In my experience, it's more likely in order to show an enormous number as a way of telling investors, the executives you need to approve your product/project, etc. that your thing has just incredible potential.
It has some value. If the TAM isn't very big and you'd have to achieve 50% of it to ever turn a profit, that may be a red flag. But TAMs that lead to business projections like: "We only need to put our watch on 10% of the left arms in the world to make a huge pile of cash!" are pretty bogus.
Even a nobody likes me knows to take TAM estimates with a grain of salt, so I imagine experienced investors know too.
I suspect if you added up all the TAM estimates for all the industries on Earth you'd get a number somewhere north of 10x the actual total value of the markets on Earth. I feel I'm being conservative; I really wanted to say 50x, but chickened out at the last minute before posting.
In my experience, it's more likely in order to show an enormous number as a way of telling investors, the executives you need to approve your product/project, etc. that your thing has just incredible potential.
It has some value. If the TAM isn't very big and you'd have to achieve 50% of it to ever turn a profit, that may be a red flag. But TAMs that lead to business projections like: "We only need to put our watch on 10% of the left arms in the world to make a huge pile of cash!" are pretty bogus.