49 lines
3.5 KiB
Plaintext
49 lines
3.5 KiB
Plaintext
{{Draft|author=MBauwens|date=2026-02-02}}
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'''Growth Stock Dynamics''' refers to the economic phenomenon where companies valued as "growth stocks" trade at high price-to-earnings ratios based on expected future growth, creating particular incentive structures in technology markets.
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== Description ==
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Cory Doctorow explains:
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<blockquote>
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"Start with monopolies: tech companies are gigantic and they don't compete, they just take over whole sectors, either on their own or in cartels. Google and Meta control the ad market. Google and Apple control the mobile market, and Google pays Apple more than $20bn a year not to make a competing search engine, and of course, Google has a 90% search market share.
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Now, you would think that this was good news for the tech companies, owning their whole sector. But it's actually a crisis. You see, when a company is growing, it is a 'growth stock', and investors really like growth stocks. When you buy a share in a growth stock, you are making a bet that it will continue to grow. So growth stocks trade at a huge multiple of their earnings. This is called the 'price to earnings ratio' or 'PE ratio'.
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But once a company stops growing, it is a 'mature' stock, and it trades at a much lower PE ratio. So for every dollar that Target – a mature company – brings in, it is worth $10. It has a PE ratio of 10, while Amazon has a PE ratio of 36, which means that for every dollar Amazon brings in, the market values it at $36."
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</blockquote>
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== The Growth Imperative ==
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<blockquote>
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"It's wonderful to run a company that has a growth stock. Your shares are as good as money. If you want to buy another company or hire a key worker, you can offer stock instead of cash. And stock is very easy for companies to get, because shares are manufactured right there on the premises, all you have to do is type some zeros into a spreadsheet, while dollars are much harder to come by.
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So when Amazon bids against Target for a key acquisition or a key hire, Amazon can bid with shares they make by typing zeros into a spreadsheet, and Target can only bid with dollars they get from selling stuff to us or taking out loans, which is why Amazon generally wins those bidding wars.
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That's the upside of having a growth stock. But here is the downside: eventually a company has to stop growing. Like, say you get a 90% market share in your sector, how are you going to grow?"
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</blockquote>
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== The Bubble Cycle ==
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<blockquote>
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"This is the paradox of the growth stock. While you are growing to domination, the market loves you, but once you achieve dominance, the market lops 75% or more off your value in a single stroke if they do not trust your pricing power.
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Which is why growth-stock companies are always desperately pumping up one bubble or another, spending billions to hype the pivot to video or cryptocurrency or NFTs or the metaverse or AI.
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I am not saying that tech bosses are making bets they do not plan on winning. But winning the bet – creating a viable metaverse – is the secondary goal. The primary goal is to keep the market convinced that your company will continue to grow, and to remain convinced until the next bubble comes along."
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</blockquote>
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== See Also ==
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* [[Platform Capitalism]]
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* [[Surveillance Capitalism]]
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* [[Tech Monopolies]]
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== Source ==
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* [https://www.theguardian.com/us-news/ng-interactive/2026/jan/18/tech-ai-bubble-burst-reverse-centaur "The AI Bubble" by Cory Doctorow - The Guardian]
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[[Category:Economics]]
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[[Category:Technology]]
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[[Category:Capitalism]]
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