FAANG is an acronym for the market's five most popular and best-performing tech stocks, namely Facebook, Apple, Amazon, Netflix and Alphabet’s Google. FAANG was born out of the original acronym, FANG, which did not have Apple included when CNBC’s Jim Cramer coined the term.
What are FAANG Stocks?
Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG) are the five technology giants trading publicly in the market today, as of 2019. Investors grouped these companies into one acronym to capture the collective impact that these companies have on the markets. As of March 20, 2018, the market capitalization of these companies summed up to $472.38 billion + $760.36 billion + $888.66 billion + $136.92 billion + $757.54 billion = $3.015 trillion. By the end of 2018, all the FAANG stocks fell into a bear market, losing more than 20% or more of their market value.
In addition to the sizable worth of these five tech companies, their growth spurts have also seen the majority of the prominent money managers in the United States increase their stake in FAANG stocks for their funds. Funds like Berkshire Hathaway, Soros Fund Management, Renaissance Technologies, and many others added FAANGs to their portfolios as growth and momentum stocks, as revealed through the SEC mandatory 13-F filing in the first quarter of 2017. The growth of these companies can also be seen through their earnings, which have consistently increased year-over-year, making them among the most highly valued in the world from a price to earnings perspective.
Each of the FAANG stocks trade on the Nasdaq exchange and are included in the S&P 500 Index. Since the S&P 500 is a broad representation of the market, the movement of the market mirrors the movement of the index. Together, the FAANGs make up 1 percent of the S&P list, which consist of the largest companies trading on the NYSE and NASDAQ. The S&P market cap in total is 70 percent to 80 percent of the total U.S. stock market capitalization, and the FAANGs, by order of market cap, rank 4th, 3rd, 1st, 67th and 9th (and 10th) on the index (As of the end of 2018). Alphabet’s Google has two classes of shares trading on the public markets, hence the 9th and 10th rank. This means that a collective up (or down) movement in these tech shares will lead to an increase (or decrease) in the S&P 500 index, and in turn, a rise (or fall) in the market. Clearly, one can see how the FAANG stocks greatly influence the direction of the stock markets. From 2014 to 2016, the year-end earnings generated by each of the five companies has steadily increased, save for Apple Inc.’s 14.43 percent fall in earnings from 2015 to 2016 owing to a drop in revenue – Apple’s first revenue decline in 15 years.
Is There a FAANG Bubble?
The valuation and spectacular performance of the FAANGs have been likened to that of the tech stocks before the 2000 dotcom burst, which saw a lot of overvalued tech companies crash, sending the global markets to a downward spiral. However, some analysts have noted that there is a difference between both tech classes, stating that there is plenty room for the current tech class to grow as areas of cloud computing, social media, e-commerce, artificial intelligence (AI), machine learning and big data are still being explored and developed.