It’s hard to talk about the stock market without mentioning one or more FAANG stocks. The technology behemoths account for a sizable portion of the S&P 500 Index. As a result, many investors already have some exposure to them.
Since FAANG stocks have a disproportionate impact on the broader stock market due to their inclusion in the S&P 500, it’s beneficial for investors to learn more about them.
In this article, I will shed some light on FAANG, the companies, and their journey towards success.
In finance, “FAANG” refers to five prominent American technology firms’ stocks: Meta (META), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG).
In 2013, Jim Cramer, the television host of CNBC’s Mad Money, popularised the term when he praised these firms for being “totally dominant in their markets.”
Initially, the term “FANG” was used, with Appl, the second “A” in the acronym—added in 2017.
The five FAANG stocks are well-known among consumers and the most prominent companies worldwide, with a combined market capitalisation of about $7 trillion as of Q1 2022.
Their substantial growth has recently been buoyed by high-profile purchases by prominent and influential investors like Berkshire Hathaway (BRK), Renaissance Technologies, and Soros Fund Management. These are just a handful of the large institutional investors that have added FAANG stocks to their portfolios due to their perceived strength, growth, or momentum.
Each FAANG stock is listed on the Nasdaq and is part of the S&P 500 Index. Because the S&P 500 represents a broad representation of the market, market movement parallels index change.
Because the FAANG stocks have such an enormous influence on the index, volatility in their stock prices may have a noticeable impact on the overall performance of the S&P 500. FAANG stocks, for example, accounted for over 40% of the index’s increase from its lows in February 2018.
The extraordinary scale and influence of the FAANG stocks have prompted concerns about a potential bubble in FAANG stocks. These concerns first surfaced in 2018, when technology stocks, which had been driving consistent gains in the stock market, began to wane. Several FAANG stocks lost more than 20% of their valuations in November 2018 and were declared bear territory.
According to estimates, FAANG stocks lost more than a trillion dollars from their peak valuations due to the November 2018 market drop.
Although their valuations have now recovered, some investors are concerned about the degree of volatility displayed by FAANG stocks and the disproportionate influence these stocks can have on the market overall.
On the other hand, those who believe in the fundamental strength of the FAANG stocks have abundant evidence to back up their claim. With approximately 2.8 billion users, Facebook is the world’s largest social network. Meta posted $118 billion in revenues and $39.4 billion in net income in its 2021 annual report.
Meanwhile, Amazon has emerged as a seemingly insurmountable force in business-to-consumer (B2C) e-commerce. It has approximately 300 million active customers in the United States, with over 120 million products for sale, and more than half of them pay for monthly Amazon Prime memberships.
With TTM revenues of $470 billion in 2021 and a net income of $33.4 billion, it’s easy to see why investors believe Amazon’s massive market capitalisation is justified.
FAANG stocks entice investors because their prices frequently rise significantly. However, they have high market capitalisations (the number of shares multiplied by the price per share).
The total value of all stock market shares is widely acknowledged as popular. The bigger a company’s market capitalisation, the more investment is required to alter its price significantly.
In August 2017, for example, Apple’s current $840 billion valuation represented approximately 0.3% of global equity markets (roughly $78 trillion). These large companies have grown bigger in recent years due to positive investor sentiment laid by firm growth and momentum; they are now trading at prices much more than their book values.
FAANG stocks appear to defy logic; their high valuations and assets attract investor attention, but their short-term performance has been volatile. For example, despite trading at more than double its book value, Apple has had three price increases of more than 20% in a single year—in January 2014, September 2015, and March 2016.
If you are looking for some broader aspect, you can go for US100, the list of top 100 companies in the US, also known as NAS100 or NASDAQ 100.
This type of volatility may make some traders wary of investing in FAANG stocks since, despite their high valuations, they may drop suddenly and without warning. Furthermore, owing to their popularity among many institutional investors and individual retail traders, there is significant scepticism surrounding them.
Investors interested in FAANG stocks should know what the companies do and how they make money.
Facebook stocks may be a fantastic investment and one of the essential components of FAANG stocks. They are potentially a great way to diversify your portfolio and one of the best tech stocks to acquire for long-term growth.
Regarding market capitalisation, Facebook is fifth, trailing only Apple and Alphabet. It is America’s seventh largest company of its sort.
When you consider that Facebook controls two of the most popular social media apps in the world and two leading messaging platforms (WhatsApp and Messenger), it’s evident that they have a monopoly-like grip on their industry. And, regarding internet stocks, Facebook has some of the highest ratings throughout any time frame.
Is Facebook expensive but worth it?
You can see Facebook trading at a P/E ratio of roughly 40x trailing and 30x prospective earnings.
All companies will reach a moment where their rate of growth slows. No big company can sustain that level of growth forever.
Facebook is profitable and rapidly expanding. Since it went public ten years ago, it has never reported a loss. Even though its sales growth slowed from 120% in 2016 to an expected 76% in 2017, it remains significantly higher than the average figure. Additionally, earnings per share have increased by more than 50%.
Finally, the company’s net income appreciated from $1 billion in 2012 to an astonishing $10 billion in only five years – incredible for any business of Facebook.
Amazon is a fantastic example of economic upheaval in today’s economy.
Amazon began as an online bookstore and has grown to become an essential e-commerce company, upending centuries of commerce norms. Amazon has capitalised on its size by lowering prices on millions of items and offering free delivery on many items—a subscription service that it also provides to non-Prime members at a cost.
Analysts predict that Amazon’s revenue will increase at a compound annual rate of 20% during the next few years. The stock has almost appreciated since early 2012. However, it still trades for less than half of its all-time high established last year, owing to worries about future competition and profitability.
Amazon’s net income has increased at a double-digit pace since 2012, and its revenues have surged to more than $177 billion in the previous four years. Its operating margin is greater than 20%, well exceeding the industry average. Amazon’s earnings growth is more important than any other company in the S&P 500 Index.
The majority of Amazon’s money makes from transactions on its platform. According to statista, Amazon will account for 37.8% of all online and offline retail expenditure in the United States through June 2022, which is more than double what Walmart would take home over the same period.
Its vast marketplace accounts for over half of all e-commerce transactions in the United States. And this figure is rising; in 2011 and 2012, they barely had a third of the market.
Amazon’s e-commerce dominance allows it to disrupt every primary sector, as consumers switch from visiting physical stores to purchasing anything from apparel to food online. Amazon has already disrupted book retailing (through direct partnerships with publishers), toy sales, grocery sales, consumer electronics sales, housewares sales, and semiconductors.
It has also impacted big-box stores like Best Buy, Target, and Walmart. It has recently started developing original media content, including a multiyear agreement to show Thursday night NFL games on the Prime streaming service.
Amazon’s cloud computing division, Amazon Web Services (AWS), boosted the business’s revenue in 2017; the company has declared plans to build data centres in China. Even though AWS earns very little income, few major technology firms are growing as quickly as this business within Amazon. The firm planned to invest $5 billion in new data centres in 2017, a 45% increase over 2016.
On $178 billion in revenue, the company earned $2.5 billion in the fourth quarter and $7.3 billion for the year. Its operating margin in 2016 was 25%, up from 20% in 2015 and 16% in 2014.
Amazon is, without a doubt, the undisputed leader among modern businesses regarding profitability.
Amazon increased the minimum wage for all US employees to $15 in 2018. At the same time, it employed 120,000 extra seasonal workers around the country during the most extensive shopping time of the year. Amazon has recently begun to provide one-time incentives of up to $1,500 to workers.
Despite its significant market position and profitability levels that are twice that of Wal-Mart, the company’s stock is valued at about 1.3 times sales and 8.3 times projected earnings estimates.
Amazon’s business model has developed considerably over the years. When Amazon launched in 1995, consumers had to place purchases online and pay an additional fee for an Amazon employee to pack their items and ship them via courier from its warehouses.
With this “warehouse on wheels” method, Amazon’s costs were cheap, but it did not make money on returns since it lacked the flexibility to arrange same-day delivery. Amazon Prime began in February 2005, offering free two-day shipping for a $79 annual fee. Revenue increased rapidly as it added new services to Prime membership, like Amazon video streaming and music streaming.
According to Macquarie analyst Ben Schachter, a big chunk of Amazon’s revenue (61%), which includes advertising and online payments, comes from services, with the remaining 7% coming from AWS delivery. This leaves just 32% produced by selling authentic products.
Amazon makes money based on the commission on what its customers buy or do not buy (through third-party seller fees). Subscriptions, such as Kindle e-books, Prime memberships, music subscriptions, Amazon Web Services hosting services, and the like, also generate a lot of money for this company.
Amazon’s subscription business is rapidly growing; it has recently introduced a new monthly subscription service called Amazon FreeTime Unlimited (for $2.99 per month). Parental restrictions provide you unrestricted access to thousands of books, apps, games, and films on Android devices.
Given that overseas markets account for most of its expansion, it is unsurprising that sales outside North America increased to 56% by 2016. Eight years ago, that number was only 20%. Furthermore, as the former grows more widespread in Chinese and other nations’ households, e-commerce is gradually gaining ground on brick-and-mortar merchants.
According to Ben Schachter of Macquarie, the online retail penetration rate for urban Chinese families has increased from 6% in 2010 to 25%.
Amazon’s business engines include cloud computing services and advertising. This demonstrates how Amazon’s business model will change, becoming less like a store and more like Google or Facebook.
Amazon’s Prime membership has grown in popularity as additional services have been added. People will only subscribe to services that provide them with a constant value.
Amazon is still expanding; it has approximately 310 million square feet of total leased or owned space, with an additional 870 million square feet available. This gives the company significant space for future physical development in international markets.
AWS has proven to be a profitable revenue engine for Amazon, allowing them to diversify into other business initiatives. Indeed, by the end of 2016, AWS had generated about $15 billion in revenue, and analysts predict that this number will only rise, reaching more than $20 billion by 2020.
Amazon argues that its technology gives them a competitive advantage since it can respond rapidly and determine what customers want before anybody else. When Amazon commits to entering a new market or product category, its competitors must invest time and money to catch up. Furthermore, gross margins show that Amazon exploits its technology advantages to reduce costs more than any other company.
Amazon’s growing infrastructure and logistics sector make it more robust to a downturn. Amazon has demonstrated its ability to grow despite adversity, such as the Great Recession, which should reassure investors.
Like Facebook and Google, Amazon does not compel consumers who buy its products to spend money on each transaction (just most of them). This enables the company to earn from revenue streams such as advertising, which may further leverage its large customer base and data on their behaviour.
Apple stocks usually perform well since the company can surprise investors regularly. This is due to robust cash flow and the absence of debt or long-term obligations. Furthermore, Apple’s wide product lineup, which includes iPhone, iPad, and iMac models, and annual subscription services like Apple Music and iCloud, attracts customers from many walks of life.
You may be branded an “investment expert” based on these four factors: cash flow, debt-free status, variety in product type/revenue stream (services), and multiple revenue sources. Apple is more than these four characteristics, which the company’s product-based revenue model easily understands.
For example, Tim Cook noted during his Q2 2017 earnings call that “Services revenue was $7.17 billion, up 18% from the prior year.” This is the highest level ever.” He went on to express his personal satisfaction with the progress made.
Apple’s service revenue has increased for seven years in a row! It outperformed estimates by about 1% in the third quarter. I am not shocked by how much attention Apple pays to detail—even in its packaging. Look at these iPhone boxes, which are sealed using stickers rather than tape or glue.
Many people overlook this significance because they believe it will be similar to a standard cable subscription in which you pay the same monthly fee. On the other hand, Apple wants to get on the SVOD (Subscription Video On Demand) bandwagon by launching its original TV shows and movies.
Given that Apple already has a large client base thanks to products such as the iPhone and iPad, it makes sense for the company to keep them pleased through subscription services. Music streaming, gaming platforms, movie downloads/streaming, news, cloud storage, and even mobile payments are all available for $24.99 a month.
Apple’s growth in this sector is anticipated to continue with many revenue streams accessible. Cook stated on the Q3 2017 Call, “We are delighted with our Services businesses and how they are performing.”
Apple is one of the spearheading manufacturers of smartphones. Device sales primarily drive Apple’s revenue. Nonetheless, in recent years, the company has shifted its focus to higher-margin subscription services such as gaming, streaming music, video, news, and cloud storage.
What is a forex broker? - Access to the FX markets — 2023The iPad is Apple’s second most popular product, trailing only the iPhone. Like its smartphone equivalent, the iPad helped Apple earn a larger worldwide handset market share than Samsung last year (OTC: SSNLF). With “more than 13 million” iPad and Mac sales during the holidays, Apple maintained its dominance in the tablet market.
It is also worth mentioning that tablets have gotten much criticism recently as a product category. OEMs have struggled to compete with Apple’s iPad, which made up about 60% of the tablet market for the third time in 2017.
Although revenue increased by 50% in the previous two quarters (Q2 and Q3 2017), merging quarterly sales into one number — $5.8 billion — would make analysing its real performance easier. This was concerning because it had been reported that Apple would cease iPad production by 2021. However, this did not occur; revenue in 2021 was $365.817 billion.
Consider how current iPhone ASPs outperform those from 2011, even without the iPhone 5, 6, and 7. Despite being intended as a companion product, the iPad has contributed $30 billion to Apple’s total revenue over the previous four years.
Despite some speculation about whether or not iPad sales may soon peak, Apple recorded a stunning 57% increase in iPad sales in 2020 due to the coronavirus pandemic.
Even if there is no YoY revenue growth for the iPad, I believe it will remain significant for a few more years. The primary reason is that the iPad remains the best tablet on the market. It has a great design, a large app store, and an affordable price.
Other tablets on the market just cannot compete with the iPad. The Amazon Fire is too restricted, the Microsoft Surface is too expensive, and the Google Nexus cannot compete with the iPad.
Another reason I believe it will last is that its specs match nicely with the new iPad Pro and iPad Air, particularly in terms of price. The latest iPad Air 4 is also a great tablet, costing only $550. So, while the iPad may not see much YoY revenue growth soon, I believe it will remain important for a few more years. It remains the best tablet on the market, with several advantages in terms of price and specifications.
Netflix is an essential member of the FAANG group since it is the world’s leading streaming media company, giving hundreds of thousands of hours of internet entertainment to millions of customers in the United States, Canada, Latin America, Germany, France, Austria, and Switzerland.
Reed Hastings and Marc Randolph began Netflix in 1997 when they launched a Netflix website. When it was founded, it had only 20 employees. It first focused on DVD rentals but quickly gained popularity with consumers who started mail-order firms through online distribution services such as eBay.
As more people discovered Netflix, the number of customers grew, resulting in a profitable stock sale in 2002 that netted $8 million for the company.
Netflix began transitioning from a DVD-by-mail service to on-demand streaming in 2007. The company then started investing in original content for the streaming service in 2012. Netflix now purchases more film and television productions than any other company and has over 200 million global members.
Netflix is constantly looking for interesting new content to add to its service that can dazzle fans and make shareholders. In 2018, they succeeded a deal with the Obamas worth at least $50 million for the rights to create shows through their company. Many additional major works are also planned to be published soon.
Instead of paying business studios or production companies for films and television shows, Netflix aids genuine content that can only be watched on its internet media streaming service. This business model is popular among investors because it eliminates the need for third-party producers to invest in projects before generating revenue.
Reed Hastings stated in October 2011 that Netflix would expand to Canada and Latin America through their new business, Netflix Global. Netflix has expanded rapidly since then, reaching over 200 countries. They are actively working on dubbing and subtitling new works for worldwide release. In 2016, Netflix added 5 million new customers worldwide, increasing its total member base to 93 million.
Although many believe that movies are just a tiny part of the revenue of entertainment conglomerates, it is crucial for investors since the original content is considerably more expensive than other media forms but has a large fanbase. As a result of the decreased profit per subscription, the firm must charge more prices to its clients.
Netflix said in 2017 that they would impose price increases for all plans, with an annual rise of $1 or $2 depending on the plan. Since consumer reaction is so important to the company’s success, this had a detrimental impact on the company’s stock value and led to an investor sell-out.
However, given the majority of Netflix’s target audience consists of young people who are incredibly price-conscious when purchasing products and services, the premium increase has had minimal impact on most consumers. As a result, while many investors despise this shift in corporate strategy, it may allow them to acquire inexpensive securities while waiting for the next big strike.
Since the company spends money on original works before demonstrating any revenue, stockholders are under a lot of pressure. There is no simple way to determine how good their movies will be until they are released.
Total streaming hours it is increased by 60% in 2016 over the previous year, mainly owing to increased new content on the platform. The firm also has no plans to slow down, with a $6 billion investment in original content slated for 2018. Netflix must balance expanding its user base and investing heavily in film and entertainment assets.
This might have a significant impact on their bottom line because they have committed to large expenses for maintaining original content and getting traditional media. Because there is no precise formula for success, investors cannot determine if their business decisions were successful or not based just on the company model.
Netflix should be mindful of expensive films that fail to draw a large enough audience. Investing over $100 million in a single film would annoy investors, who would boycott the firm. However, when marketing and other expenses are included, this one picture is worth much more than $100 million.
Google is a top stock to buy since it has the world’s largest ad spending market and the most popular mobile OS and search engine.
The move from desktop computers to mobile devices has helped the company. Consumers keep smartphones more than any other device to access Alphabet’s services. In 2021, 5 billion people will own a smartphone, or 84% of the world’s population.
According to Sistrix, Google receives approximately 64% of all global Android-powered smartphone searches each month compared to 35% of all computer searches on all PCs linked to Google servers. Google earned $95.58 billion in 2017 at a cost per click of approximately $23 for advertising on its websites and services.
Alphabet is not the only giant that has seen this trend; it is an industry-wide phenomenon as people have replaced their PCs with smartphones and other portable devices. The total number of digital display ad impressions in the United States increased by 23% yearly, while Google’s proportion increased by 11%.
Alphabet is a major player not only in search ads on mobile devices but also in social media. Every month, 187 million daily active users connect to YouTube, amounting to roughly 1 billion hours every day. This figure is significantly higher than Facebook’s monthly active users, which stood at 1.13 billion in the fourth quarter of 2017.
According to a Pew Research poll, Google+ was the second most popular social media network among American adults before it cancelled its consumer-facing brand, trailing only Facebook. It is no longer a major social media player. Nonetheless, YouTube’s hundreds of tremendously successful content producers create an ecosystem that keeps consumers returning for more, which advertising can exploit.
As the world’s largest video-sharing service and owner of one of the best search engines, Google is well-positioned to capitalise on the mobile advertising market. This market is estimated to develop at a compound annual growth rate of 14% through 2019, which is expected to reach almost $200 billion annually.
Two-thirds of this total will come from internet advertising spending. With a significant market share (40%), Google will benefit handsomely from mobile advertising in the next years. By 2021, there will be 5 billion internet users, accounting for over three-fourths of the world’s population. Everything will be on smartphones, most of which are accessible via Google properties.
Google could use its massive user base to develop customised ads, for example, by combining information from Waze, Google Maps, and other Alphabet-owned web services like Calico with data from users’ search history, YouTube watching, or location.
Google’s new monitoring capabilities enable it to run ads based on the user’s search and interests. They also monitor via hardware products, including Pixel smartphones, Google Home voice-activated speakers, and Nest smart thermostats.
Alphabet’s marginal profit rate might be significantly higher if it did not spend on developing businesses that have yet to produce revenue, such as Waymo, Verily, and Sidewalk Labs.
The company’s revenue increased from less than 11% of sales in 2012 to more than 31% in 2017. While operating expenditures have risen even faster, from 7.9% to 24% of sales. Alphabet does not break out operating income by business division, but the data imply that its core business might soon achieve record earnings.
The Google parent company’s major cost items include R&D and marketing costs to advertise Android, Google search, Chromecast, YouTube, Chromebooks, Waze, Adsense, Maps, and other products and services to new customers every three months. Alphabet also includes depreciation expenditures when purchasing computer equipment that will be utilised for a period before becoming obsolete or failing due to normal wear and tear.
Most (approximately 80%) of these assets were bought years ago and have a long useful life until they must be replaced. When viewed through the perspective of consistent R&D and S&M investment, Alphabet’s growing depreciation line items serve to understand how the company is selling and in general. Despite increased revenue, administrative expenditures have doubled since 2012.
It is worth watching how Alphabet’s free cash flows increased at a double-digit pace every year between 2013 and 2017, except in 2015 when earnings were hampered by major capital expenditures connected to data centre building.
That same year, the firm was particularly active in developing new facilities, most likely anticipating the influence of mobile internet usage on its revenue and profits growing rapidly.
Google’s total visitor acquisition cost, an essential statistic for gauging success with search engines, increased above 50%, from 4 billion dollars in 2014 to 6.3 billion dollars in 2015. Despite declining total sales, operating income rose by a small amount.
The majority of Alphabet’s capital expenditures in 2015 are accounted for by the acquisition of smart home firm Nest and the launch of Google Fiber, which provides internet service at speeds faster than typical cable connections.
As Alphabet’s share of internet traffic has grown over time, both to organic growth and acquisitions such as YouTube, DoubleClick, and Waze, it has required more data centres worldwide to accommodate its rapidly growing user base. These users gain free or low-cost access to content on mobile devices and pay-per-click advertising customers willing to bid higher prices for commercial real estate on Alphabet’s ad networks.
Two significant events in 2015 led to Alphabet’s high capital spending rates: the debut of their fibre internet service to residential residences and the acquisition of smart-device firm Nest. Revolutionary data centre initiatives eclipsed these two significant expenditures.
Google’s innovative modular data centre technology, which speeds up cloud computing services, contributed to increased capital expenditures in 2016 and 2017. In addition, the company is actively investing in machine learning applied sciences, allowing it to incorporate artificial intelligence into an increasing number of products and services over time.
In recent years, it has shown to be highly useful to its internet search, advertising, and YouTube platform. The company is working on an internet satellite network that will make connecting to the internet more accessible and less expensive for businesses and consumers worldwide.
As self-driving vehicles become more common, Alphabet is expected to expand into other large markets such as healthcare, transit, or manufacturing – all of which have a high demand for round-the-clock products. Google intends to grow into other large industries, such as healthcare and transportation, where it may use monetisation platforms such as YouTube and DoubleClick.
Google recently bought Eyefluence, a small San Francisco-based technology firm, to better understand how customers use augmented reality (AR) user interfaces. Facebook’s Oculus Rift may be virtual reality’s current social media juggernaut. However, Alphabet believes that augmented reality will create a considerably larger business potential over the next decade. This is especially relevant given that most people do not require new hardware for AR experiences – many existing mobile devices can produce stunning AR content using software rather than equipment.
Google sees itself as the dominant player in web search, a necessary tool for users to locate, access, and share information online. However, the firm is also striving to expand into other markets to discover ways to improve productivity or make better use of its technologies. Alphabet’s “other bets” category includes companies that are not necessarily related to run ads or the internet.
They influence the firm’s overall output because many of these investments are still in the early stages and are not yet profitable. But they offer a relatively higher potential return for near-term profits justified the risk of short-term gains for long-term profits.
This has been a popular strategy among investors who regard Alphabet as a company with long-term value, unlike firms like Facebook, which were founded just to make an annual profit. Alphabet has provided stockholders a total return of more than 55% this year, while Facebook lags at 12%.
Investors are divided on whether the FAANG stocks are expensive. High supporters would claim that their valuations are justified by their fundamental strength as businesses. However, detractors claim that, despite the great business success, the FAANG companies’ prices have risen to the point that it may be impossible to reap significant long-term rewards from investing in them.
Finally, the purchasing and selling patterns in the FAANG stocks best depict this “discussion” amongst investors.
Even if you don’t invest directly in them, FAANG stocks are worth keeping an eye on. This is because they account for a sizable portion of the stock market’s total market capitalisation, and their price movements may impact the market.
In March 2022, the value of the US stock market is estimated to reach over $45 trillion. This increased from $10.7 trillion in December 2001, before Netflix and Meta were made public.
The S&P 500, which includes the 500 largest US firms by market capitalisation, includes four companies in the top ten: Apple, Amazon, Meta, and Google. Furthermore, the SPDR S&P 500 ETF Trust, which represents the S&P 500 weighting, finds that the top ten companies in the index account for more than 28% of the index’s total value.
FAANG stocks are likely to be significantly invested in any MF or ETF that seeks to track the S&P 500 broadly.
For example, the Vanguard 500 Index Fund invests approximately 12% of its entire portfolio in the five FAANG stocks. As a result, it’s simple to understand how the movement of individual stocks might impact the overall stock market’s returns.
Depending on your position in an economic cycle, the investment climate is continuously shifting. During a recession or growth, certain industries tend to outperform others. For example, while FAANG firms generally rely on advertising income to fuel sales and growth, a growing economy may allow more people to have free spending cash for higher-priced purchases like iPhones and Netflix subscriptions.
When consumer spending increases, these businesses will profit from substantial economic growth.
When the economy enters a slump, and people are less likely to spend money on items like FAANG stocks, huge businesses like this group’s revenue might suffer.
Evaluating the market volatility indexes such as the Chicago Board Options Exchange Market Volatility Index (VIX) to check if investors are concerned about potential risks associated with certain businesses or sectors might reveal the influence of an impending recession.
Due to increased risk, it may be best to minimise trading activity or avoid investing ultimately during an economic downturn, as stock price reductions are likely to outweigh gains made during expansionary periods.
Understanding how investor sentiment affects the performance of FAANG stocks can help you recognise how they perform in different economic scenarios. Some of the most recent stock changes by FAANG firms, such as Facebook, can also be attributed to investors’ concerns about more robust data privacy, cybersecurity legislation, and children’s internet addiction.
If you’re concerned about how new restrictions may affect profitability, it could be time to look beyond the major players like FAANG stocks and concentrate on smaller tech startups or “deep value” stocks.
To determine whether a company is creating more or less buzz, use online sentiment tools such as Google Trends. Thomson Reuters StarMine may also be used to evaluate changes in analyst ratings. Furthermore, investment apps like Robinhood are free to use and enable users to learn about the sentiment based on the number of people trading or discussing a stock.
After you’ve acquired this information for all five FAANG stocks, understand their performance to that of other investments and indexes, such as the DJIA, Dow Jones U.S. Technology Index, or S&P 500 index, to see how they’ve fared in recent months and years. Although some claim that specific methods are more effective when assessing FAANG stocks, important measures should not be neglected simply because they appear less appealing.
Investors desire to acquire and hold FAANG stocks because of their extraordinary return rate, particularly when compared to the S&P 500 Index. Examine how each stock performed between March 1, 2009 and July 1, 2021.
| Stock or Index | Total Return Since March 1, 2009 |
|---|---|
| FB | 801% (since its IPO on May 18, 2012) |
| AMZN | 5500% |
| AAPL | 5310% |
| NFLX | 10390% |
| GOOG | 1400% |
| S&P 500 | 663% |
The data show that the FAANG stocks outpaced the S&P 500 Index, with Amazon and Apple outperforming the index by more than 50 times. Netflix trounced the index by more than a hundredfold.
FAANG stocks have increased in popularity during the last five years.
According to CB Insights, these firms made for 0.3% of the 478 public companies with valuations greater than $10 billion in 2013.
The number raised to 10% by 2015. Furthermore, these few companies received 65% of all venture capital investment and 6% of all global equity acquisitions. But it gets even better: six out of every ten top tech transactions had various members of this group investing in each other.
Many investment firms are thrilled with the current uptick in FAANG stocks for various reasons, the importance of which is that it simplifies investing and, as a result, increases earnings. Diversifying investments among many companies allows these businesses to remain profitable even if one industry fails or collapses.
In recent years, the FAANG has also transformed how venture capitalists operate; they no longer evaluate businesses independently as they did in 2010. This is because investment firms know that investing in a single firm is not as lucrative as working with another FAANG stock.
Although high-risk stocks might yield more significant returns, they are not without risk. We recommend investing no more than 15% of your total investment portfolio in risky companies to reduce risk. If you are new to investing, spend time researching the market before placing orders, just as any seasoned investor would do with potentially risky purchases.
Before you invest your money, you should be familiar with standard investing terms and how they function. Doing your homework before time will help you avoid potential scams and understand exactly what you’re getting into.
Other benefits stand at:
Investing in FAANG stocks is not for everyone. Many investors find them unappealing due to their high valuations. Because of their high valuations, their stock price is more volatile than that of other large companies. Facebook made headlines in February 2022 when its stock dropped from $323 per share to $237 per share in one day, losing $232 billion in value.
FAANG stocks are among the most well-known in the world. Investors who wish to buy shares should consider each stock’s risk before adding it to their portfolio. Investors should have a high-risk tolerance for their investments due to the volatility of these stocks.
Because no one has yet figured out how to make a fun acronym out of all the other letters, Microsoft has a larger market capitalisation than any of the FAANG companies, and it could fit nearly two Facebook or eight Netflix, or even a Google plus two Netflix.
