MSFT's valuation does indeed appear to be a staggering sum -- more numbers than most computers know how to deal with! But what if you were to think of the company as several companies under one roof? Would that help alleviate your concerns? For years people have been toying with the idea that MSFT could be divided along its product lines, say OS, Productivity tools, consumer / home products, and now Internet services and products, and who knows, even banking and finance one day.
I agree that it is not reasonable to expect the price of the stock to double every year. But I don't know if I can agree that the money will somehow "run out", as you seem to suggest, which implies that there is only a finite sum in existence. If I follow your reasoning, I would have to conclude that there can be no new companies entering the markets without lowering the market caps of existing companies or that no new wealth will be created from this point on, which is clearly not the case.
You also argue that MSFT's valuation, assuming it appreciates at its current pace, would soon exceed the total capitalization of the US stock market. You would be right IF the total capitalization remained stagnant while MSFT kept on sky-rocketing and sucking money from other stocks into its dark-hole. Again, this goes back to the finite sum theory. What must the pioneers of the stock market be thinking of us now? I don't know what the capitalization of the Nasdaq was when it first came into existence, but could its founders have imagined the figures that exist today? Not if they believed there was only a finite sum of money available and that no new wealth would be created.
Lastly, it seems to me that market capitalization is a notional beast, a phantom. No one actually plunked down $500 billion to buy MSFT. Sure, at its current valuation, a person wishing to acquire ALL of MSFT would have to cough up that sum. But this is not something that is likely to occur. It's a bit like everyone going to the bank and withdrawing every cent they have all at the same time. There would not be enough cash to go round, or put another way, "there simply isn't enough money in existence in this world." Therefore, to suggest that there is a limit to how high in terms of market capitalization a company like MSFT can grow would not be correct, IMHO.
Winston |
