The tech giants are trading at valuation ratios that are close to unprecedented for such large companies. Currently, Amazon trades at a nosebleed price/earnings multiple of 122. Apple’s multiple is 33 which is extraordinary for a hardware manufacturer. Netflix clocks in at 84. Tesla leads the pack at 752, but that is largely due to its miniscule earnings. Overall, it is hard to look at these valuations without thinking “bubble.” But there is another interpretation.

At Cornell Capital Group we asked: What if the major tech giants (and I would exclude Tesla from this group) are trading as if they were quasi-bonds? That is a combination of their technology, their market power and the impact of Covid is such that their projected earnings are virtually locked-in. They are largely immune from the risk of competition and the fluctuations in the economy. If that were true, then the discount rate may be a good deal lower than that implied by traditional asset pricing models. To get an idea what this means, let’s go back to the basics.