> I fail to see how costs can drop while valuations for all major hardware vendors continue to go up. I don't think the markets would price companies in this way if the thought all major hardware vendors were going to see margins shrink a la commodity like you've implied.

This isn't hard to see. A company's overall profits are influenced – but not determined – by the per-unit economics. For example, increasing volume (quantity sold) at the same per-unit profit leads to more profits.