THREAD. US Megacap Tech Cos. While they are very large on an absolute, relative, and relative to historical share of the mkt basis, they all make sense to me. $FB is the outlier on the "cheap", and $AMZN on the ridiculously expensive. Both seem logical. https://twitter.com/GavinSBaker/status/1285659482702393345

I would note that SS estimates are far too low for both FB and AMZN. FB 2021 GAAP EPS of $9.72 when the buyside is closer to $11-12. AMZN, which rarely beats the top end of its guide by more than 1-2%, will potentially beat by $10bn (over $81bn) if the CC data is accurate.

AMZN's runway is long given eCommerce teens-ish penetration (though 100% is not the right cap), and if AWS was a standalone business, it would be a megacap company on its own ($40bn revs growing 30+% with 30% Opms). This will eventually be a $100bn in the not too distant future.

Then $MSFT. Sometime I hear compounders/biz svcs pitch their 6-8% organic growth, margin expansion, mkt leader, buybacks/M&A story at 30X P/E. MSFT has it ALL. 10+% organic rev growth. Steady margin expansion. Last Q, revs grew 16% CC and OI 28%! MSFT also has Buybacks/div.

Healthy B/S with $50bn in cash. Cash Cow biz in Windows. Growth biz in O365. And a biz you can count on to be MUCH bigger in 10 years in Azure (~$20bn today going to $100bn). In that context, MSFT @ 30X doesn't sound too crazy. The only thing I don't like is the absolute size.

$AAPL is the one I don't like. I don't think estimates are TOO low like FB/AMZN (C2Q maybe, but not CY21), and while I do think it deserves an above market mult (which it didn't have for a decade), it doesn't display the growth characteristics I would like to see in a 25X stock.

iPhones really haven't grown units since iPhone6. Wearables, they've done a great job selling MORE into the power users (including iPhone ASPs). And Svcs GP&s is mainly App Store (where I have antitrust concerns) and Google TAC (whereI don't see how this goes on forever).

The rest is lower margin ex Apple Pay (though I think even THAT shows monopolistic behavior). Admittedly, I'm neg biased on AAPL. I've never purchased an iPhone or Mac. What about the buyback? $100bn in net cash, down to 0 over the next 5 years = $20bn/yr + FCF of ~$60bn.

This works better at 10X FCF (YES it was there on Jan 2, 2019) than it does 30X FCF. But don't step in front of AAPl as a result.

Not much to add for $GOOGL. For being a decent growing Monopoly, or as @patrick_oshag puts it "the best business in the world," it isn't expensive.

In conclusion, yes US Megacaps are Big in absolute size. But they still seem largely reasonably priced to me. As @benthompson says, "the Internet changes everything" and these 5 companies took advantage.

What stops Big Tech? 1) Innovation (PG's "A bet on Microsoft is a bet against innovation") though it is increasingly hard for me to see this against AAPL/GOOGL; 2) Regulation which is why I'm interested in pieces like this: https://twitter.com/borrowed_ideas/status/1285919442493485056?s=20;

and 3) Taxes (though AMZN isn't even valued on P/E). The corporate tax rate was graduated like individual income taxes before the most recent corp tax cut (top bracket $18mn). Maybe we should consider higher tax rates if you make "obscene" profit like AAPL/GOOGL/FB/MSFT.