The case of Netflix in 2016, with a P/E over 300, shows that high multiples can reflect a company strategically sacrificing short-term profits for global expansion. Instead of dismissing such stocks as expensive, investors should use second-order thinking to ask *why* the market is pricing in such high growth.

Investors and acquirers pay premiums for predictable revenue, which comes from retaining and upselling existing customers. This "expansion revenue" is a far greater value multiplier than simply acquiring new customers, a metric most founders wrongly prioritize.

Companies like Tesla and Oracle achieve massive valuations not through profits, but by capturing the dominant market story, such as becoming an "AI company." Investors should analyze a company's ability to create and own the next compelling narrative.

As iPhone sales slowed around 2015, Apple's CFO reframed its story for Wall Street. By highlighting high-margin, recurring revenue from the App Store and iCloud, he convinced investors to value Apple like a SaaS company, dramatically increasing its price-to-earnings multiple from ~10x to ~40x.

Financial models struggle to project sustained high growth rates (>30% YoY). Analysts naturally revert to the mean, causing them to undervalue companies that defy this and maintain high growth for years, creating an opportunity for investors who spot this persistence.

Investors instinctively value the distant future cash flows of elite compounding businesses higher than traditional financial models suggest. This phenomenon, known as hyperbolic discounting, helps explain why these companies consistently command premium multiples, as the market behaves more aligned with this model than standard exponential discounting.

Thompson critiques Apple's lucrative services strategy as a shift from creating the best products to "harvesting the profits from other companies' innovations." The argument is that this rent-seeking behavior is corrosive to the company's core DNA of product excellence and innovation.

Recent acquisitions of slow-growth public SaaS companies are not just value grabs but turnaround plays. Acquirers believe these companies' distribution can be revitalized by injecting AI-native products, creating a path back to high growth and higher multiples.

Standard valuation models based on financial outputs (earnings, cash flow) are flawed because they ignore the most critical inputs: the CEO's value, brand strength, and company culture. These unquantifiable factors are the true drivers of long-term outperformance for companies like Apple.