Back in 2011, Marc Andreessen of venture capital firm Andreessen Horowitz rushed to the defence of new internet companies Facebook [FB] and Twitter [TWTR], the critics of whom were naming companies such as these as the harbinger of a dangerous new bubble.
Andreessen told The Wall Street Journal that he believed that the two upstart firms, alongside Apple [AAPL] and Google [GOOG], were being undervalued by a market fearful of another ruinous tech bubble.
“Software is eating the world,” Andreessen wrote. “We believe that many of the prominent new internet companies are building real, high-growth, high-margin, highly defensible businesses. Today’s stock market actually hates technology as shown by all-time low price/earnings ratios for major public technology companies.”
“We believe that many of the prominent new internet companies are building real, high-growth, high-margin, highly defensible businesses” - Marc Andreessen
However, he argued that investors were missing an important point by focusing too much on financial valuations – namely the “underlying intrinsic value of the best of Silicon Valley’s new companies”.
Andreessen added that his own theory was that at the time the world was “in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy.”
Furthermore, he suggested that over the following decade he expected that many more industries would be disrupted by software, “with new world-beating Silicon Valley companies doing the disruption in more cases than not”.
That, according to Andreessen, was the “big opportunity” and where he would put his money. If his actions followed his words, Andreessen is likely sitting on top of quite a hefty pile of cash now, nine years later.
Andreessen’s hunches did come true of course, with Facebook valued at $627bn and Twitter now an integral part of people’s lives and investor portfolios. Another tech giant that has accelerated in recent years is electric vehicle maker Tesla [TSLA] – although the company’s success has been accompanied by a great deal of controversy.
When founder Elon Musk tweeted in August 2018 that he was considering taking the company private for $420 a share (writing “Funding secured”), the stock suffered. Both Musk and Tesla were fined $20m by the US Securities and Exchange Commission for the remark, while Musk was forced to step down as the company’s chairman.
Valuation of the fine to Elon Musk & Tesla over the '$420 a share' tweet
Fast forward to December 2019 and Tesla broke that controversial $420 mark. It now sits at $572 and could go even further, with Oppenheimer analyst Colin Rusch recently raising his price target to $612.
In the know
Warren Buffett is also world-renowned for making accurate predictions – earning him moniker the Oracle of Omaha. In late 2008 after the financial markets crashed and banks were dirt, Buffett invested $5bn into Goldman Sachs [GS]. He believed that the investment bank would not only survive the downturn but thrive afterwards. Today Goldman Sachs is valued at $87bn.
For every soothsayer, however, there are also those who fail to make a successful prediction. In 1988, Nobel Prize-winning economist Paul Krugman said that the internet would have as much impact on the economy as the fax machine.
“As the rate of technological change in computing slows, the number of jobs for IT specialists will decelerate, then actually turn down; 10 years from now, the phrase information economy will sound silly,” he said.
“As the rate of technological change in computing slows, the number of jobs for IT specialists will decelerate, then actually turn down; 10 years from now, the phrase information economy will sound silly” - Nobel Prize-winning economist Paul Krugman
More recently still, in 2003 Paul La Monica of CNN urged investors not to just pick Netflix because it’s “cool”. He hailed the chances of Blockbuster’s FilmCaddy service to take a bite out of the newcomers in the home video market.
What can we predict about the next decade?
Deutsche Bank predicts the death of plastic credit cards, according to the Financial Times. The report also notes that research group Forrester is forecasting the emergence of “adversarial fashion” — that is to say “clothes designed to confuse technology”.
Ericsson’s Consumer & IndustryLab has predicted the arrival of the Internet of Senses, where technology will allow consumers to travel the world from the comfort of our sofa with sight, sound, smell, taste and touch.
Buffett meanwhile has put a stock market value on this expected growth, suggesting that by 2117 the Dow Jones Industrial Average will hit 1,000,000.
Predicted year the Dow Jones will hit 1,000,000
One safe prediction is that everyone reading this article is unlikely to be around to find out if he was right. Then again, Silicon Valley venture capitalist Craig Vachon believes development in gene-engineering will mean many of us will live to 120 years old.
See you in the future then.
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