First there were the FANGs: Facebook Inc. (FB), Amazon.com Inc. (AMZN), Netflix Inc. (NFLX) and Google parent Alphabet Inc. (GOOG). This tech quadrumvirate has seemed unstoppable since at least 2013, when Bob Lang coined the term (though it's attributed to Jim Cramer).

The preferred acronym has shifted along with individual companies' fortunes. FAANG made room for Apple Inc. (AAPL). FAAMG shunted Netflix out in favor of the less-phonetically-convenient Microsoft Corp. (MSFT). But the idea that a small cluster of American tech firms sits at the commanding heights of the digital economy went unchallenged.

BAT-ter Up

This year it's becoming increasingly clear that a trio of Chinese tech companies is breathing down the FAAMNGs' necks. Shares in Baidu Inc. (BIDU), Alibaba Group Holding Ltd. (BABA) and Tencent Holdings Ltd. (0700.Hong Kong, TCEHY) are up an average of 65.2% in 2017, more than doubling the performance of any permutation of the FANGs. Since any self-respecting club of tech stocks needs an acronym, commentators have taken to calling them the BATs.

There are reasons to be skeptical. Chinese stocks have seen enormous swings in recent years as busts follow close on the heels of speculative booms. Some make the case that American tech companies are repeating the follies of the dotcom boom – 30% gains in less than nine months are nothing to sniff at — so when their Chinese counterparts rise even farther, faster, all the more reason to stay away. What's more, the playbook that works behind the Great Firewall might not deliver the same results beyond it. (See also, Alibaba, Tencent Rise Faster Than Real Earnings.)

On the other hand, there are reasons to think the BATs are more than a fad. The old China-can't-innovate stereotype is on life support. Alibaba is not simply "China's Amazon," Baidu is not "China's Google," and Tencent is not "China's Facebook." Payments are an example of how these companies are breaking new ground. Ant Financial, a spinoff of Alibaba that owns Alipay, is the world's most valuable fintech company for a reason: its 51% market share in China's internet payments market suggests it handles roughly the same value of transactions per year that all American credit- and debit-card users generate. Tencent's WeChat, a popular messaging service, also handles payments. But these platforms do more than act as a glorified Venmo: they offer investments and allow users to pay utility bills and buy train tickets. They are also ubiquitous – not the case in the U.S. – and expanding abroad. (See also, Ant Financial Nearly Doubled Its Earnings in FY17.)

When Uber's Chinese arm capitulated to Didi Chuxing – which counts all three BATs as investors – last year, it may have been a sign of things to come. Uber could not keep up with the volume of rides Didi completed (more in China in 2015 than Uber had completed worldwide since 2009) or the range of options it offered customers. Chinese tech companies have moved beyond simply cloning their American counterparts, and may soon be buying them: regulators are reviewing Ant's bid to buy Texas-based MoneyGram International Inc. (MGI). The performance of the BAT stocks so far this year might have a lot to do with the frothiness of Chinese markets, but the FANG crowd – and their investors – shouldn't get complacent.

Disclosure: the author has long positions in Apple, Netflix, Alphabet, Microsoft and Alibaba.

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