Intrinsic Value is a concept used in financial valuation within the investing industry. Traditionally, the amount of cash flow in perpetuity determines a business's intrinsic value.
However, the definition may be changing slightly in this new Emerging Tech economy, which is driven by Artificial Intelligence, Bitcoin, and Spatial Computing.
I. Artificial Intelligence
AI is producing cash flows from subscription payments, API usage (token in/out fees), transaction fees (a commission paid for eCommerce purchases), and advertising (showing ads in AI responses). The intrinsic value, though, could be higher than the series of cash flows due to the opportunity potential from owning the intellectual property of advanced AI models that are not made available to the public or for commercialization.
These frontier models, especially the ones that are self-learning in real time (see Learning Loops), could not only create new businesses from scratch, but also new materials, solutions, and new models. Imagine a world where there are no more version numbers on software because every step change in time (t=1, 2, 3, ...) is a new version as the application logic compresses into the database layer, which is continuously updated as new information streams in and is validated against outcome expectations to "hill climb" up a new problem space.
In this world, cash flows break down as the core of intrinsic value. Thus, it requires new thinking and a new measurement mechanism.
II. Bitcoin
In the past, many knowledgeable and experienced investors overlooked Bitcoin as a sound investment because it "did not have cash flows," among other things related to some of its fundamentals mirroring those of a commodity.
Bitcoin, however, does have cash flows. It shares 100% of them with the miners who secure the network and process the transactions. Instead of a payment processing company like Stripe that takes a fee for itself, Bitcoin shares 100% of the profits with its network. As a result, Stripe and other payment processing companies are at a business model and structural disadvantage. The value accrues primarily to the miners in terms of transaction fees and Bitcoin bonus payments, and secondarily to the owners of the underlying Bitcoin asset.
No other commodity, business, or network at a planetary scale works this way. Those who've spent their careers studying and designing product and incentive mechanics understood the intrinsic value of Bitcoin's mechanics immediately. The network size and cash flows did not matter because it only required time for the mechanics to play out and deliver value in perpetuity at a planetary scale.
In this world, cash flows break down as the core of intrinsic value. Thus, it requires new thinking and a new measurement mechanism.
III. Spatial Computing
Spatial Computing includes Augmented and Virtual Reality, Robotics, Self-Driving cars, IoT, and Space Exploration. It also includes any technology device with sensors that collects data.
Again, the traditional investing world would value companies like Tesla, Waymo, SpaceX, and the Apple Vision Pro based on the cash flows they generate in the future. But the sheer volume of data, local mesh networks, and global interconnected networks created from this goes vastly beyond simply the cash flows, especially in a world where we value energy, compute, algorithms, and networks.
Sure, products produce cash flow, but it's the networks that make them defensible and power the perpetuity calculation in any DCF (i.e., 1 divided by the interest rate).
In this world, cash flows break down as the core of intrinsic value. Thus, it requires new thinking and a new measurement mechanism.
IV. Intrinsic Value of the Future
In each case, the new intrinsic value shifts from discounted cash flows to long-term network effects. As a result, we can derive an Intrinsic Value formula for this.
Below is a table showing our Intrinsic Value formula, each of the inputs, calculations, and final scores for each of AI, Bitcoin, and Spatial computing.
