Microsoft, US$2.2T market cap, annualised revenue $185B (up 21% year-on-year), annualised profits $66B (up 47% year-on-year).

I.e. Microsoft shareholders are essentially getting a 3% yield ($66B/$2.2T) - with ~21% (and arguably 47%) growth. So if Microsoft just continues to grow as it's doing - and has been doing in recent years - we're talking a ~24% (3%+21%) net return - sure, I'm simplifying, but fundamentally this makes sense.

Now, ~24% is an INSANELY good annualised return especially when considering nearly half of Microsoft's revenue is recurring. I mean, if you were buying real estate with a 4% rental return, that'd end up around 2.5% net, you'd be very lucky to be getting 5% capital growth - that's a 7.5% net annualised return at best. A 20% annualised return is what Warren Buffett, the world's best investor, achieved consistently in his heyday.

Microsoft is no-brainer cheap, you should go ahead and buy! But it's not just Microsoft - all of GAFAM - Google, Apple, Facebook, Amazon, Microsoft - which have a total market cap of $9T and up more than 10x over the last decade - do similarly well with the same basic analysis.

How can this possibly be?

Ok, let's step back a bit, GAFAM, just 5 stocks, represent nearly 20% of the value of ALL listed companies in the US, up from 3% a decade ago. Think about that. Add other tech stocks to that and you have a monumental shift in the composition of US stocks. That needs a monumental shift in capital which needs investors to change their way of thinking. I mean, we're going through a real paradigm shift.

Now, sure, that shift is happening, we're all living it, but the world of finance, much of it controlled by older people fairly uncomfortable with technology, is going to lag - and this lag is the core reason why far from being some bubble, tech stocks in general are, despite their soaring valuations, still massively undervalued.

Credits: Asim Qureshi