FAANG Stocks

What are FAANG Stocks?

FAANG is an acronym that refers to five of the biggest and most influential technology and consumer discretionary companies in the world: Facebook (now Meta Platforms), Amazon, Apple, Netflix, and Alphabet (formerly known as Google).

These companies have been top performers in the stock market over the past decade, dominating the technology and broader markets.

CNBC’s Jim Cramer coined the term “FAANG” in 2013, initially referring only to Facebook, Amazon, Netflix and Google. In 2017, Apple was added to create the “FAANG” acronym. Despite Facebook and Google undergoing name changes to Meta Platforms and Alphabet respectively, the FAANG label has stuck over time.

Techopedia Explains

Here is a brief overview of each FAANG stock.

Meta Platforms

Ticker Symbol: META

Meta Platforms, formerly known as Facebook, operates the world’s largest social media platforms, namely Facebook, Instagram, and WhatsApp. It makes money primarily through advertising across its family of apps. Meta invests heavily in virtual and augmented reality technologies to build the “metaverse“.

Amazon

Ticker Symbol: AMZN

Amazon is the world’s largest online retailer and cloud computing provider. The company operates a fast-growing e-commerce business, sells electronic devices like Kindle e-readers, and runs Amazon Web Services (AWS) – arguably the globe’s top cloud infrastructure.

Apple

Ticker Symbol: AAPL

Apple designs and manufactures popular consumer electronics including the iPhone, iPad, Mac computers, and accessories. As the world’s largest information technology (IT) company, Apple continues to release innovative products and applications across its hardware, software, and service offerings.

Netflix

Ticker Symbol: NFLX

Netflix pioneered the internet video streaming industry and has over 220 million paid subscribers worldwide. The company has invested heavily in developing original movies, TV shows, and documentaries for its platform, allowing it to disrupt the traditional Hollywood business model, which relies on lofty licensing and distribution fees.

Alphabet

Ticker Symbol: GOOG, GOOGL

Alphabet is the parent company of Google and other technology businesses like YouTube. As the world’s top internet search engine and digital advertising leader, Google holds an incredibly influential position in directing internet traffic and monetizing consumer data.

FAANG Explained: Why Are These Stocks So Influential?

The five FAANG stocks have a combined market capitalization of over $7 trillion and account for a significant portion of the S&P 500 and Nasdaq indexes. As a result, the performance of FAANG stocks often has an outsized impact on the overall direction of the market.

The table shows the market capitalization of each of the five companies as of 29 January 2024.

Are FAANG Stocks a Good Investment?

As mega-cap technology growth stocks, FAANG companies can generate attractive long-term investments. However, the significant maturity of their business model and huge size makes them both sensitive to the ups and downs of the global economy and may be considered an obstacle to their growth trajectory in some cases.

Here are the cases for adding FAANG stocks to your portfolio.

Pros of Owning FAANG Stocks

1. Solid Historical Performance

Over the past decade, FAANG stocks have dramatically outperformed the broader market indexes. Fueled by strong revenue growth and expanding profit margins, FAANG companies have demonstrated an impressive ability to scale their operations rapidly. Their network effects and brand authority give them durable competitive advantages.

2. Room to Grow

While FAANG stocks carry high expectations, they still benefit from long growth runways in their operating markets. This includes segments like digital advertising, e-commerce, cloud computing, mobile ecosystems, streaming, and artificial intelligence (AI).

Investments in new technologies could also unlock significant new market opportunities in areas like virtual and augmented reality, big data, and the Internet of Things (IoT).

3. Long-Term Secular Tailwinds

Powerful demographic and technological shifts continue to provide a tailwind for FAANG companies, including the rise of mobile internet, the adoption of cloud computing, the proliferation of smart devices, increased consumer data generation, and advances in artificial intelligence, to name a few examples.

Cons of Carrying FAANG Stocks

However, there are also good reasons why FAANG stocks may not be suitable for all investors.

1. High Valuations

Despite the seasonal sell-offs that tech stocks may occasionally experience, FAANG stocks tend to trade at elevated valuations compared to the overall market and their own finances.

This makes them vulnerable to higher interest rates, negative sentiment shifts, or slowing growth. Buying FAANG stocks at the wrong price without careful consideration of valuation can lead to poor returns.

2. Concentration Risk

With mega-cap market capitalizations, FAANG stocks take up a large portion of major indexes. Adding individual stocks from this group can result in unwanted concentration risks for investors with broad-market investments in indexes that incorporate these companies into their portfolios.

3. Regulatory Threats

The size, influence, and dominance that companies like Meta Platforms, Google, and Amazon have in certain key markets have caught the attention of global regulators who have threatened – and, in some cases, executed – to bring antitrust lawsuits and additional compliance burdens that could have an impact in future earnings growth.

Overall, FAANG stocks can be excellent additions for growth-oriented or even value investors, if the stocks are bought at the right price. However, investors should consider diversifying their investments, understand these companies’ complex risks beyond just their business models, and avoid overpaying for future growth prospects.

FAANG vs. FAAMG vs. MAMAA

Here is the list of the original five FAANG stocks:

• Meta Platforms (META) – formerly known as Facebook, hence the F.
• Amazon (AMZN).
• Apple (AAPL).
• Netflix (NFLX).
• Alphabet (GOOG, GOOGL).

While this list of five companies strictly defines what stocks comprise the FAANG acronym, some variations have emerged, namely the substitution of Microsoft for Netflix in what’s called the “FAAMG” group.

Moreover, with the latest change in name from Facebook to Meta Platforms, the group has been renamed by some as MAMAA. Notably, this group would not include Netflix as the latter will be replaced by Microsoft. Some believe that Microsoft holds a more promising future due to its exposure and heavy investments in the up-and-coming artificial intelligence industry.

Given Microsoft’s trillion-dollar+ market cap and influence as a technology leader in cloud computing, productivity software, and gaming, its inclusion alongside the other big tech titans has merit.

Can I Invest in a FAANG Stocks Index ETF?

No exchange-traded funds ETF invests specifically in only the five FAANG stocks. However, a handful of “FANG” ETFs provide exposure to these high-growth technology stocks along with other top internet and technology names.

In the case of the “FANG” ETFs, these are vehicles that track, intend to mimic or expand the performance of the NYSE FANG+ Index, which tracks the five FAANG stocks along with five other prominent stocks including Microsoft and NVIDIA (NVDA).

Examples include:

Alternatively, Nasdaq-100 ETFs like QQQ provide broad exposure to the US’s 100 largest non-financial stocks, prominently featuring Apple, Amazon, Meta, Netflix, Google, and other technology growth stocks within the FAANG group.

Just note that FANG ETFs and Nasdaq-100 funds concentrate investors into big technology names, resulting in higher volatility than funds tracking the S&P 500 or total US stock market index.

The Bottom Line

FAANG stocks have handsomely rewarded investors over the long run thanks to the incredible innovation and business execution of these American technology titans.

However, the high growth trajectory of companies like Meta, Apple, Amazon, and Alphabet may sometimes be fully priced in or even overvalued – especially when market conditions are favorable.

Consider your portfolio diversification, risk tolerance, and specific approach when adding further exposure to these influential mega-cap stocks.

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