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However the implied valuation of these companies is uneven. Tech company profits are valued at much higher multiples than Saudi Aramco or Berkshire profits. A
by lumost 5y ago
However the implied valuation of these companies is uneven. Tech company profits are valued at much higher multiples than Saudi Aramco or Berkshire profits. AAPL is a 2.73 trillion dollar company based on a 27x P/E ratio. higher interest rates will eat into these multiples. Given we are coming off of zero interest rates, it's unclear what the correct multiple is for any non-zero interest rate.
- gen220 5y ago> higher interest rates will eat into these multiples Unless the potential for higher future interest rates were not baked into the quoted multiple. Interest rates are just one factor among many that go into a price. And they are among the most predictable. The biggest factor contributing to tech companies’ higher multiples is that every year they have come up with a new way to print money (especially AMZN and AAPL) for a decade running. To assign a lower P/E is, fundamentally, to discount that track record. Not that it’s a bad bet, but it doesn’t have much to do with interest rates, IMO.