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.
Here's how it could go down…
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 could be divided into multiple lots and 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 Alphabet 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 Buffett. 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 Alphabet stock trading for $13,250.
That's a return of 1,294%. I'm not just spitballing 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.
About the Author
Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.