FAANG is an acronym for the five most popular and best-performing technology stocks on the market, namely Facebook, Apple, Amazon, Netflix and Google Alphabet. FAANG was born from the original acronym, FANG, which did not have Apple when CNBC’s Jim Cramer coined the term in February 2020. “Put money to work in companies that represent the future,” said Cramer to the public. “Put money to work in companies that are completely dominant in their markets, and put money to work in stocks that have a strong dynamic.” Cramer’s call to FANG has monetized profits for investors. The research firm Morningstar calculated that the four original companies, except Apple, in the acronym had made 691% of profits for investors between June 2020 and August 2020.
What are FAANG actions?
Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Alphabet (GOOG) are the five tech giants publicly traded in the market. Investors have grouped these companies into a single acronym to capture the collective impact these companies have on the markets. As of March 2019, the market capitalization of these companies was $ 3.1 trillion.
The appreciable value of these five technology companies is the result of the presence of large fund managers pouring money into their shares. Funds like Berkshire Hathaway, Soros Fund Management, Renaissance Technologies and many others have added FAANG stocks to their portfolio as growth and momentum stocks. The five technology companies have rewarded investors with successful revenues thanks to their forays into new markets, which places them among the most appreciated in the world in terms of price to profit. There has been three-digit growth in their stock prices. For example, Apple’s share price jumped 246% between January 2020 and August 2020. In addition to the considerable value of these five tech companies, their growth spurts also saw the majority of the top fund managers in the United States increase their participation in FAANG Stocks for their funds.
Each of the FAANG shares is traded on the Nasdaq exchange and is included in the S&P 500 Index. Since the S&P 500 is a broad representation of the market, the movement of the market reflects the movement of the index. Together, the FAANGs represent one percent of the S&P 500. But investors’ enthusiasm for stocks ensures that their impact on the markets is oversized. In August 2020, they were responsible for 38% of the gain in the index compared to the February lows. S&P’s market capitalization represents a total of 70 to 80% of the total market capitalization of the United States, and FAANGs, in order of market capitalization, rank 5th, 3rd, 2nd, 31st and 8th (and 9th) on the index (at the end of 2020). Google Alphabet has two share classes that trade on the public markets, hence the 9th and 10th ranks.
These rankings mean that a collective upward (or downward) movement in these technology stocks will lead to an increase (or decrease) in the S&P 500 index and, in turn, an increase (or decrease) in the market. . Clearly, one can see how FAANG stocks greatly influence the direction of the stock markets. From 2020 to 2020, year-end profits generated by each of the five companies increased steadily, except for the 14.43% decrease in Apple Inc. from 2020 to 2020 due to a decrease in revenues – Apple’s first revenue decline in 15 years.
Key points to remember
- FAANG stocks are growth stocks of five dominant technology companies – Facebook, Amazon, Apple, Netflix and Google.
- FAANG shares are considered to have largely contributed to the recovery of the stock market from 2020.
Is there a FAANG bubble?
Fears of a FAANG equity bubble first appeared in 2020, when tech stocks, which had led to stock market gains, began to dissipate. In November of the same year, when several FAANG stocks lost more than 20% of their valuations, they were declared in bearish territory. FAANG stocks have lost more than $ 1 trillion from their peak valuations due to sharp market declines in November 2020.
Trying to explain the spectacular valuation and performance of FAANGs in previous years, commentators compared them to tech stocks before the dotcom bankruptcy in 2000, which saw a large number of overvalued tech companies collapse, plunging world markets in a downward spiral. In 2020, FAANG stocks were rocked by a variety of issues, from regulatory and privacy issues for Google and Facebook to investor concerns about their balance sheets. An example of the latter problem is the streaming company Netflix, which has had negative free cash flow for most of its existence.
Some analysts have pointed out the difference between the dot com collapse and the current number of tech companies, saying there is a lot of room for the current tech class to develop as areas of cloud computing, social media , electronic commerce, artificial intelligence (AI), machine learning and big data are still being researched and developed. In the case of Netflix, analysts say the pioneering streaming giant is asserting its position in the market.