FAANG Stocks: The Tech Giants Taking The Investing World By Storm

Investing

FAANG Stocks: The Tech Giants Taking The Investing World By Storm

Facebook, Amazon, Apple, Netflix, and Google (the so-called FAANG companies) are an important part of our lives, and a significant component of many investors’ portfolios. Here we tell you all you need to know about the rise of these tech giants’ stocks.

Published on 31 August 2017

It is apt that the abbreviation for the five of the best performing tech stocks in the world is FAANG, which also evokes an image of a long, sharp tooth. After all, each of these companies have – in one way or another – sank their teeth into our lives, offering products and services so indispensable to our daily existence that we wonder how we ever lived without them.

Representing Facebook, Apple, Amazon, Netflix and Google (whose parent company is actually Alphabet, under which it is listed), the acronym FAANG represents the most popular tech stocks in the world.

The term FAANG was coined by Jim Cramer, the American host of CNBC’s “Mad Money”. He has good reason to highlight this quintet, which all trade on the NASDAQ exchange.

Combined, the market capitalisation of the FAANG stocks is close to US$2.5 trillion, which is roughly the size of the French economy, or approximately 13% of the size of the US economy. Famous investment funds including Berkshire Hathaway, Soros Fund Management, and Renaissance Technologies have all poured money into FAANG shares.

FAANG Performance

Facebook

Facebook has seen steady growth since it went public in May 2012, with an opening share price of US$38.23. As of 31 August 2017, that figure stood at US$169.92. The social media behemoth’s second quarter earnings this year beat analysts’ expectations. Earnings per share were US$1.32 versus a prediction of US$1.13, while revenue totalled US$9.32 billion. Facebook’s market capitalisation stands at US$492.6 billion.

Apple

In reporting its earnings for the third quarter of its latest fiscal year, the iPhone maker beat all forecasts by market analysts. Earnings per share were US$1.67 versus a prediction of US$1.57, while revenue amounted to US$45.4 billion.

On 30 August 2017, Apple’s stock price climbed to an all-time high US$163.35 ­– marking a nearly 40% increase since the beginning of 2017. Apple’s market cap now stands at US$815.4 billion, and many analysts are predicting that it could surge above US$1 trillion in the not-so-distant future. Investors are betting on strong sales of the iPhone 8, which is expected to be released later this year.

Amazon

The e-commerce giant’s second quarter results were below analysts’ expectations, but investors remain unfazed. Amazon’s sales jumped 25% year-on-year even as the company continues to invest in new business areas such as groceries, video content, and international expansion. Earnings per share were US$0.40 versus a prediction of US$1.42, while second quarter revenue came in US$37.96 billion. Still, Amazon’s stock price continues to soar, reaching US$967.59 on 31 August 2017 – a nearly 28% rise since the beginning of the year – with the company’s market capitalisation totalling US$474.4 billion.

Netflix

Netflix went public in 2002 with a share price of US$1.08, but the online video streaming company’s share price growth was relatively muted until 2010 – and then it started its amazing ascent. As of 31 August 2017, Netflix stock had risen to US$174.69 per share, up more than 30% since the beginning of the year, with its market capitalisation hitting US$77.8 billion. The company’s stock skyrocketed over 9% on 17 July 2017 after it reported second quarter results that topped analysts’ expectations, revealing that it had added 5.2 million subscribers (doubling analysts’ predictions of 2.6 million new subscribers) and revenue of US$2.78 billion (slightly surpassing the US$2.76 billion projected by analysts).

Google (Alphabet Inc.)

Things were a lot less rosy for Alphabet, the parent company of Google. Following a record-breaking US$2.74 billion fine slapped on Google by European antitrust regulators at the end of June 2017, Alphabet’s second quarter earnings took a beating, as did its stock price. On 5 June 2017 (before the fine was imposed), the latter hit the all-time-high of US$1,007.40, but it has fallen significantly since then. As of 31 August 2017, Alphabet’s stock is valued at US$943.63 per share and its market capitalisation totalled US$649.49 billion.

The next stock market bubble?

Over the past few months, questions have been raised about the possibility of a FAANG stock bubble – because of these companies’ spectacular performance so far this year and their sky-high valuations.

Analysts are drawing parallels between now and the period before the dotcom bust in 2000, when many overvalued tech companies crashed, causing the global financial markets to slip into a downward spiral.

So is there a FAANG stock bubble? It depends on whom you ask…

The “Yes” Camp

Over the past two months, the Nasdaq has experienced volatility with sell-offs following the rallies that saw the index reaching record highs. Big gains earlier this year from FAANG shares are causing nervousness among investors, and some believe that these stocks are overvalued and are opting to sell. Additionally, there is concern that the market is too top heavy with the four largest stocks in the S&P 500 tech sector (Facebook, Apple, Amazon, and Microsoft) accounting for around 48% of market capitalisation. With so much attention focused on the tech sector – Bank of America strategists say the Nasdaq is the “most crowded” trade on the planet – and tech stock prices hovering at record levels, a wave of investors may move to reduce their exposure to tech in general and FAANG stocks in particular.

The “No” Camp

Since June this year, the Nasdaq has dipped 1.5%, implying a correction in the prices of the FAANG stocks. This dip has brought them closer to their valuation figures and has made them more affordable. Separately, some analysts believe that FAANG companies have significant growth potential as new technologies such as artificial intelligence, machine learning, and big data are still being explored and developed. Perhaps the most telling sign is that the number of investors betting against FAANG stocks dropping is decreasing. As of early August, short bets against FAANG stocks represented only 2% of their traded shares – half of the level seen by the S&P 500.

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