About three months ago, a Silicon Valley associate of mine shelled out $2.5 million for a home.
That’s a lot of money – even in the San Francisco Bay Area’s sky-high real-estate market.
But consider these facts as well.
This is a 908-square-foot house.
The buyer paid $638,000 over the asking price three months ago.
And this tiny home is considered a “teardown.” That means my colleague has to gut it and rebuild from scratch.
Why so much for so little?
The home lies just three blocks from Stanford University – the heart of Silicon Valley and, therefore, the Convergence Economy we talk so much about here.
You may be wondering why I’m telling you a real-estate story in a technology investment service.
It’s because there’s a ton of money up for grabs in Silicon Valley’s torrid real estate market.
You can get a piece of that action – if you invest in the right tech companies.
Like the Silicon Valley landlord I’m going to tell you about today.
It’s Alphabet Inc. (Nasdaq: GOOGL).
Thanks to its major SV real-estate holdings, I believe it will one day hand investors a stunning 1,294% gain.
Location, Location, Location
That $2.5 million “fixer-upper” is by no means an outlier. Here’s another Valley case study to share with you – also in Palo Alto.
Last month, according to The Mercury News, a local trust fund trustee paid $30 million for a four-bedroom, seven-bath house. Though that sounds incredibly high, the 7,550-square-foot home sits on a big tract of land that be divided into multiple lots that could be sold for even more.
Now you might be beginning to understand why I pay so much attention when local tech giants go on a real-estate spending spree – and why I’m sharing this with you today.
Consider what’s happening in Sunnyvale, where Alphabet has spent a whopping $820 million on local tracts, according to data compiled by the Silicon Valley Business Journal.
And that figure doesn’t take into account the company’s ambitions in nearby San Jose. The firm just struck a deal with San Jose, Silicon Valley’s biggest city, for the purchase of 16 tracts of prime land near the convention center and pro hockey arena.
See, Alphabet really needs the space.
With a current workforce of 72,000, Alphabet is focused on long-term growth and will have offices spread out between San Francisco to the north and San Jose to the south. That makes Alphabet one of Silicon Valley’s largest landlords.
I believe Alphabet’s purchases show just how committed it is to long-term growth.
And if it you look a little more closely – as I have – it demonstrates how you could make 1,294% on this stock over the long haul…
The Berkshire Hathaway of Silicon Valley
Now, before I go into the reasons for this bold forecast, let me explain the math here in simple terms.
Alphabet’s founders and senior execs say they are modeling their own company after famed investor Warren Buffet. The Oracle of Omaha is celebrated for building a massive conglomerate – insurance, furniture, clothing, media, construction materials, sporting goods… even candy – along with real-estate holdings all over the United States.
And he’s even better known for delivering huge gains for his investors.
Class A shares of Berkshire Hathaway Inc. (NYSE: BRK.A) now trade for roughly $267,000. Since the summer of 1990, they’re up more than 3,600%.
Alphabet is poised to hand you similar life-changing profits.
Alphabet’s Class A shares now trade for roughly $950. If they just got to 5% of Berkshire’s price, that would see the stock trading for $13,250.
That’s a return of 1,294%. I’m not just spit-balling here.
GOOGL has already returned 1,651% since shares began trading in the summer of 2004.
I believe using that “5% factor” is conservative, given Alphabet’s many operations and long-term focus.
However, let’s get even more conservative. If all the stock did was become worth just 1% of BRK.A, you’d still see a price of $2,650, for a profit of 179%.
So no matter how you slice it, Alphabet offers tech investors plenty of upside.
Just based on its past track record, Alphabet will go down as one of the greatest success stories of Silicon Valley. The firm’s ability to make billions of dollars on something as basic as a search engine looks, in hindsight, to be almost too easy.
Alphabet could have rested on its laurels. Instead, the firm has been using its stunningly large cash balance to fuel new business fields. And each one of them could one day dwarf the firm’s search unit.
Simply put, Alphabet is laying the foundation now for what will become the ultimate high-tech conglomerate.
The Best R&D Labs… Anywhere
In recent years, Alphabet has launched several new divisions, entered multiple joint ventures, and made roughly 200 acquisitions.
It’s an impressive list, covering everything from humanoid robots and driverless cars to artificial intelligence and machine vision to home automation and virtual reality. Not to mention its status as the dominant player in online video sharing, with more than 1 billion users, thanks to YouTube.
But don’t worry. Just because Alphabet is becoming a massive company doesn’t mean it will lose its edge.
For instance, the Google X labs have begun making artificial human skin, which could become a lifesaver for burn victims. Its Verily division is working with Novartis AG (NYSE ADR: NVS) on “smart” contact lenses that check a patient’s glucose level.
It’s way out in front in the battle to put fully autonomous cars on the road. To date, Alphabet’s Waymo division has logged more than 3 million miles on public roads, more than any other firm – by far.
The firm also has a $1 billion stake in commercial rocket leader SpaceX. The reason: SpaceX will be able to surround the globe in satellites and help Alphabet provide web access to the nearly 4 billion around the world who now lack it.
In fact, Google changed its name to Alphabet in October 2015 in no small because Chairman Eric Schmidt said he wanted to let the world know how much he was emulating Buffett.
At the time, Quartz quoted Schmidt as saying, “Alphabet is an attempt to build a holding company like Berkshire Hathaway out of an existing operating company. It’s never been done before.”
So far, the company seems to be well on the way to success. Its search-based ad business, for example, is already worth $20 billion a year, and still managed to grow an impressive 18% in the most recent quarter.
And the group of young and growing businesses beyond the core ad unit saw a 42% jump in sales in the second quarter.
It’s hard to find a $100 billion business that is still growing at the speed of an upstart. Alphabet’s 20% growth this year is impressive enough on such a large base.
Really, this is not just a great long-term play – the sort of stock you buy and hold, to build up your retirement fund or to pay for your grandkids’ education one day.
Alphabet is well on its way to yielding quadruple-digit profits – the kind of investment you can use to put a down payment on a sailboat or the European vacation you’ve always wanted to take.
It truly is the Berkshire Hathaway of Silicon Valley.