Cloud Stocks Valuation

Cloud technology stocks have fallen around or more than 20 % from their most precent peaks.

Earlier cloud stocks were trading at Price/Sales ratio of 23 on average. The Price/Sales ratio is used to compare cloud stocks since most listed companies active in cloud computing are not profitable.

In my opinion, if a cloud stock is growing revenue at more than 20 % on a yearly bases, Price/Sales ration of 14 is justified. If a listed cloud company is growing revenue year on year at 30 %, I think a Price/Sales ratio of 17 is reasonable.

And all my opinions expressed above are predicated on the firm assumption that the particular listed cloud stocks have envisaged and plan a step by step plan to profitability. In short, cloud computing companies, as all other businesses should fulfil their base mission -> earn money, create value for their shareholders.

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Mega Cap Technology Stocks Valuation

Mega capitalisation stocks are defined as stocks with market capitalisation of above 200 billion USD.

In my personal opinion the intrinsic value of the following stocks is:

Apple, 30 % lower than current levels. If China invades and annexes Taiwan, where most Apple hardware products are built, Apple's market capitalisation could fall more than 62 % from current levels.

Meta, Facebook's owner, is worth 20 % less than its current market cap, even after Facebook's capitalisation.

Amazon's intrinsic worth is 34 % lower there current market capitalisation of Amazon.

Both Microsoft and Alphabet, Google's owner are worth 40 % than their current market capitalisations.

In my opinion, Tesla is worth around 120 billion USD, or around 87 % lower than Tesla's current market capitalisation of 1.05 trillion USD.

As fart as I am concerned, some of the most undervalued technology companies are Twitter, Ebay, Roku, Etsy, Arista Networks, Splunk, Dropbox, Groupon, Pinterest, Robihnood Markets, Palantir Technologies etc.

That said, technology companies' value can in general fall a further 20 % to 35% as measured by the Nasdaq Composite stock market index, which is comprised mainly of technology companies' stocks.

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Can a Startup Like GitLab Disrupt Amazon?

Amazon is the clear leader in cloud computing, the most exciting market of our time. 

Cloud computing's yearly revenue run rate exceeds 100 billion USD at present and analysts forecast cloud computing could become a 700 billion USD yearly revenue market in the long run. 

Amazon with its Amazon Web Services(AWS) offering is the clear leader by revenue and market share in Infrastructure as a Service(IaaS), the main vertical of cloud computing. AWS is active in the other areas of the cloud as well.

GitLab provides a software code repository, collaboration and software production platform which is essentially an Infrastructure as a Service cloud offering that could prove central for writing computer code, which is actually the most important part and bedrock of our modern day digital information society.

Yes, Amazon's AWS has huge resources, advantages and inertia working for it, but history knows of many examples where a large establishment company has underestimated or ridiculed a small and agile challenger, which finally ends up conquering the market. Blackberry was the dominant player in smartphones, then Nokia and all of a sudden Apple and Steve Jobs appeared on the stage to present the iPhone. Yes, Apple was not a s small company, but in smartphones Apple was nonexistent. And Apple ended up literally obliterating the competition in high end smartphones.

GitLab is also a small, agile, quick, fast changing, pacy and innovative company which, as far as I am concerned, will in the future take a reasonable size of the IaaS cloud market.

In order to really disrupt Amazon, GitLab must develop a brealthrough product like the iPhone. Do I think such a thing could happen? I would put the probabilities of such an event at 27 % at present. But hard work and skill can change probabilities.

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Apple's Cloud Strategy

Apple Inc, the iPhone, Mac, iPad and App Store maker is not a major player in the Infrastructure as a Service cloud computing market where Amazon, Microsoft and Alphabet are the leading three corporations by market share with significant distance from their followers.

So one may be tempted to say Apple Inc has no discernible cloud computing strategy. Yet, Apple's App Store is a cloud way of storing software applications. In addition, the iCloud and iTunes services, which are mainly for email and songs, take up a large part of everyday's 24 hours for consumers.

Apple seems not intent to became a dominant player in the Infrastructure as a Service cloud computing market per se, but the company is making inroads in cloud computing via the Appstore, iCloud and iTunes. Thus Apple is firmly ingrained in the computing activities of everyday consumers and also corporations as many Silicon Valley and generally US based companies utilise Apple's Macintosh computers, iPhones, iPads, Apple's office suite applications and Apple's services as part of their corporate infrastructure.

In short, in my opinion Apples is major player in cloud computing, although Apple's explicit cloud computing revenue is not large.

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Apple's Value Remains Remarkably Stable

Apple's value measured by its market capitalisation is currently only around 6 % off its most recent peak.

And the Nasdaq Composite is down by 12 %.

The market seems to regard Apple as a safe company, which is a bit of a contradiction for a technology company given the usually very high stock market risk or volatility of the public technology companies' equities.

I think the reason is that Apple Inc.'s iPhones, Macintosh computers, iPads etc. are so deeply ingrained into the fabric of our modern day society, that it is extremely difficult to dislodge Apple from its oligopolistic perch in the premium mobile phones market. Or as Warren Buffett would put it, Apple is currently the epitome of durable competitive advantage. Actually around half of Warren Buffet's Berkshire Hathaway stock portfolio is invested in Apple's stock. Apple's position in Berkshire's portfolio grew mainly due to the Apple stock price outperforming the main stock market indices.

What is more, riding on its hardware  Apple's services, mainly the App Store are growing in terms of revenue even faster than the Cupertino based company's hardware business.

I actually doubt that Apple has such a competitive edge, so as substantiate the relatively small fall in the price of Apple's stocks. I personally believe Apple stocks's outperformance in the recent weeks is due to the fact that many buy and hold institutional investors hold a large part Apple's outstanding stock.

That said, many forecasted a new project started by Apple like an autonomous car keep the company valued richly and similar to a technology start up.

Actually, I think Apple's Macs and iPad tablets will be one of Apple's growth divers in the future. The coronavirus pandemic and the current military crisis are making people consume more and more content on computers and tablets. And Apple has an excellent and very profitable business in both Macs and tablets.

It remains to be seen if the management of Apple can execute the company's strategy in a good manner now, but also in the future.

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Bitcoin Will Outperform the Nasdaq Composite Over the Next Decade

I forecast the price of Bitcoin will outperform the Nasdaq Composite Stock Market Index point growth, both expressed in percentages, over the next 10 years.

Information technology and technology stocks are a leveraged investment on the global economy and future technological progress. 

Bitcoin is a leveraged investment on information technology. Bitcoin simply uses the existing technology infrastructure, utilised by the underlying blockchain algorithm to harness the power of electronic money to store, measure and account for wealth, which are the main characteristics of money.

Bitcoin saves corporations and people time, effort and money via saving the hustle to do bank transfers and leveraging information technology's computer algorithms.

Progress and technology revolutions come in waves, so Bitcoin and cryptocurrencies' development will ebb and flow, but ultimately change how we live, in my humble opinion.

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Bitcoin And Cryptocurrencies Could Prove an Agile, Durable Asset Class

Bitcoin and cryptocurrencies's prices have fallen more than 40 % from their recent peaks.

Bitcoin and cryptocurrencies are going through their first really tumultuous period since they came into existence and started actively trading in 2013.

Up till now, cryptocurrencies are behaving like a typical risky asset class, selling off on news on the war in Ukraine. Many investment analysts predict the current crisis could prove the end of Bitcoin and other cryptocurrencies. They cite the lack of cash flows backing cryptocurrencies and their nascent history. As if there are any cash flows in the form of dividends backing Amazon or Facebook's stocks.

Personally, I think Bitcoin and cryptocurrencies in general will suvrvive the current havoc and thrive in the future. The main reason is that Bitcoin and cryptocurrencies save people and corporations time, money and effort. The blockchain algorithm, which is essentially a hashing, decision tree algorithm, will make almost all production processes more efficient.

Why are gold and diamonds a good store of wealth? Because both gold and diamonds are virtually indestructible. A physicist who managed to dissolve gold got the Nobel Prize. But afterwards, the gold in question was quickly restored.

Bitcoin, similarly is virtually intractable by governments and indestructible, which makes it a good store of wealth and easily transferable in times of military conflict.

Crises, actually are when asset classes prove their worth, agility, flexibility and anti fragility.

In my opinion, Bitcoin and cryptocurrencies will live through the current chaos and emerge as a stronger investment alternative afterwards.

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Amazon AWS And GitLab's Cloud Technology Edge

Amazon is the current leader in cloud computing via Amazon Web Services. With Microsoft's Azure a close second.

Niche cloud startups with great technology like GitLab, however, have a certain edge in the space.

GitLab's cloud software production collaboration platform is the engine for creating applications for the cloud.

Amazon via AWS provides the bedrock, infrastructure for cloud computing. Microsoft too has an amazing technology with which it powers computing for many leading technology companies and companies from many other sectors of the economy.

GitLab, however, is making quick inroads into the core of cloud computing - writing software code. History has witnessed many instances where a relatively small company finds a fast growing niche in an existing large market, like cloud computing, builds on that small area of expertise and later becomes one of the dominant players in the respective industry.

Whether GitLab lives up to such expectations remains to be seen.

It is a fact, however, that smaller, agile, quick companies like GitLab and Hashi Corp are not very far away from disrupting the disrupters.

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Oil War Time Valuation

I forecast the price of oil could surpass 200 USD per barrel, both for the crude and Brent sorts in the next 3 years on the war in Ukraine.

Russia produced 10.5 million barrels of oil in 2020 which was 10.5 % of the total production and roughly that percentage of total consumption.

And the biggest oil producing countries in the world usually find it very difficult to increase output in the short-term, this being 2-3 years. This is because oil exploration and subsequent production pending on finding oil reserves rich patch is a slow, cumbersome, painful and expensive process.

Only the US shale oil producing companies are flexible, but not to a to great an extent.

Scenario analysis:

Russia produced 10.5 million barrels of oil in 2020.

Several scenarios, because of the Russian Ukraine war and my forecast for oil price developments:

1) Russia loses 1.5 million oil production -> the price of oil rises to 125 USD on average in the next 2 years. 17 % probability

2) Russia loses 2.5 million barrels oil production -> the price of oil rises to 145 USD on average in the next 2 years. 37 % probability

3) Russia loses 3.5 million barrels oil production -> the price of oil rises to 180 USD on average in the next 2 years. 27 % probability

4) Russia loses 4.5 million barrels oil production -> the price of oil rises to 200 USD on average in the next 2 years. 11 % probability

5) Russia loses 5.5 million barrels oil production -> the price of oil rises to 227 USD on average in the next 2 years. 7 % probability

6) Russia loses 7.5 million barrels oil production -> the price of oil rises to 270 USD on average in the next 2 years. 1% probability. Nightmare scenario.

Personally, I believe the price of oil, both the crude and brent sorts, will average 170 USD in the next 2 years. The volatility or dispersion of my forecast, however, is huge. 

The distribution of my forecast is heavily fat-tailed.

The stocks of oil majors like Exxon Mobil, Chevron, Royal Dutch Shell, BP, Total, midsized companies like Petroleo Brasileiro and Occidental Petroleum and smaller shale patch oil producers like Marathon Oil Corporation should significantly outperform the Standard and Poor's 500 stock market index.

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Tech Stocks Valuation

In this post I will share my personal opinion of the real intrinsic worth of some of the hottest technology stocks of the last 5 to 10 years.

Intrinsic value, as far as I am concerned:

Apple: 30 % lower than the current market capitalisation

Facebook: 25 % lower than the current market capitalisation

Alphabet, Google owner: 27 % lower than the current market capitalisation

Microsoft: 30 % lower than the current market capitalisation

Amazon: 30 % lower than the current market capitalisation

AMD: 50 % lower than the current market capitalisation

Twitter: 17 % lower than the current market capitalisation

Pinterest: 20 % lower than the current market capitalisation

Robinhood Markets: 20 % lower than the current market capitalisation

Palantir: 15 % lower than the current market capitalisation

Arista Networks: 20 % lower than the current market capitalisation

These are  intrinsic values for the short-term, 3 to 5 years out as I am of the opinion the Nasdaq Composite will fall 25 % to 35 % more from current levels on both the Federal Reserve raising rates and the current crisis, which will most likely cause a new recession and stagflation.

In 7 to 10 years the market capitalisation of firms like Palantir and Arista Networks and Robinhood Markets could rise several times from the low points their market capitalisations will touch in the short-term.

Because, I believe they have a durable competitive advantage, as arguably the greatest investor of all time Warren Buffett likes to describe his investment edge.

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Why Cloud Computing Is the Future

Cloud computing or the ability to use external computing resources for a payment is gradually taking over  computing, especially for mid size companies, with the technology industry leading the way.

Since cloud computing offered by the corporations Amazon, Microsoft and Alphabet, the owner of Google, are usually offered via a "pay as you go" model the cloud computing services offered by the aforementioned technology firms are proving remarkably cost efficient.

Computing infrastructure needed to process the contemporary huge amounts of data created by mega trends as videos and pictures consumption is quite costly. Companies like Spotify, Snap Inc, Snapchat owner and many others use the cloud service of Amazon called AWS to operate their businesses. And actually both Spotify and Snapchat recently boasted market capitalisations of either above or circa 100 billion USD.

And the number of smaller firms utilising cloud computing services is enormous.

Smaller, niche players in cloud computing as GitLab and Hashi Corp seems undervalued in the long-term.

The main benefit of cloud computing is that actually small IT firms or idividuals can utilise the resources of technology leaders like Amazon, Microsoft and Alphabet to drive their business.

This opportunity serves to only increase their edge.

In short, cloud computing is the future of computing and in the long-term, barring an unforeseen negative development Amazon, Microsoft and Alphabet and smaller cloud firms as GitLab and Hashi Corp should be able to increase their market capitalisations multiple fold. 

GitLab Could Disrupt the Cloud

GitLab, currently one of the most innovative companies in computing, could disrupt the cloud by changing the way people write code, which are basically algorithms on which everything runs.

"Software is eating the world", as Marc Andreessen succinctly put it.

GitLab is used by firms as Goldman Sachs and NASA where teams collaborate to write code.

GitLab's simple user interface, ingenuity and technological edge are really advanced.

GitLab's revenue may be relatively small now, but since writing computer code is the key to our world, GitLab's prospects using its niche in the already more than 100 billion USD in annual revenue and growing more than 20 % a year cloud computing market are basically huge.

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How High Can the Price of Oil Go?

I forecast the price of a barrel of oil could surpass 200 USD in a couple of months if, due to the current crisis, for example, Russian oil exports are banned.

Russia exports 5 million barrels of oil a day. This quantity, according to many analysts, can be replaced only after one or two years as global oil majors and US shale oil drilling companies adjust their drilling capacity.

The "problem" is that oil production companies have paid out most of their profits as dividends to current shareholders. So they have not necessarily enough cash to start exploration and subsequent oil production soon.

Oil production companies have to turn to their existing shareholders and ask them to provide funds for the respective companies to engage in oil exploration and production. And oil production is a very capital intensive business. So there is the probability that oil companies' shareholders could very well prove reluctant to provide large sums of money in the short-term. This issue is exacerbated by the fact that oil mining companies's stock prices are down with substantial margins from the last peak of the price of oil.

Actually, the world could well be witnessing a new golden age for commodities like oil, gas, wheat, corn, soy beans gold, silver, base metals, coal which up till now have been produced mainly by emerging markets like Russia, Brazil, South Africa, Argentina, Ukraine et. This is quite surprising since most commodities' prices have languished compared to 2008 commodities prices levels.

One of the obvious beneficiaries from the possible commodities boom are global commodity production majors like Exxon Mobil, Shell, British Petroleum, Chevron, Bunge, Glencore, Trafigura, Brazil's Vale, etc. However, the commodities trading departments of mainly Wall Street, US based banks will likely experience historic windfalls.

The ones that will suffer most are ordinary people. This, of course, is deeply wrong and there has to be a way to stop always ordinary people baring the cost of any crises. It is the duty of our generation to find a way first to prevent conflicts or at the minimum stop a shadow minority from benefitting from crises.

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Respectfully yours,

Petar Posledovich

Warren Buffett, Aswath Damodaran and Catastrophic Risk

Warren Buffett's investments have been successful in part because there has not been any financial catastrophe in the USA.

This is an insight I have to credit to Aswath Damodaran, the New York University professor and arguably the best academic on company valuations.

Warren Buffett keeps saying that buying stocks is the best investment, even during a war. But nuclear war? America has never experienced a real ground war invasion or conflict, let alone a nuclear war.

Yes, undervalued, value, Benjamin Graham style stocks of commodity producers or transporters of commodities like Warren Buffet partly owned and run conglomerate Berkshire Hathaway's Burlington Santa Fe could end up rising multiple fold after the dust from the current war settles.

However, if a nuclear war erupts or a full blown ground war erupts, in the mid term at least, things will be very difficult for both people and companies and the world's main stock market indices could fall more than 75 % from their most recent highs.

Every strategy, including investing strategies has one or several weaknesses. Warren Buffett's style is relying on the human or US in particular spirit and ingenuity surviving and thriving in the long-term. And yes, humanity has moved on successfully from crisis and wars many times in the past driven mainly by greed.

Gordon Gekko, the fictional character from the movie Wall Street is famous for saying "Greed is good".

Really? What if humanity's greed causes a nuclear war and the subsequent nuclear winter? The same nuclear winter that destroyed dinosaurs, the then dominant species on the planet Earth.

As far as I am concerned, all commodities producing companies are grossly, deeply undervalued at the moment.

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Tesla Valuation In Light of The Recent Spike In the Price of Oil

Oil's price, for both the Brent and Crude sort variety is nearing 120 USD and driven by recent political developments oil's price could shoot up a lot higher.

These developments, in theory, should increase the intrinsic value of Tesla Inc, the electric vehicle manufacturing company.

That said, however, I am still of the opinion the Tesla is worth only around 120 billion USD and this is based predominantly on Tesla's technology set. I have been sticking to my estimate of Tesla's intrinsic value for some time now, despite that at the Tesla stock price's recent all time high Tesla's market capitalisation recently surpassed 1 trillion USD.

Tesla is simply unprofitable without government subsidies currently, which means currently Tesla's technology is not viable for Tesla to produce a yearly profit without government subsidies. Up till now Tesla has financed its business via issuing more stock and selling it to investors. Such a strategy of consuming outside cash can only be viable for a certain period of time. Sooner, rather than later Tesla must make a technology leap to start producing electric cars with a profit.

The spiking price of oil could drive some demand toward Tesla's production line up, but it will not change dramatically Tesla's bottom line.

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GitLab Valuation After More Than Halving Its Market Capitalization

GitLab, the cloud code repository based software company's stock price has more than halved in value since its all time high shortly after the firm's recent IPO.

As things stand in the short term GitLab is still overvalued based on the fact that the Nasdaq Composite and technology stocks' prices are tanking.

However, in the long-run GitLab's market capitalisation from the current 7.88 billion USD could surpass 70 billion USD on the fact that the Infrastructure as a Service cloud computing market's revenue is growing at around 20 % a year and GitLab has a technology edge in the vertical and thus a unique value proposition.

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