Why Are Big Tech Companies Overvalued?

If you slightly pay attention to tech companies or finance, you will notice few interesting fact. Tech companies tend to be very valuable, and very overvalued.

At the time i am writing this post, here’s

The current tech companies valuations:

Apple Computers: As of May 2024 Apple has a market cap of $2.811 Trillion.  (share price $183.36). (source)

Microsoft: As of May 2024 Microsoft has a market cap of $3.022 Trillion (share price $406.66). (source)

Amazon: As of May 2024 Amazon has a market cap of $1.938 Trillion. (source)

Alphabet (Google): As of May 2024 Alphabet (Google) has a market cap of $2.076 Trillion (share price $169.01). (source)

Meta (Facebook): As of May 2024 Meta (Facebook) has a market cap of $562.19 Billion (share price $196.64), in 2021 it reached $935.64 Billion. (source)

Netflix: As of May 2024 Netflix has a market cap of $249.63 Billion (share price $579.34). (source)

Tesla: As of May 2024 Tesla has a market cap of $577.69 Billion (share price $181.14). (source)

How many years they need to earn their valuation?

Now let’s look at their yearly earning, and how many years they need to earn their valuation:

Apple Computers: According to Apple‘s financial reports the company’s earnings for 2023 were $121.41 B. an increase over its 2022 earnings that were of $116.11 B. The earnings is the company’s Pretax Income.
Based on the valuation of of $2.811 Trillion, it will take at least 24 years for Apple to earn the valuation.

Microsoft: According to Microsoft‘s financial reports the company’s earnings for 2023 were $101.21 B. In 2022 the company made an earning of $82.58 B an increase over its 2021 earnings that were of $79.68 B. The earnings are before interest and taxes or simply EBIT.
Based on the valuation of $3.022 Trillion, it will take at least 30 years for Microsoft to earn the valuation.

Amazon: According to Amazon‘s financial reports the company’s earnings for 2023 were $40.73 B. an increase over its 2022 earnings that were of -$3.57 B.The earnings is the company’s Pretax Income.
Based on the valuation of $1.938 Trillion, it will take at least 48 years for Amazon to earn the valuation.

Alphabet (Google): According to Alphabet (Google)‘s financial reports the company’s earnings for 2023 were $86.02 B. In 2022 the company made an earning of $71.68 B a decrease over its 2021 earnings that were of $91.08 B.The earnings displayed on this page is the company’s Pretax Income.
Based on the valuation of $2.076 Trillion, it will take at least 24 years for Google to earn the valuation.

Meta (Facebook): According to Meta (Facebook)‘s latest financial reports the company’s current earnings (TTM) are $43.89 B.  
Based on the valuation of $562.19 Billion, it will take at least 13 years for Meta to earn the valuation.
That if Meta will be able to dominate the social media, as it has so far, and that the drop in users will be replaceable and no serious competition appear. Given that they had to buy instagram and whatsapp, and that tiktok is posing serious threat, they need the stars to be aligned the next 13 years.

Netflix: According to Netflix‘s financial reports the company’s earnings for 2023 were $7.02 B. an increase over its 2022 earnings that were of $5.97 B.The earnings displayed on this page is the company’s Pretax Income.
Based on the valuation of $249.63 Billion, it will take at least 36 years for Netflix to earn the valuation.
That if Netflix can keep producing interesting content that make people want to stay with the company, or no serious cheaper competitors will chop from it’s market share.

Tesla: According to Tesla‘s financial reports the company’s earnings for 2023 were $10.12 B. In 2022 the company made an earning of $13.91 B an increase over its 2021 earnings that were of $6.71 B.The earnings displayed on this page are the earnings before interest and taxes or simply EBIT.
Based on the valuation of $577.69 Billion, it will take at least 57 years for Tesla to earn the valuation.

Tech Bubble ? Overvaluation ?

So why do these companies overvalued ? Are we in a tech bubble? Investors have nothing else to put their money in?

These tech companies have valuations as high as the GDP of the entire continent of Africa, a continent with 53 countries and 1.39 billion people, with a GDP of $3.1 trillion. Is the future of Microsoft or Apple as bright as the future of the entire continent.

There are clearly no FOMO when it comes to these big tech companies. Nothing these companies have on the table indicate huge extraordinary profits to come in the near future. No great innovative new technology that could explain their valuation. Even Microsoft alignment with the over hyped Open AI, can’t explain the valuation. What would explain these valuations however is the loss of value in fiat currency and a general believe that inflation is going to eat the value of the capital, hence the exodus towards anything that can be considered a good store of value, stocks, real estate, gold, cryptocurrency, and so on.

Yes, we are in a tech bubble, tech stocks are overvalued, at this market caps, you can not expect these companies to go higher and any speculation otherwise is a .

Are they immune, and will their demise go slow?

You surely remember myspace, tumblr and a plethora of other tech companies that failed after being valued in the billions, even juggernauts like yahoo are now valued at a tiny fraction of what they once were. This to say, that the idea of expecting a tech company to keep growing exponentially without being challenged, is just absurd.
Snapchat was once valued at 131 Billion, now it’s 26.6 B, and even this low valuation is way too rich for this tech company.

Some interesting videos addressing this subject:

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