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Most value sits a decade out
Value lives in the future
Apple was founded in 1976 and is a multi-trillion-dollar company today. Nvidia's value came even later, 25 to 30 years in, under a founder who has run it for 33 years.
Growth versus durability
For a company to be valuable, it must grow and endure, yet many entrepreneurs focus only on short-term growth. Growth is easy to measure and durability isn't, so founders obsess over weekly active users, monthly revenue targets, and quarterly earnings. They can hit every one of those numbers and still overlook deeper, harder-to-measure problems that threaten the business.
Chasing near-term growth above all else crowds out the most important question: will this business still be around a decade from now? Charlie Munger thought durability was a first-rate virtue.
Why does most value sit in the far future?
Finance textbooks value a company as the present value of all the cash it will produce, with each year's cash discounted for the wait. For a fast-growing company, the early years produce little cash. A large share of the estimated value therefore sits in the final-year figure, called terminal value, which stands in for every year after the forecast ends. Analysts debate that figure more than any other input.
How did Nvidia take decades to matter?
Nvidia was founded in 1993 by Jensen Huang, Chris Malachowsky, and Curtis Priem to make graphics chips for video games. It launched the GeForce 256 in 1999 and called it the first graphics processing unit. In 2007 it released CUDA, a programming platform that let developers run general computing on those chips. In 2012 the AlexNet image-recognition network won the ImageNet contest running on Nvidia graphics cards, which began the deep learning boom.
What protects a company's profits for decades?
Warren Buffett popularized the term economic moat for an advantage that shields a company's profits from competitors. Brands, patents, low costs, and network effects are the standard examples. Morningstar built a rating system around the idea, ranking companies by how wide and long-lasting their moats look.
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