Companies are talking about total addressable markets (TAMs) more than ever. Why?

According to the Financial Times’ Jamie Powell, more and more investment theses are forecasting massive total addressable markets (TAMs).

In fact, research from data firm Sentio shows that “September saw a record number of companies using the term [TAM] in their pre-IPO S1 filings.”

TAM is going HAM

Per Powell, here are some of the notable TAM projections:

• Uber claims that the ride-sharing industry is a $5.7T opportunity
• Virgin Galactic — Richard Branson’s baby — forecasts the commercial space travel industry is worth $1.5T.

The definition of TAM is changing, too. Typically, TAM refers to the revenue opportunity of an industry.

In a new spin, Bank of America recently pegged the TAM for Russia’s finance industry at $2.2T, including “retail wealth.” The problem is that the actual revenue opportunity for managing retail wealth is a small % of the total dollar amount. 🤷

Big TAMs are a way to justify lofty valuations

The classic move being: “If we can just capture X% of this huge $Y market, we’ll all be richer than MacKenzie Scott.”

Professional investors (including the Shark Tank crew) have an adverse reaction to the phrase, which comes off as 1) wildly optimistic; and 2) demonstrates a crude understanding of one’s actual business prospects.

With equities continuing to reach lofty heights, though, the hyperbolic nature of these TAM projections are kinda working.