It is notable that the illustration for the FT article is a literal Pie in the Sky (but given that we're talking about Brits here, it's probably filled with eels or blackbirds or something weird like that)

From the WSJ:

SpaceX’s record-breaking IPO tested the limits of an obscure financial metric. Anthropic’s could push it even further.

The maker of Claude is likely to tell investors its potential revenue opportunities are above $30 trillion, topping SpaceX’s $28.5 trillion estimate, according to people familiar with the matter.

Tech startups or other growing companies going public often estimate their “total addressable markets,” or TAMs, to show investors they have ample room to grow. Such figures estimate the amount of annual revenue a company could theoretically capture if it achieved 100% market-share using inputs ranging from industry data to bankers’ models.

While they have always involved a bit of guesswork, these estimates are especially squishy when it comes to trying to predict how the rapid adoption of artificial intelligence will upend entire industries.

Elon Musk’s rocket maker called its TAM “the largest actionable” market in “human history” when it revealed the figure in a May filing. Most of the figure, $26.5 trillion, was attributed to opportunities in AI.
 

 

TAM (total addressable market) is the perfect metric for the hype economy. In a system that rewards the ability and willingness to make the most outrageous claims without any trace of accountability, TAM allows promoters to apply a veneer of serious accounting to any unfounded numbers they can pull out of their ass.

The total addressable market for pretty much anything can be in the trillions of dollars if you put your mind to it. Just define the sector in question as broadly as possible. If you're looking for funding to start a drive-thru restaurant selling Peeps marshmallows, your TAM is basically the revenue of McDonald's plus Burger King plus KFC plus Taco Bell...

The ability to just make up numbers becomes even less constrained when you are talking about an entirely new technology. Let's imagine I am fundraising for a startup that will sell AI-controlled autonomous back scratchers. There's no comparable product on the market, so I can just pencil in $2,000 of sales for every adult human with an income of over $12,000 a year.

Am I exaggerating? Not by much. In the prospectus for the SpaceX IPO, Elon Musk estimated a total addressable market for xAI that came out to an average of over $20,000 a year for that part of the world's population with more than $12,000 in annual income.

To fully utilize the investor-exciting power of total addressable markets, you also need to be creative when estimating market share. Once again, Elon Musk is the past master of this one. Whether it's self-driving cars, humanoid robots, or large language models, Musk combines wildly implausible market estimates with the assumption that his self-driving automobiles, robots, and chatbots will dominate these markets despite the fact that competitors are absolutely crushing them in all three.

As my father used to say, the first liar doesn't stand a chance. 

 

Bryce Elder and Toby Nangle writing for the Financial Times: 

Of course TAM is silly. We won’t patronise you by explaining the myriad ways it’s silly. But it’s also useful, because it can’t be taken seriously.

There’s a legal requirement, in the US and elsewhere, for a company’s financial projections to be clearly defined and presented in good faith. But TAM is an estimate, not a projection; it’s a guess at the size of a market over the long term, based on the impossibility of the company taking the whole pie rather than just a slice.

A big TAM gives companies with no earnings and strong revenue growth the opportunity to pretend to be the next Amazon without explicitly promising to become Amazon. No matter how absurd the total, it’s very unlikely to be viewed as fraudulent misrepresentation. It’s not a target to hit. It’s a hypothetical for maybe growing into.

...

 Headline figures only tell part of the story. For example, Reddit’s 2024 IPO filing gives a $1.4tn total market value by 2027 for digital advertising (excluding China and Russia). But it also suggests it could licence its data into a $1tn AI market and tap into a $2.1tn “User Economy” market, by which the message board operator means the total volume of commerce through its platform.

By the broadest possible definitions, Reddit’s all-in TAM estimate of $4.5tn would be bigger than Japan’s nominal GDP. Reddit’s revenue last year was $2.3bn, or 0.05 per cent of that total.