Tesla, Rivian, Technology Stocks Valuation and the Coming Bust

Tesla is worth 120 billion USD and mostly because of its technology.

Rivian is worth 5 billion USD based on the forecast it will actually make revenue.

I had a professor once who said that the discounted cash flow models were considered old in the 2000 - 2001 dot-com boom. And then came the bust.

Wall Street Journal had an article about Cathie Wood and its Ark Invest company comparing the likes of Cathie Wood with Warren Buffett. The article concluded that the likes of Cathie would fizzle out like the rest.

The 'Greater fool theory' is all very nice, but somebody will be left holding the can. As always. And  somebody seems to think the general public is not very smart. Well, I just hope things do not escalate after the coming technology stocks bust and the economic crisis that will follow.

But for now, the music is still playing and the dancing is in full swing.

Bitcoin's Disruption Capabilities Are Still Undervalued

Bitcoin is still undervalued.

If not outlawed by governments, I forecast Bitcoin will surpass 100 000 USD in 4 years and Bitcoin's price may rise over 300 000 in 7 years time.

GitLab Could Turn Into Much More Than a Niche Player in Cloud Computing

Gitlab is currently worth 16.1 billion USD in market capitalisation on public markets.

Although overpriced in the short-term, GitLab market cap or value could rise to 70 billion USD in 10 years when the infrastructure as a service cloud market could easily achieve 700 billion USD in calendar year revenue run rate.

Is Bitcoin Here to Stay? The Fourth Industrial Revolution.

Bitcoin is permanent, because it solves one of the main problems of society - human nature.

Since Bitcoin is crowdsourced, Bitcoin is very difficult to manipulate. Many famous research analysts and portfolio managers say that nothing backs Bitcoin. What backs Facebook, an internet site or Amazon, an online store?

The same research analysts and investors say: "Bitcoin does not have cash flows to back it up". Where are the dividend cash flows that support Facebook or Amazon's stock prices of their approximated 1 trillion USD or more market capitalisations? But Facebook and Amazon are the future?

And Bitcoin, blcokchain and other cryptocurrencies are not? The Future?

The company valuations guru Aswath Damodaran, so called "the dean of valuation" has a new interesting book out. "The Value of Narratives".

The problem is we are at the end of value. The end of valuation. In capitalism and in the world and nature everything changes, so value changes constantly. That said, intrinsic value can remain stable for several years. Chaos theory is right. Almost all depends on the initial conditions and a butterfly can just be the trigger that explodes the gathered pressures in the system.

Yes, Bitcoin is here to stay. In one form or another. Digitalisation is the fourth, but largest and most comprehensive and all encompassing industrial revolution in the history of humanity.

Digitalisation is changing and will change everything: How we communicate, work, travel, sleep, eat and basically transform how we live. Why? Because digital saves us time, effort and money.

And Bitcoin is the edge of digitalisation. Throughout all its history, humanity's advance has been mainly guided by greed. And not, I don not think that EXCESSIVE "greed is good", like Gordon Gekko says in the Wall Street movie. Greed will sooner rather than later bring humanity to the edge of extinction.

But up till then, greed will drive progress. Because money is what makes one man prevail over another. Power with other words.

Bitcoin is the epitome of power. A digital, crowdsourced, untraceable, mobile, independently run means of exchange, store of value and unit of account. Money, with other words. Yes, Bitcoin still has room to go to become real money. Its volatility is a problem, especially.

Bitcoin, however, is progress. It is very difficult to stop progress!

Rivian and Tesla. An Investment Comparison

Rivian is currently valued at approximately 125 billion USD by public stock markets. Tesla's market cap is 1.04 trillion USD.

Both Rivian and Tesla are heavily overvalued. In my opinion, Rivian is not worth more than 5 billion USD, while Tesla's intrinsic value is around 120 billion USD.

Rivian does not even have revenue! The investment bankers that underwrote and successfully sold the Rivian shares to institutional investors at the IPO have done something very extraordinary. Apparently, the hunger for the electric vehicles' story after Tesla's stock price meteoric rise is tremendous.

Electric mobility will indeed take a large market share of the current combustion engine dominated cars and other vehicles market, but I think electric vehicles' market share will be far less than the market seems to be pricing in both Tesla's and Rivian's market capitalisation.

Bitcoin and Cryptocurrencies as a Store of Value

Bitcoin and other cryptocurrencies have to become a store of value, a unit of account and a means of exchange to become money.

The store of value seems most difficult to attain for Bitcoin and cryptocurrencies as of now. Bitcoin is just too volatile or with other words too risky to buy and hold in order to protect one's wealth.

Several solutions to this problem have been proposed:

1) Stable coins. Cryptocurrencies issued by large corporations and pegged to the value of the USD or a basket to of the leading currencies.

2) Some other sort of intervention that will ensure that Bitcoin and cryptocurrencies' prices in general become more stable

Actually, both solutions will most probably hurt Bitcoin and other cryptocurrencies' chances of becoming real money simply because they will violate the single characteristic that makes cryptocurrencies special - they are independent, produced by society and do not depend on governments.

What I personally see as a solution to Bitcoin and other cryptocurrencies' price volatility is just increasing  the liquidity of the cryptocurrencies market. This can be done by attracting more long-term institutional investors like asset managers, endowments and pension funds.

Many stocks start out as young listed companies with volatile prices, but as they build revenue and profit track record they attract a lot of institutional money, the market for their stocks becomes much more liquid and deeper and thus their price volatility subsides.

The sam can be a solution to Bitcoin and other cryptocurrencies' price volatility. First, however, Bitcoin's acceptance by the general public should markedly increase.

Will GitLab Become Profitable?

Gitlab is heavily loss making now valued at circa 18 billion USD market capitalisation.

Yes, Infrastructure as a Service is the future of computing. That said, Gitlab's promise is yet to be monetised.

Geek coding repository for now, Gitlab is slowly getting traction with large companies.

Gitlab's technology edge, though, could still make Gitlab a future profitable, thriving company if the management executes the obvious IaaS niche strategy right. 

The secret is, according to my humble opinion, that Gitlab's management builds institutional feel for Gitlab.

Rivian IPO Valuation and Tesla Comparison

Rivian is currently valued at approximately 110 billion USD without Rivian having any revenue.

Rivian is not worth more than 5 billion USD as Tesla is not worth more than 120 billion USD.

Rivian is a story stock based on the promise of green energy and electric vehicles. Much like Tesla.

Tesla, however, went public at a much lower market capitalisation. And Tesla's current market capitalisation at 1.05 trillion USD, makes Tesla Inc wildly overvalued.

Tesla is still not profitable. Tesla's technology, however, could help the electric vehicle pioneer sell itself for around 120 billion USD which is the current intrinsic value of Tesla, according to my humble opinion.

Rivian, however, does not even have revenue and Rivian is worth 110 billion USD currently. Yes, there are drug companies having done only experiments on a single world changing drug that have been valued at 1 billion USD. But Rivian's lack of revenue simply cannot explains a value of more than 5 billion USD. And the only reason I think Riviain could be worth as much is because of the large promise of electric cars.

Money creation or money printing as some analysts put it by the major central banks have distorted the prices of all assets. Pension plans administrators' unrealistic promises and commmitments to their pension money providers are making all asset managers chase unrealistic returns.

This greatest financial bubble in history will burst of course, but for the time being the stock markets going up party will go on for some more years, I think.

GitLab Valuation

Gitlab, the code repository firm, is valued at 17.73 billion USD after its Initial Public Offering on Nasdaq.

I believe Gitlab's intrinsic worth is around 3.4 billion USD.

And this is based on my assumption that Gitlab will become a profitable company. At 150 million USD of Fiscal 2021 revenue Gitlab has simply too little revenue to justify a market capitalisation of above 3.4 billion USD.

Yes, the infrastructure as a service cloud computing market in which Gitlab is operating may well grow above 500 billion USD in revenue in 2025, but there are other formidable entrenched competitors like Microsoft, Amazon, Oracle and IBM which have huge research and development resources and already command significant market shares. Microsoft and Amazon, especially, have a huge edge with their 13 % market share each in the infrastructure as a service(IAAS) market.

At best, Gitlab could be described as a niche player in the IAAS market. Even if Gitlab proves another spectacular technology rising star success a 3.4 billion  USD long-term intrinsic value should be enough compensation for that.

Bitcoin and USD United States Dollar Relationship

Most asset prices like stocks and commodities prices are inversely correlated to the value of the United States Dollar to the EUR or a basket of the leading currencies.

Bitcoin should also be inversely correlated to the USD. In times of crises investors run to the safety of the global reserve currency which is the USD and the related US treasuries bond market.

Bitcoin is also vying to be a global reserve currency, be it in electronic from. So what will be the likely parallel development of Bitcoin's price and the value of the United States Dollar.

I think it is pretty much possible that USD and Bitcoin could both appreciate in the future, especially Bitcoin. Much like the price of oil and the USD did through various periods in the past.

Bitcoin could actually function as a safe heaven alternative to the United States Dollar, far away from governments' control. Human nature and many government failures in the past have built a huge distrust in the general public, the technology and investment community in particular, towards official government institutions and their ability to police financial markets, the information technology industry and handle crisis, both economic and political.

It is exactly this distrust in official authorities that is one of the main factors driving the incessant increase of Bitcoin's price in the last 7 years.

That is why, I think Bitcoin could end up functioning as a safe heaven asset in turbulent times.

Bitcoin Is the Single New Asset Class in Decades

Bitcoin is undervalued at the current price of circa 62 000 USD.

Bitcoin's blockchain algorithm will disrupt our world and listed stocks like Coinbase and Robonhood Markets are set to benefit.

Coinbase Valuation on Rising Bitcoin

Currently Coinbase is valued at approximately 70 billion USD on public markets.

I estimate the following intrinsic value for Coinbase based on a prospective price for Bitcoin:

1) Bitcoin at 100 000 USD -> Coinbase is worth 120 billion USD

2) Bitcoin at 200 000 USD -> Coinbase is worth 250 billion USD

3) Bitcoin at 350 000 USD -> Coinbase is worth 340 billion USD

Amazon and the Cloud

Even after its disappointing latest earnings report Amazon is undervalued on cloud computing

Amazon is the leader in cloud computing and now the cloud computing business has a 200 billion USD  yearly revenue run rate with a growth rate of 35 % year on year.

Amazon's AWS cloud business' net profit margin is above 20% which coupled with the already large cloud computing industry and its stellar growth rate makes it possible that Amazon surpasses 3 trillion USD in market capitalisation in 7 years time.

Robinhood Is a Crypto Merchant Bank

At 33.85 billion USD market capitalization Robinhood is grossly undervalued in the long run.

Robin Hood is practically a cryptocurrency merchant bank. That is, a crypto investment bank.

Robinhood will be worth 100 billion USD if Bitcoin's price stays at 100 000 USD and 250 billion USD if Bitcoin's price reaches 200 000 USD, according to my estimates.

Cloud Stocks

Amazon, Microsoft and Alphabet, the Google search engine owner, could double in value in the next 5 years on the very probable growth of their cloud computing businesses. 

That can happen, despite all three  Amazon, Microsoft and Alphabet being valued currently at more than 1 trillion USD.

Actually, I think almost all estimates of the cloud computing business market size globally underestimate the promise of cloud computing. Simply because such mundane tasks like TV watching, video game playing and even artificial intelligence, machine learning will most likely move to the cloud infrastructure as a service premises of the large internet companies.

The cloud computing business currently is very profitable with net profit margins usually above 22 %. Unless the cloud becomes commoditized, the cloud computing business holds exceptional rewards.

Bitcoin as an Alternative to Investing in Stocks

Bitcoin's price reached an all time high this week. Many famous stock investors like Michael Novogratz have reportedly made a fortune investing in the new asset class of mainly Bitcoin and other cryptocurrencies.

Yes, Bitcoin dose not provide cash flows in the form of dividends, but also do not Amazon, Alphabet, owner of Google, Facebook, Tesla, Netflix and most technology stocks. And yet they are worth tens of billions and often hundreds of billions USDs and in Amazon and Alphabet's cases more than a trillion of USDs.

I do think Bitcoin could prove an altertnative to investing in stocks, be it at a lower percentage of the overall investment portfolio.

Bitcoin is undervalued, transforming our world and barring a black swan event like governments outlawing it, Bitcoin and main other cryptocurrencies are set to thrive in the future.

Bitcoin's Price and Gold

Many analysts see Bitcoin as an investment substitute for gold. And yes, as the price of gold has stagnated, Bitcoin's price reached this week an all time high.

It is interesting that although the USD, the main currency in which Bitcoin's price is quoted, has appreciated, the price of Bitcoin has went further up. Unlike gold's price which moves inversely to the USD as measured towards the EUR and a basket of leading currencies.

I forecast Bitcoin's price could climb above 100 000 USD in 2022.

What Will Drive the Further Bitcoin's Price Increase?

Institutional investor demand and excessive money creation by central banks will fuel the next round of Bitcoin's price increase.

The money printed, created by global central banks creates even more money via deposit multiplication. 

And part of the newly created hot money will find its way into Bitcoin.

Institutional investors looking for extra returns will also slowly enter more the cryptocurrencies asset class.

Stocks Which Would Benefit From Automation and Artificial Intelligence

The most obvious winners from the trend towards automation are NVIDIA and Microsoft.

NVIDIA, by producing graphical processing chips and computer chips, while Microsoft compiles the software to run the algorithms.

Many other electronic chips producers should also benefit.

Bitcoin's Price Could Reach 100 000 USD

Bitcoin, according to my estimates, is way undervalued.

The price of Bitcoin could surpass 100 000 USD in 2 years. Bitcoin saves people time, money and effort.

Bitcoin and the underlying blockchain algorithm will enhance dramatically the value produced by almost all industries existing today.

Is Tesla the Biggest Bubble in Stock Market History?

Tesla's market capitalisation is around 840 billion USD currently.

If Tesla's value falls to 140 billion USD, this would mean a loss of value of 700 billion USD.

This would most certainly be the largest loss of value for a single stock in history. Tesla's market capitalisation is simply of extraordinary size.

I estimate that a loss of 700 billion USD in value is not unlikely in the long-term. I judge the probability if that happening at 30 %.

Actually, I think Tesla's intrinsic value is 120 billion USD.

Cloud Computing as a Profitable Business

Amazon proves that cloud computing is a profitable business by achieving approximately 30 % net profit margin on Amazon Web Services, its cloud computing business.

This contrasts with Amazon's barely profitable US online merchandising business and consistently loss making international online sales business.

So cloud computing is really profitable if executed correctly. Most young technology start ups are loss making, even though many of them are unicorns or valued at 1 billion USD or more.

So cloud computing, which is slowly permeating every area of every day life and IT technology, could be the solution for profit making business endeavours for young technology start ups.

Cloud Computing Winners

Amazon, Microsoft and Alphabet, owner of the Google search engine, have gained a lot from the move to cloud services and will continue to reap the benefits from their infrastructure and first mover advantage. Their market capitalizations could double in 5 to 7 years.

Other potential winners are Arista Networks and Cloudflare.

In short, cloud computing rivals in disruption capabilities artificial intelligence.

Tesla Valuation on Green Energy Promise

Tesla, according to my estimates, is worth 120 billion USD. This compares with its current market capitalisation of 777.65 billion USD.

Basically, Tesla's value hangs on a binary outcome. Either Tesla achieves a technological breakthrough, starts producing electric vehicles profitably and ends up being worth more than 300 billion USD or Tesla burns out of investors' money and the only thing left from the electric vehicle pioneer is its technology.

Personally, I think something in between will happen. Tesla will make some technological advances but will still not end up with a finished technology which can manufacture electric cars profitably, without subsidies. So that is why I think Tesla is worth 120 billion USD - either Apple or some other large company will buy up Tesla and further develop the technology to produce profitably electric vehicles and achieve at least partially the promise of electric vehicles. This is what happened in many other technology sectors like search engines - first Yahoo was the pioneer, then Google won. In social media - MySpace was also a leader, then Facebook came to dominate social networking. 

Until then the price of Tesla's stock will be driven mainly by hype, rumours, news and both institutional and retail investors's hopes for a better green future.

Palantir Technologies AI Based Valuation. 09 October 2021

I estimate Palantir Technologies, the data analysis via artificial intelligence, or AI, company is worth 200 billion USD.

Palantir's market capitalisation is currently 45.87 billion USD.

Palantir has found an ingenious way to scale artificial intelligence, despite starting with mainly consulting projects.

Artificial intelligence, abbreviated AI, is driving the current fourth industrial revolution and artificial intelligence is arguably the future of information technology and its application in business. Palantir's lead in AI can unlock huge value creation opportunities despite the obvious risks associated with every relatively young company developing a highly promising technology field.