Cloud Companies' Competitive Advantage

Amazon, Microsoft and Alphabet have economies of scale which help them advance in cloud computing.
Amazon, Microsoft and Alphabet and Amazon specifically have a first mover advantage which brings momentum and enlarges Amazon, Microsoft and Alphabet's distance with their competitors.

Another lane in the cloud computing business is populated with start ups like Hashi Corp and GitLab which are carving out their niches. Both Hashi Corp and GitLab are innovative, agile and fast moving which is typical for smaller start up organizations. It must be said that both Hashi Corp and GitLab would soon ne difficult to define as start ups as they are growing briskly.

Both the established companies and new start ups in the cloud computing business provide a way for firms to save time, money, and effort. This is basically done by writing and successfully putting into production software code which performs cloud computing services and also providing the needed server storage and computing power to support the cloud.

Since most firms are very far away from the expertise in code writing and software production of Amazon, Microsoft and Alphabet or Hashi Corp and GitLab it is much more efficient for most firms to outsource cloud computing to the aforementioned firms.

And scale brings scale with it. That said, cloud computing is such a large business already in terms of annual revenue and with such a huge promise that the field is open for many other new entrants to enter, develop innovative products and enhance both their value and the value for society.

The Most Undervalued Sector of The Stock Market

Currently, I would say the most undervalued sector of the stock market is materials which includes iron ore, copper, gold, silver and other mining companies and companies producing various agriculture output like grains, wheat, soy beans etc.

Several months ago materials would have vied for the top spot as the most undervalued stock market sector with energy, but driven by the rising price of oil, the stock market prices of companies from the energy sector have risen a lot compared to the fundamentals. That said, I still see value in the stocks of energy companies. Regional war in Eastern Europe could disrupt Russian oil production and exports, which could make the price of oil rise by a high margin quickly.

The financials sector also is regarded as a value investing opportunity at present. As far as I am concerned, banks and financials' stocks do hold a lot of unrealised value which will be unlocked as the Federal Reserve, the central bank of the USA, embarks on a string of raises of the Federal Funds Rate which should cause the interest rate levels in the general economy of the USA and the world by momentum to rise.

The stocks of companies from the materials sector, however, did not enjoy so much a recent price run up as did the the financials and energy sector. So a lot of unlocked value remains in the materials sector.

Gold and gold miners are an interesting case. According to all textbooks higher inflation, the one present at most countries all over the world now, should cause the price of gold to rise. Several reasons have been given for why the price of gold has not risen with rising inflation. First, the United States Dollar appreciation towards other leading currencies like the EUR, JPY, GBP has caused gold's price to stagnate as gold's price is quoted in USD. Another factor is the rise of Bitcoin and other cryptocurrencies. Many analysts and investors think that the investment flows going into cryptocurrencies are in direct competition with prospective investments in gold.

All in all, stocks from the materials sector and gold miners, especially, seem undervalued. A lot. Here one should mind that slowing growth would influence negatively the stocks prices of iron ore and copper producers.

Cloud Stocks Valuation In the Current Environment

Cloud computing company stocks have fallen a lot in the latest stock market correction that could soon become a bear market which could lead to a full blown panic.

In the heady days for cloud computing stocks since the 2020 coronavirus pandemic eruption it seemed relatively justified from a valuation standpoint for cloud computing stocks to trade at a Price/Sales ratio of 22. I am using the Price/Sales metric since most cloud computing stocks are not profitable. The reason was the high future revenue growth expectations of cloud computing companies driven by the brisk growth of the cloud computing market in general. Ultimately the higher revenue would lead to profits which would be later distributed as dividends to shareholders.

Has the latest stock market, concerning technology stocks in particular, sell off changed the narrative? Not too much, in  my opinion. Now cloud computing stocks trade at a Price/Sales ratios of around 17, but still cloud computing is expected to save corporations, governments and individuals time, effort and money. Actually, one could pay per usage of a particular cloud service and this tailor made offering by technology giants like Amazon, Microsoft and Alphabet is proving quite cost efficient and preferred by customers.

The world is moving towards digitalization and cloud computing is just the software that allows that.

In my opinion, if the Nasdaq Composite falls another 10% to 20% from current levels, most cloud computing stocks, especially lesser known and niche cloud startups will become undervalued. A future multi baggers, possibly ten baggers in 10 years time, to use the phrase popularized by Peter Lynch.

The Current Technology Stocks Market Rout Could Prove a Unique Buying Opportunity

Technology stocks are down a lot from their recent peaks.

Some tech darlings like Pinterest, Roku, Snap, Peloton, Robinhood Markets are down more than 40 %.

In my opinion, the technology stocks in the US and Nasdaq Composite Index, especially, if they fall another 10 % -20 % will become grossly undervalued.

I do not see what changed all of a sudden, aside from the Federal Reserve showing clear intention to raise interest rate levels to fight inflation.

Many technology stocks have sound business models and technology and the artificial intelligence algorithms are the future because they save corporations, people and governments time, effort and money.

It is simply astounding and unbelievable what human psychology, herd instincts, fear and short term mentality can cause. Benjamin Graham, at his finest and purest form.

Cloud Computing Business Strategy

Cloud computing is changing our world profoundly.

The leaders in cloud Computing like Amazon, Microsoft and Alphabet have chosen the Infrastructure as a Service segment and can in the not too distant future become the utility companies of the the internet age. Much like electricity and gas production and water distribution companies are the bedrock of our modern day world, Microsoft, Amazon and Alphabet are laying the groundwork for our even more mutually connected future by providing the computing infrastructure.

When I read an interview with a cloud computing evangelist in 2013 saying that internet companies like Amazon, Microsoft and Alphabet can generate the infrastructure for the internet much like modern day electricity companies produce electricity or telecommunication companies produce internet access, it was difficult to believe it. It just seemed too farfetched. Regular companies or even technology companies like Spotify or Snap Inc., Snapchat producer, trusting technology giants like Amazon, Microsoft and Alphabet with their basically information processing capabilities, seemed quite improbable. But it is already a fact that both the large technology companies Snap and Spotify do their computing to large extent via Amazon. 

Amazon, Microsoft and Alphabet have huge resources at their disposal from their existing business lines which they deploy aptly in their cloud computing businesses. That said, however, new relatively young technology startups liken GitLab and Hashi Corp are disrupting not negligible parts of the Infrastructure as a Service, IaaS, cloud business by finding clever solutions to existing problems with relatively limited resources. Actually, the IaaS business is now measured at close to 170 billion USD yearly revenue run rate and could surpass 700 billion USD in 7 years. Actually, the sheer size of the Infrastructure as a Service makes it possible the even newer young technology startups will enter the field successfully.

As the IaaS grows more and more niches will spring up which actually produce billions of USD in yearly revenues. And since the Infrastructure as a Service is quite scalable, net profit margins of above 22 % could be achieved as evidenced by Amazon's AWS business results.

Actually, Amazon, Microsoft and Alphabet are using the same predatory tactics Microsoft was using when it was trying to corner the internet browser market or the smartphone market. That is why Microsoft, Amazon and Alphabet all are vulnerable to able, agile, quick, resourceful and well intentioned competitors.

There has to be decency in business. Microsoft's past travails almost lead to the break up of the company. Now the same fate is threatening Facebook. Cloud computing, actually, could end up like electricity utilities where each and every country has its own champions. The leading cloud computing or hosting companies are considered key to national security in the USA, for example. That is why, it is very difficult for a truly global bank to emerge. Banking services, much like electricity, gas and water supply are key to national security.

The right strategy for the cloud computing champions like Amazon, Microsoft and Alphabet is simply to ride the momentum, inertia and try to keep a normal pace of innovation and adapt reasonably well to the environment. IaaS cloud computing challengers like GitLab and HashiCorp, however, have a much more exciting task before them. They have to out innovate the existing incumbents, be very quick, agile, with a groundbreaking technology edge and yet stable. Easier said, than done but the rewards could potentially  amount to hundreds of billions of USD.

Robinhood Intrinsic Value

Robinhood Markets' market capitalization could rise to 120 billion USD in 7 years. That is HOOD can be a ten bagger from current levels,

Goldman Sachs Valuation After Full Year 2021 Earnings

Goldman Sachs, at its current market capitalisation of approximately 119 billion USD, is significantly undervalued.

According to my estimates, the intrinsic value of Goldman Sachs is 230 billion USD. Even at a hypothetical 230 billion market capitalisation, at the current pace of revenue and net profit margin Goldman Sachs will trade at Price/Earnings ratio of around 10 which is low even for a value sector like financials nowadays.

Goldman Sachs's full year 2021 earnings exhibit a net profit margin of 34 %, which is the highest it has been for years. And at a return on equity of 23 % Goldman Sachs is close to shattering historic records. Just 5 to 7 years ago most global investment banks were finding it extremely difficult to achieve double digit, above 10 %, return on equity.

Yes, the current investment banking environment also seen in the whole of 2021 is unlikely to last, but even at lower level of business, investment banking and its epitome Goldman Sachs have room to enhance wealth creation.

McDonald's Valuation 17 January 2021

McDonald's Corp, the fast food restaurant chain, is valued currently by public markets at 192.57 billion USD.

Apparently, markets reward the circa 10 % yearly quarter on quarter growth and even more the average 30 %  net profit margin for the last four reported quarter.

In my view, the intrinsic value of McDonald's is 120 billion USD or around 60 % of its current market capitalization.

The money created by central banks just finds its way in utility like stocks like McDonald's and makes them overvalued.

McDonald's main stable business simply cannot bring such revenue and profits in the future to substantiate its current market capitalization,

Tesla Valuation 16 January 2022

Tesla's intrinsic value, as far as I am concerned, is 140 billion USD.

This compares to Tesla's current 1.05 trillion USD marker capitalisation.

Tesla is likely to remain unprofitable without subsidies. Tesla' value of 140 billion USD, in my opinion, lies in its technology and relatively stable revenue.

Cryptocurrency Valuation

Cryptocurrencies are the single new financial asset class to be developed in decades.

Many new financial market participants entered investing by putting money in cryptocurrencies.

Since it is a new asset class Bitcoin and other cryptocurrencies are proving elusive to be valued correctly. Or at least a comprehensive and suitable valuation framework for cryptocurrencies still does not exist.

One the one hand, cryptocurrencies are akin to listed public company stocks in that they depend on the projects return of the particular company that has issued the cryptocurrency. On the other hand is the flagship cryptocurrency Bitcoin the intrinsic value of which is more dependent on the public's tendency to adopt Bitcoin en masse and the regulators' future treatment of Bitcoin.

In addition, the Commodities Futures Trading Commission regulates that cryptocurrencies are commodities and not money. Which is strange, in my opinion, since Bitcoin's main purpose is purportedly to become a means of exchange, unit of account and store of value or the three main characteristics that define money.

Furthermore, the actions of  famous investors and proponents of cryptocurrencies like Elon Musk, Jack Dorsey, Michael Novogratz and others do have an influence on the price and thus the value of Bitcoin and other cryptocurrencies.

In my opinion, the main factors that determine the intrinsic value of Bitcoin and other cryptocurrencies are people psychology, supply and demand, new technology developments and the central banks and other regulators' actions.

Yes, Bitcoin and other cryptocurrencies are impossible to value via the Discounted Cash Flows model since no future dividend payments coming from cryptocurrencies are envisaged in the near future. Amazon and Meta, Facebook's owner, however, also have never paid any dividends and yet both Amazon and Meta are valued at around or more than 1 trillion USD.

Actually, dividends for cryptocurrencies could be modelled/likened to the future utility people derive from cryptocurrencies. Fiat money like the USD or EUR also do not pay dividends. However, people derive many ancillary utility from holding fiat money like ease of payment, exchange of goods, security via the military and the police force and also benefits from storing and amassing wealth measured in USD, EUR, JPY, GBP or any other of the major currencies.

This, of course, could also be quantified, but for now too many unknowns, moving parts and assumptions are involved in the process so the estimate is in any case vague.

That said, according to my estimates, Bitcoin is undervalued multiple times simply because Bitcoin and the underlying blockchain algorithm are changing everything. So the value enhancement derived form Bitcoin and other cryptocurrencies could simply be limitless.

GitLab Is on the Verge of Disrupting Cloud Computing Services

GitLab, the code repository and collaboration service, could easily disrupt the Infrastructure as a Service cloud computing market.

In the next 10 tears, GitLab's market capitalisation could rise to 70 billion USD. Its intrinsic value could rise also.

The Size of Amazon AWS Cloud Computing Business

Amazon AWS cloud computing business could soon have intrinsic worth of 1.4 trillion USD.

If AWS takes 70 billion USD in yearly revenues as share of the growing briskly cloud computing market, Amazon AWS could earn about 20 billion USD in net profit a year.

At Price/Earnings ratio of 70, which is not too high actually, Amazon Web Services could be worth 1.4 trillion USD.

Cloud Computing Niche Players

Yes, there is place for niche players in the already giant industry of cloud computing, Infrastructure as a Service, in particular.

GitLab and HashiCorp do offer breakthrough technology and potentially could disrupt the cloud computing business and the already established cloud oligopoly of Amazon and Microsoft.

Cloud Stocks Valuation

In my opinion, cloud computing stocks with below 40 billion USD market capitalisation valued by public markets at below Price/Sales of 12 are undervalued. For cloud stocks with market capitalisation higher than 40 billion USD the appropriate Price/Sales metric that makes them undervalued is 7.

Cloud computing stocks are usually unprofitable. If cloud stocks are valued at below Price/Earnings ratio of 43 and exhibit year on year revenue growth rate of above 14, in my opinion, they are undervalued.

Mega cap cloud stocks: Amazon, Microsoft, Alphabet

Other cloud stocks: HashiCorp, GitLab, DocuSign, Cloudera, Anet etc. 

Gazprom and Lukoil

Gazprom and Lukoil, the Russian giant producers of oil and gas, are undervalued.

Both Gazprom and Lukoil's intrinsic value is around two times their current market capitalizations.

The negative narrative surrounding fossil fuels like oil and gas suppresses Gazprom and Lukoil's values to levels close to net assets, a favorite situation for Benjamin Graham, the father of value investing.

Large And Small Technology Stocks Prospects

The big 5, Apple, Microsoft, Amazon, Alphabet (Google producer) and Meta (Facebook) owner have been the winners in the last 5 years, especially after the coronavirus crashed into our lives.

Smaller technology stocks like Snap(Snapchat owner), Pinterest, Roku, Etsy have also made large gains. Most technology stocks, outside the big 5, however, have crashed lately along with the Federal Reserve communication that the central bank of United Stated is going to tighten monetary policy, raise the interest rates in the economy that is, which brought USD appreciation relative to the major currencies like EUR, JPY and GBP.

If it is not winner takes all, it looks like top 5 technology winners are taking most, at least. It is natural for businesses that rely on viewer numbers to drive value that oligopolies tend to form, because of economies of scale. 

Monopoly or oligopoly for that matter is bad for the economic growth. May be regulators should intervene? 

For the time being the largest 5 technology stocks look set to continue growing or at least not loose that much of their market capitalization. That may be partly due to the fact, that most of company stocks of these Big 5 technology giants is held by institutional investors like asset management firms and hedge funds which manage money for pension funds which are slow to react and carry a lot of momentum along.

Smaller technology companies have to be nimble, agile and adapt quickly to make inroads. Good examples seem to be in the new hot area of technology cloud computing - GitLab and HashiCorp, to name a few.

It will be interesting to observe how things will unfold.

Apple Is Worth 3 Trillion USD

Apple Inc, the iPhone, Mac, iPad, iPod and various services producer, became today the first company in history valued at 3 trillion USD.

In my opinion, Apple's intrinsic worth is 1.4 trillion USD. With other words Apple Inc is significantly overvalued. Smartphone sales have been contracting globally, iPad sales as well. Apple has struggled to make its Mac computers main stream. Yes, there is the App Store and services, but hardware design and production still makes up the significantly larger share of Apple's yearly revenues. And new projects like autonomous cars are a long way away.

In short, investors seem to be pricing too much future growth for Apple.

Bitcoin Is Undervalued

Bitcoin is undervalued at the current price of around 46 707  USD.

I agree with Cathie Wood that Bitcoin can reach a price of 500 000 USD in the next 10 - 12 years.

Bitcoin saves people time, effort and money. In my opinion, the blockchain algorithm underlying Bitcoin will amplify Bitcoin's value creation and transfer its advantages to the broader economy.

Bank Stocks and Rising Interest Rates

The Federal Reserve, the central bank of the USA and other major central banks like the European Central Bank are about to start action to raise their target interest rates and thus the general interest rate levels in the economy to limit inflation.

In my opinion, if raising the interest rates by central banks is done gradually, bank stocks, regional banks in the USA, especially, will benefit and the stock prices of money centre banks and regional banks, in particular, will rise by somewhere between 10 % and 50 % in the next 3 years.

Commercial banks, influence by the central banks, tend to raise rates on customer deposits more slowly than they raise the rates on the credits they give out. Thus their net interest margin, the stable of the banking business, widens and bank's profits and market capitalisations increase.

I expect  in the next 3 years value stocks as of now like banks, insurance and in general financial stocks, along with commodities, energy and industrial sector stocks's prices to increase faster than technology stocks in general and the value stocks and growth stocks valuation difference to narrow.

Disruptive Technology Stocks

In my opinion, the most disruptive technologies of our time are Artificial intelligence(AI), Cloud computing, Cryptocurrencies and in the future Virtual Reality or Augment Reality.

All these technologies rely on artificial intelligence or computer algorithms that drive hardware.

Companies with publicly listed stocks active in the above areas are Amazon, Microsoft, Alphabet, Apple, IBM, HashiCorp, GitLab, Facebook, Robinhood, Coinbase etc.

It is very difficult to value these stocks, simply because as Marc Andreessen put it: "Software is eating the world". An area people consider confined and limited like cryptocurrencies, Bitcoin and the underlying blockchain algorithm could end up disrupting almost all other modern day industries and businesses.

Artificial Intelligence or AI is already changing profoundly most known industries. Cloud computing is the way we are going to compute or use computing power tomorrow, because cloud computing saves companies and people time, effort and money.

Virtual Reality or Augmented Reality or the Metaverse could be and is likely to be, according to Facebook, many technology companies and media the next big thing in technology.

All these company stocks have built in huge optionality which could end up driving their market capitalisations either to extremely high levels or if the underlying technology does not live up to expectations their market values could fall more than 70 % from their most recent peaks.