The Race to a Trillion(aboveavalon.com)
aboveavalon.com
The Race to a Trillion
https://www.aboveavalon.com/notes/2018/7/11/the-race-to-a-trillion
79 comments
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.
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.
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.
Azure is by far the next biggest cloud provider after AWS. GCP is the lame duck playing catch up.
If you ignore Office 365, GCP is much closer to Azure than Azure is to AWS. Microsoft's inclusion of Office 365 into its "Cloud" revenue makes their cloud platform seem to have much larger market share than what it actually has.
Yea don't underestimate MS's enterprise connections. Gives them a huge leg up in cloud.
Oddly enough, the three biggest cloud vendors by revenue are MS, Amazon, and _IBM_ (see links below).
IBM Cloud revenue is a head-scratcher. I've had to use them in the past, and while they have some unique features, it's hard to imagine anyone choosing them unless they had an explicit need for those features, or were forced into using IBM due to existing business relationships. I guess corporate inertia (possibly from the SoftLayer days) is a hard thing to overcome.
https://www.forbes.com/sites/bobevans1/2018/07/11/microsoft-...
https://www.forbes.com/sites/bobevans1/2018/05/21/top-cloud-...
https://www.forbes.com/sites/bobevans1/2018/04/27/microsoft-...
IBM Cloud revenue is a head-scratcher. I've had to use them in the past, and while they have some unique features, it's hard to imagine anyone choosing them unless they had an explicit need for those features, or were forced into using IBM due to existing business relationships. I guess corporate inertia (possibly from the SoftLayer days) is a hard thing to overcome.
https://www.forbes.com/sites/bobevans1/2018/07/11/microsoft-...
https://www.forbes.com/sites/bobevans1/2018/05/21/top-cloud-...
https://www.forbes.com/sites/bobevans1/2018/04/27/microsoft-...
Is that really what you think? Google Cloud is far and away the best service for machine learning right now. There's a reason why basically every company that has ML training needs is switching from AWS to GCP. Not only is Tensorflow, which is the only production machine learning framework that anyone uses, basically 100% integrated with GCP, the Google Compute Engine is the only way you can get access to TPUs.
At my company, we use GCP almost exclusively with preembtible TPUs as our primary compute for training models. It's not cheap, but you can't beat the performance and quality. Plus when you compare it with how much the engineers here are getting paid, it's a drop in the bucket ultimately.
At my company, we use GCP almost exclusively with preembtible TPUs as our primary compute for training models. It's not cheap, but you can't beat the performance and quality. Plus when you compare it with how much the engineers here are getting paid, it's a drop in the bucket ultimately.
How much of the average compute work load for companies and startups is machine learning?
Not sure about others, but in my field, it's probably >99%.
Sounds like GCP is a great fit for you, then!
I have worked in a number of industries and rarely needed any ML (though it may be coming). Most folks need clean data and linear regressions in my experience.
I have worked in a number of industries and rarely needed any ML (though it may be coming). Most folks need clean data and linear regressions in my experience.
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/
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]
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]
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.
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.
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.
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
[deleted]
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...
(Just like a Million ain't what it was anymore at family level[1]).
[1] https://www.statista.com/statistics/300451/us-millionaire-ho...
> 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.
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.
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.
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.
> 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).
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).
Paywalled
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?
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?
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.
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.
> 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.
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.
You're right. The $100B cash held by Apple is already priced into its market cap, which is turn included in the personal wealth of all its investors. If someone were to sum up both personal wealth and corporate assets, they would be double counting.
That said, I think wahern's general point is still sound.
That said, I think wahern's general point is still sound.
I'm no financial expert, but AFAIU the mechanics of securitization mean that we can assume some multiplier greater than 1x.
You can borrow against your shares at the same time Apple can borrow against its cash holdings and, ceteris paribus, the end result will be more debt than Apple's cash reserves even after considering a reduction in Apple's stock value. And this debt can be used to buy more assets. (Basically, fractional reserve isn't just a banking thing. It's inherent to the mechanics of capitalist finance.)
In addition, the ability to do this enhances capital allocation efficiency, which adds independent value to the entire system.
So there's not a simple function mapping corporate wealth to personal wealth, though you certainly can't simply sum corporate-held assets to personal wealth. I'm happy to be corrected for the implication.
You can borrow against your shares at the same time Apple can borrow against its cash holdings and, ceteris paribus, the end result will be more debt than Apple's cash reserves even after considering a reduction in Apple's stock value. And this debt can be used to buy more assets. (Basically, fractional reserve isn't just a banking thing. It's inherent to the mechanics of capitalist finance.)
In addition, the ability to do this enhances capital allocation efficiency, which adds independent value to the entire system.
So there's not a simple function mapping corporate wealth to personal wealth, though you certainly can't simply sum corporate-held assets to personal wealth. I'm happy to be corrected for the implication.
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.
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.
> 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?
That's correct. But is all that money a representation of real wealth or is it a bubble?
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.
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)).
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)).
its strange to Microsoft still in the race after loosing web, search, mobile and much of the developer mindshare
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.
If your measure of "losing" is "not #1" then everyone is a loser in at least one of your categories, especially Apple.
Does browser market-share really mean much in terms of market capitalization?
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.
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.
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.
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.
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.
Pretty soon indeed.
I wonder when these companies will start offering dividends? I believe only MSFT (edit: and Apple) have done so far.
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.
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.
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.
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.
Counter-example: AAPL pays dividends and is widely viewed as innovative.
I would disagree that Apple is viewed as innovative. Granted, this is anecdotal based around people I know, but Apple is widely considered as non-innovative and resting on its iPhone laurels -- at least since Jobs passed away.
I'm not going to be crazy enough to say that there will never be anything bigger than the phone, but can you see anything that any company can do in the next five years that is more ubiquitous than the smart phone?
75% of the world's population has a cell phone (https://www.rferl.org/a/report-says-75-percent-of-worlds-pop...). No matter what any consumer electronic company introduces in the next 5-10 years, I doubt that it will have more impact than the consumer smart phone trend the iPhone started.
What company has been innovative in the consumer electronic space in the past decade? No matter what Apple does, I don't realistically see Apple or any other company introducing a consumer electronic product that is as successful (revenue wise) in the next decade.
75% of the world's population has a cell phone (https://www.rferl.org/a/report-says-75-percent-of-worlds-pop...). No matter what any consumer electronic company introduces in the next 5-10 years, I doubt that it will have more impact than the consumer smart phone trend the iPhone started.
What company has been innovative in the consumer electronic space in the past decade? No matter what Apple does, I don't realistically see Apple or any other company introducing a consumer electronic product that is as successful (revenue wise) in the next decade.
I'm extremely extremely biased, but I run a company called Pavlok [1], with a goal to be more ubiquitous than the phone by 2030 (not quite 5 years).
We build technology to help people change habits, with instantaneous positive and negative feedback, and a digital currency called Volts[2] that rewards and pays people to do good habits.
Our goal is to sell the product in the initial phases (next 5-7 years), and eventually give them away to everyone in the world. One of our core products (unreleased) attaches directly to iphones and android -- I can't give too many details, but it becomes part of your phone.
Again, I'm extremely biased. But they say the best way to predict the future is to create it, so ¯\_(ツ)_/¯
[1] https://pavlok.com [2] https://pavlok.com/volts
We build technology to help people change habits, with instantaneous positive and negative feedback, and a digital currency called Volts[2] that rewards and pays people to do good habits.
Our goal is to sell the product in the initial phases (next 5-7 years), and eventually give them away to everyone in the world. One of our core products (unreleased) attaches directly to iphones and android -- I can't give too many details, but it becomes part of your phone.
Again, I'm extremely biased. But they say the best way to predict the future is to create it, so ¯\_(ツ)_/¯
[1] https://pavlok.com [2] https://pavlok.com/volts
AAPL isn't really largely owned by any of the executives. In comparison, Page, Brin and Schmidt at Google own a large chunk of stock. Also AAPL isn't trying to be as diverse as GOOG is trying to be. GOOG is trying to compete in all sorts of markets.
Wouldn't these share-owning execs also want dividends? Get their hands on some of that cash pile without diluting their holding.
(I suppose the answer will be something to do with tax treatment, and if so I'd say that in this case the taxes are all wrong and should be simply a fixed proportion of income however it is gained or earned).
(I suppose the answer will be something to do with tax treatment, and if so I'd say that in this case the taxes are all wrong and should be simply a fixed proportion of income however it is gained or earned).
Well, they may, but they might be more content with long term capital growth. The thing is GOOG isn't as much vulnerable to the pressure of activist investors for dividend (like Carl Icahn in Apple's case), as much as AAPL is.
What big capital intensive businesses is Apple investing in? These days it seems like all of thier focus is on chip design and software. Most of the heavy lifting and capital intensive costs are outsourced.
I don’t think they can just throw more people at intellectual based innovation. There are only so many people in the world that they can hire and hiring more people brings its own issues - the whole Mythical Man Month.
I would imagine even prototyping and developing new hardware would be done by a relatively small team.
I don’t think they can just throw more people at intellectual based innovation. There are only so many people in the world that they can hire and hiring more people brings its own issues - the whole Mythical Man Month.
I would imagine even prototyping and developing new hardware would be done by a relatively small team.
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.
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.
Android makes Google very little money. It makes some money from advertising and app sells but until a little while ago, Google made more money from searches on iPhones than Androids.
As far as YouTube, indications are that it is only slightly above break even and that it accounts for around 10% of Google's ad revenue -- not profit -- https://nypost.com/2018/02/01/youtube-ad-woes-hurts-profits-...
As far as YouTube, indications are that it is only slightly above break even and that it accounts for around 10% of Google's ad revenue -- not profit -- https://nypost.com/2018/02/01/youtube-ad-woes-hurts-profits-...
i wonder what did races to 1, 10 and 100 billion look like?
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.
found something relevant: https://www.winton.com/longer-view/what-was-the-first-billio...
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.
dfee(5)
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]
[edit: sorry, my mistake: the market cap reported is not actually outstanding shares times price, pointed out below]
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.
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.
> [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.
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.
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.