, not per class/type of shares traded. Sort of like how the same CEO would be listed under GOOG or GOOGL. You'll see the same market cap listed under GOOG or GOOGL.

rwmj2• 8 years ago

I wonder when these companies will start offering dividends? I believe only MSFT (edit: and Apple) have done so far.

scarface744• 8 years ago

Facebook needs a war chest to buy up potential competitors.

Amazon has shown that it can use its money to profitably invest in other verticals and its a capital intensive business.

Google probably should start paying dividends. They still haven’t shown they can invest money to diversify from being an ad business into other profitable verticals.

wpasc• 8 years ago

I was watching a Peter Thiel/Eric Schmidt discussion wherein Peter Thiel essentially says, "Google can't dare pay a dividend because it would mean they admit they're done innovating."

Provocative, but sorta true. The company that pretends to be the most innovative in the world might not do so well if they have the image of paying out dividends.

petra• 8 years ago

Android and YouTube most likely make a lot of profit for Google(altough Google tries to keep things quiet).

And they are totally different businesses from Google search, sharing only a similar monetization method(ads),but that's such a small part of the whole.

jadedhacker• 8 years ago

I'm not sure I believe that S&P 500 chart proves his point that we are living in historically similar times to the 1960s. S&P looks at the top of part of the distribution, not the whole distribution. If for some reason, there were more or fewer companies, it would mean something different. I will note that we did in fact break up Bell Telephone and standard oil. If we act quickly, maybe we'll never get to 1T.

geeostation• 8 years ago

its strange to Microsoft still in the race after loosing web, search, mobile and much of the developer mindshare

Asooka• 8 years ago

Windows is still the de-facto standard x86 and x64 OS, powering everything PC-like from home desktops and office desktops to industrial control PCs, kiosks, ATMs, cashier systems and so on. I don't see this changing in the next 20 years, unless Microsoft make a concentrated effort to completely break Windows.

enitihas3• 8 years ago

Yep. Microsoft has a huge dominance in personal computers and office suits, two of the most profitable product lines of the past 25 years, and this does not look like changing anytime soon.

nwah1• 8 years ago

They are a fairly close 2nd in cloud computing, and growing faster than AWS.

And remember that Oracle is an enormous company just by focusing on enterprise, but MS is way larger just in enterprise. Sharepoint, SQL Server, etc etc.

And even though they are a very distant second in search, that product alone produces more revenue than most companies can ever dream of. It is actually a huge financial success.

mdorazio• 8 years ago

I'll give you mobile, but how did it lose any of the others in your list? Edge + IE maintain about 25% of browser market share compared to under 10% for Firefox on desktop. Bing is somewhere around 30% of the US search market depending on whose stats you believe and generated $1.8B last year, and growing. And .NET + visual studio are still very popular in the large enterprise space. Azure (not in your list) is also doing quite well in the cloud space, taking market share away from AWS to get to about 20% last quarter.

If your measure of "losing" is "not #1" then everyone is a loser in at least one of your categories, especially Apple.

MaxBarraclough• 8 years ago

Does browser market-share really mean much in terms of market capitalization?

_zachs• 8 years ago

If you're into this sort of higher-level tech. analysis, my opinion is that Ben Thompson (https://stratechery.com) does a much better job.

zeusk• 8 years ago

He spews bullshit is all I've seen.

And from what I've heard myself, he says he worked in Windows and understands technical issues but his linkedin profile says he was a Business Development Rep ((who're always under the sales org and not a specific product org)).

dkrich• 8 years ago

I think the trillion dollar mark is actually a very important psychological barrier. I've long felt as long as this debate about which one will be the first to cross that the market is sort of waiting for permission to value a company at over a trillion. I think it will be Apple and pretty soon, but no matter which company does it, I think it's important because I think others will be quick to cross over as well and this will blow the ceiling off the equities market. A trillion is a lot of money, but it's only about 10% higher than where Apple trades now, so there's no reason why they can't carry that valuation and quite a bit higher, especially as inflation continues to rise.

SomewhatLikely• 8 years ago

Pretty soon indeed.

The Race to a Trillion

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