The recent struggles of famed hedge fund manager David Einhorn are no secret on Wall Street.

Einhorn used to be one of the top stock pickers on the Street. From 1996 to 2014, Einhorn’s fund had years that included 30%, 40% and even 50%-plus gains. Every year between 1996 and 2014 was a positive year for Einhorn, except for one (2008), when the whole stock market collapsed.

In other words, from the mid-1990s to the early 2010s, Einhorn had turned into somewhat of a hedge fund god.

But like the infamous Greek legend Icarus, Einhorn flew too close to the sun.

In 2015, Einhorn’s fund dropped by more than 20%. The S&P 500 was up in 2015. In 2016, Einhorn delivered a positive return (+9%), but that underperformed the market (+12%). Same story in 2017, when Einhorn was up just 2% versus the S&P 500’s 20%-plus gain.

The story in 2018 is shaking out to be much the same. Recent data compiled by Bloomberg shows that Einhorn’s fund is down 15% year-to-date. The S&P 500 is up YTD.

Why has Einhorn struggled so mightily recently? He has stuck to his guns of value investing at a time when growth stocks are just killing value stocks. A big part of this is that Einhorn is placing bets against a group of stocks which he bunches into a bubble basket. Included in that basket are Amazon.com (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX).

Einhorn won’t ever be profitable shorting Netflix or Amazon. Here’s why.

The Short Thesis on Amazon and Netflix Is Short-Sighted

Everyone wants to talk about how investing is changing, and how that is killing Einhorn. Maybe that is true. Maybe growth stocks will forever kill value stocks, and maybe Einhorn will forever lose.

But that isn’t why Einhorn is getting his butt kicked when it comes to Amazon and Netflix. With respect to those two growth giants, Einhorn isn’t losing because of a macro shift in investing mentality. He is losing because the short thesis lacks scope.

By any traditional valuation metric, Netflix and Amazon stock both look terribly overvalued. Netflix stock trades at 270 times trailing earnings, 190 times trailing EBITDA and 14 times trailing sales. Amazon stock trades at 215 times trailing earnings, 45 times trailing EBITDA, and 4.5 times trailing sales.

Even on a one-year forward basis, these stocks look overvalued. Both stocks trade around 130 to 140 times forward earnings.

But what good is a trailing or one-year forward multiple when it comes to Amazon and Netflix? After all, a rule of thumb in modeling is to project a company out to steady state, and then apply a multiple at that steady state.

From this perspective, trailing and one-year forward multiples are meaningless for Amazon and Netflix. These stocks won’t be done growing in a year. They won’t be done growing in five years.

Netflix is taking over the media world and could reasonably get to 300 million-plus subscribers at $15-plus-per-month price points, versus 125 million members at ~$10 per month price points today.

Amazon, meanwhile, is building out a robust ecosystem surrounding its digital and cloud businesses, and growth there has been big and won’t be slowing for a long time.

Add in the fact that both of these companies have huge margin expansion potential once their businesses scale, and you are looking at growth companies that have 10 or more years of 20%-plus growth ahead of them. Thus, the short thesis surrounding today’s big multiples is unnecessarily short-sighted. The only thesis that makes sense for Netflix and Amazon is looking at the multiple in 10 years.

Where Will Amazon and Netflix Be in 10 Years?

Steady state for Amazon and Netflix are each like 10 years out. Where will they be at that time?

Netflix will have hundreds of millions of subscribers paying upward of $15 per month. Amazon will probably have somewhere around 200 million-plus Prime subscribers. The digital retail business will be far larger in scope, and the offline retail business will be greatly expanded. The logistics and pharmacy businesses will be real things, and the cloud business will be way, way bigger.

Thus, in 10 years, it really isn’t that hard to see Netflix netting somewhere around $30 to $50 in earnings per share, and Amazon netting about $150 to $170 in earnings per share.

At the midpoint, you are looking at $35 in earnings per share for Netflix, and $160 in earnings per share for Amazon. Slap a growth-average forward multiple of 20 on each those, and you are looking at a long-term price target for Netflix of $700, and a long-term price target for Amazon of $3,200.

In other words, we can argue over whether Netflix and Amazon are slightly overvalued here and now based on discount rates and time horizon. But these aren’t bubbles waiting to pop like bitcoin. There won’t be any 50% or greater wipeout in value, and the all-time peak hasn’t been registered.

Bottom Line on Einhorn

Einhorn and traditional value investors have struggled with hyper-growth tech titans like Amazon and Netflix simply because they aren’t looking out far enough. These are hyper-growth giants with take-over-the-world growth narratives and 10-plus years of big growth ahead of them.

Sure, the farther out you go in the model, the bigger the discount rate you have to apply to your projections. But still, the long-term narratives for both Amazon and Netflix supports higher prices down the road. Thus, the Einhorn bear thesis that these are “bubble stocks” seems unnecessarily short-sighted.

As of this writing, Luke Lango was long AMZN.