How big can the tech giants become?

Tesla, along with Microsoft, Amazon, Google, and Facebook are laying the digital and physical (in the case of Tesla) groundwork and infrastructure for the type-1 civilization transition that futurists for decades have been predicting, although few have offered any specific investing advice to profit from this transition. This is not to be be confused for The Singularity, which has more to do with AI than energy consumption. Tesla going to $5,000 or more per share, for a market cap of $4 trillion or more, is not inconceivable under such a regime.

Most investing advice that seeks to capture new trends, is unprofitable because such advice focuses on small, speculative companies, which tend to produce poor risk-adjusted returns. But there is no need to speculate in tiny stocks when the winners such as Facebook, Amazon, and Tesla are staring you right in the face, are used by millions or billions of people, and can produce superior returns, without all the guesswork of trying to pick the next Amazon or the next Tesla. Tesla at $450 billion dollars market cap, in terms of gains, has surpassed almost all penny stocks, including even ultra-speculative Covid-19 vaccine stocks. Facebook stock is up 10x since 2012, at $800 billion market cap. Amazon up 10x as well. With these kind of returns, there is no need to waste your time and money with penny stocks.

In a type-1 economy dominated by 10-20 or so companies, the logical conclusion is that a sizable fraction of future GDP will be concentrated in these companies, and that therefore when one assigns a suitable multiple to such earnings, we get astonishingly large companies and share prices (assuming no stock splits). The reason is, GDP can be thought of as measure yearly output, not wealth. But companies trade at a multiple of earnings, usually 15-40 depending on many factors . This is explained in more detail here. Apple being worth $2 trillion right now does NOT imply it is 1/10 of the US economy . Rather, because Apple generated $260 billion in world-wide revenue in 2019, it is more like .3% of the $81 trillion global economy. So So in theory, Apple, Microsoft, Tesla, Facebook, Google, and Amazon accounting for 30% or more of total US GDP in a type-1 economy, does not mean they will only be worth $10 trillion (20% of $50 trillion projected GDP of the US by 2050), but considerably more when one attaches a multiple to earnings. This is why the US public equity market is worth $30 trillion in spite of US GDP being only $20 trillion. Covid has already accelerated this trend of an increasing concentration of economic activity in a shrinking number of companies.

Also I predict within 25-35 or so years, a special deal will be worked out with the federal government to allow the aforementioned companies to collect tax revenue from citizens, instead of the money going to the US Treasury, in exchange for such companies producing services that otherwise would be provided by the federal government, such as healthcare, possibly to help reduce the federal deficit. This would be unprecedented and blur the lines between the corporation and state. It would probably require the Constitution to be amended in such a way that citizens would not only vote for state representatives and national candidates but also corporate representation. Although this is a stable of speculative, usually dystopian, fiction, it can become reality. So under this hypothetical government, if Google, for example, is not pulling its weight in teems of providing services, then citizens could in theory vote to reduce its role, or possibly remove it entirely from the federation. This can allow companies such as Amazon to make profit both in terms of tax revenue and by selling its products. So rather than a single tax bill, it would be split between the US Treasury for things such as defense and social security, and then other half split between the aforementioned companies relative to the contribution of each company, such as some for the money going to Tesla for providing electricity and other infrastructure. The major difference is, the US Treasury would get a smaller share. This plan could mean lower taxes for citizens and increased efficiency.

Even if the above scenario does not play out, how big can Amazon and Tesla become? Assuming a conservative global growth rate of 2.5%/year, in 30 years the global economy will be $160 trillion. As of today, Apple’s 2019 revenues are about .3% of global GDP. I predict Tesla and Amazon’s revenues will be combined 8% of global GDP by 2050. So that is about $6 trillion for each. Assuming 10% profit margins, that is $600 billion annual earnings for Amazon and $600 billion for Tesla. Assigning a conservative 30x earnings multiple gives a valuation of $18 trillion for each. Tesla’s earning multiple is 1500x but it will likely fall considerably in the coming years.