Wowzers! The latest market chatter is that Irish fintech, Stripe, is about to raise more funding which could push it towards a $100 billion valuation. Billions, both the TV show and the monetary equivalent, feels so yesterday. Just think, the giants of Irish public markets – AIB, Bank of Ireland, CRH, Kerry and Ryanair – would currently garner a combined market capitalisation of just over €50 billion. We are witnessing decades of traditional franchise building being overtaken by tech-powered businesses which are moving at hundred billion dollar warp speeds. A touch hyperbolic, you think? Well, think Tesla….
Elon Musk, the founder of the electric vehicle manufacturer, is now richer than Bill Gates thanks to a Tesla valuation increase of more than $100 billion in the last….. 10 days. Warp speed might be the $400 billion increase achieved over the past 300 days. However, let’s try and slow things down by exploring the trends driving these huge valuation shifts. Tesla illustrates two trends rather well.
First, investors are now heavily weighting their valuation processes towards intangible assets like IP and goodwill. Tangible assets in physical items like inventories, factories and land just don’t possess the growth and scale-up speeds implicit in mass-adoption IP. Tesla is still just a manufacturer of physical stuff but has managed to achieve a $550 billion valuation which exceeds the combined value of all the other auto manufacturers on the planet. How does a tiny Tesla 0.6% market share translate into capital markets dominance? Check out the chart below from the excellent Visual Capitalist analytics site which highlights the huge asset shift to intangibles within the S&P 500 index.
Thirty five years ago less than one third of assets were intangible. Today’s 90% figure gives a clue as to what is driving Tesla and technology company valuations. Specifically, investors are attaching huge value to Tesla’s lithium-ion battery technology and the next chart illustrates that emerging trend/opportunity. The lithium-ion battery market is expected to more than quintuple by 2030 according to Bloomberg.
Despite these two favourable trends many still struggle with the Tesla to-infinity-and-beyond valuation. Well, maybe not infinity but how about space? China has just launched a lunar expedition and the DiaperDon has added a Space Force to the gargantuan US defence budget but there are more immediate commercial initiatives afoot. Elon Musk’s primary wealth vehicle might be Tesla but his rocket company SpaceX is possibly the stellar trend to watch.
Space is the new data frontier and SpaceX has launched more than 500 Starlink satellites to ultimately beam high-speed broadband from orbit to anywhere in the world. Infinity indeed. Current plans entail a constellation of up to 12,000 satellites in low-level orbit and one does wonder why this project is generating less attention than Tesla. For a more detailed and prescient analysis of SpaceX’s strategy Gavin Sheridan’s recent article in The Currency is worth a read. More intriguing is Sheridan’s view – held impressively since 2015 – that Teslas’s fleet of electric vehicles have a role to play in this broadband network. The mind boggles but there is no doubt investors are going to hear a lot more about galactic opportunities in the next decade.
Prepare for daily trillion dollar valuation shifts too as these three trends accelerate.
Or as Captain Kirk said, “Set phasers to stun”.
