What is FANG? Or is it FAANG? Or FAAMG?
In the world of US investing and technology, a few acronyms have gained popularity in recent years – FANG, FAANG, or FAAMG. These acronyms refer to a group of high-performing technology stocks that have captured the attention of investors and analysts alike.
Originally coined by Jim Cramer of MSNBC, FANG comprises Facebook, Amazon, Netflix, and Google (Alphabet) – four of the tech industry’s most innovative and successful companies. Investors then added Apple to the mix to form the acronym FAANG. Meanwhile, Goldman Sachs created their acronym, adding Microsoft to the mix while removing Netflix, to form FAAMG – the top 5 tech companies that have been the primary drivers of growth in the US stock market.
Regardless of what you call them, these technology companies have exhibited unprecedented growth and provided impressive returns to investors. Here are some key facts about them:
- Despite losing US$ 120 Billion in market cap in July, Facebook(META) continues to grow its revenue. At the end of Q2 2018, its revenue increased by 42% to $13.2 B.
- Facebook, along with Google, is a duopoly in digital advertising. It captures almost 20% of the entire digital advertising spend in the US.
- Additionally, Facebook also owns Instagram, Whatsapp, and Facebook Messenger, all globally recognised platforms with more than 1 billion users.
- The ecommerce leader in the US, Amazon(AMZN) has captured 49.1% of the online retail spend, and is projected to post US$ 258 Billion in retail revenue in 2018.
- Amazon is also one of the leading cloud computing providers across the world. Amazon Web Services grew 42% year over year and reported a revenue of more than US$ 4 Billion in Q2 2018.
- It also has an internet advertisement business, which is expected to drive significant future growth and achieve US$ 16 Billion revenue by 2021.
- Apple (AAPL) recently became the first company in the history of the US to hit a US$ 1 Trillion market cap.
- It has the market cornered for smartphones. Despite capturing only 18% of the smartphone volume, the iPhone captures about 87% of the profit margin of the entire smartphone industry. This is in stark contrast to Samsung, which captures only about 10% of the industry’s profit.
- It also has a rapidly developing internet services business that grew at 31% year over year to deliver US$ 9.5 Billion in revenue in Q3 2018. An incredible feat for a mature company.
- The first global TV provider and pioneer of the subscription model, Netflix (NFLX) has more than 130 million subscribers worldwide. The large subscription base allows it to spread development cost across its users and thus gain a cost advantage against its competitors.
- In the past several years, Netflix has beaten investors’ growth expectations. However, it missed growth targets for Q2 2018.
- Lately though, concerns have been raised over the high debt the company is raising to fuel content development, and also around the increasing number of streaming competitors.
- Satya Nadella has done a tremendous job in navigating Microsoft (MSFT) in a post-Windows world. Focusing on cloud and AI, the company’s revenue surpassed US$ 100 Billion in fiscal year 2018, with a whooping US$ 30.1 Billion of revenue generated in the fourth fiscal quarter of 2018.
- Its three core business units reported double digits revenue growth, with Azure Cloud (its cloud services arm) leading the charge by posting 89% year over year revenue growth.
FAAMG: Google (trades under the name of Alphabet)
- The leader in digital advertising, Google (GOOGL) has captured 90.5% of the search market and 37.2% of all digital ad spend in the US.
- Despite its massive size, Google’s revenue continues to increase at a rapid clip, beating market expectations consistently (seems to be a trend with the companies listed here!). In Q2 2018, revenue was up 26% year over year to US$ 32.7 Billion, an acceleration from the 21% revenue growth posted a year ago.
- The company enjoys a leadership in AI technologies, largely due to its massive user base and superb ability to capture and utilize big data to train state of the art models.
What makes FAANG stocks so Popular?
Investors invest in FAANG stocks due to their consistent performance and strong fundamentals. These companies have shown impressive returns over the years, leading to increased investor confidence and interest.
Moreover, FAANG stocks have transformed industries and consumer behavior through their innovative products and services. From social media to e-commerce, streaming services, to search engines, these companies have disrupted traditional business models and captured the attention of consumers worldwide.
As a result, FAANG stocks have become an essential part of many investment portfolios, offering a mix of stability, growth, and innovation. However, it’s important to note that these stocks face potential risks and challenges, such as regulatory scrutiny and market competition. As with any investment, it’s crucial to do your due diligence and carefully consider the risks and rewards before investing in FAANG stocks.
Why should you invest in FAANG Stocks?
Investing in FAANG stocks can offer investors opportunities for growth and diversification in the technology sector. These companies have a track record of delivering impressive returns to investors over the years, and their strong fundamentals, and transformative impact on industries and consumers make them a compelling investment option.
After reading this article, we hope that you understand what FANG is (or FAAMG). Overall, these companies comprised more than 20% of the entire S&P 500. Because these companies have been performing so well in recent years, they are responsible for a significant portion of the S&P 500 returns. If this trend continues, the concentration risk will only increase. Because of this concentration risk, one needs to be mindful if one invests in both the S&P 500 index and in the Nasdaq index. Investing in both at the same time may cause you to be overexposed to the FANG (or FAAMG) companies.
Now that you know what FANG is, you might be interested in reading how to invest in US stocks if you are an investor from India and how taxes will work if you do so.
FREQUENTLY ASKED QUESTIONS (FAQs):
1. What is the Importance of FAANG stocks in the Nasdaq 100?
FAANG stocks – Facebook, Amazon, Apple, Netflix, and Google (Alphabet) – hold significant weight in the NASDAQ 100 index, comprising over 30% of the index. These stocks are crucial components of the NASDAQ 100 index and can significantly influence its performance.
2. How can you invest in FAANG Stocks from India?
Several options exist for investors in India looking to invest in FAANG stocks, such as purchasing FAANG stocks directly or investing in exchange-traded funds (ETFs) that hold FAANG stocks via platforms such as Vested.
3. Why are Faang stocks considered overvalued?
FAANG stocks have high price-to-earnings (P/E) ratios, which reflect the market’s expectation of future earnings growth. Some analysts argue that these stocks may be overvalued, given the significant growth already achieved and the potential for increased regulation and competition can affect the future earnings potential.
4. Is Investment in FAANG stocks safe and profitable?
Investing in FAANG stocks can offer investors opportunities for growth and diversification. However, investing in FAANG stocks carries risks, and it’s essential to do your due diligence and carefully consider the potential rewards and risks before investing in stocks, including FAANG stocks.
5. Who coined the term FAANG?
The term “FANG” was initially coined by Jim Cramer of MSNBC, referring to Facebook, Amazon, Netflix, and Google (Alphabet). Investors later added Apple to form “FAANG,” while Goldman Sachs created their acronym, “FAAMG,” by adding Microsoft and removing Netflix.
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Our team members at Vested may own investments in some of the aforementioned companies/assets. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio. Note that past performance is not indicative of future returns. Investing in the stock market carries risk; the value of your investment can go up, or down, returning less than your original investment. Tax laws are subject to change and may vary depending on your circumstances.
This article is meant to be informative and not to be taken as an investment advice, and may contain certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success or lack of success of particular investments (and may include such words as “crash” or “collapse”). All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results.
This video is meant to be informative and not to be taken as an investment advice and may contain certain “forward-looking statements” which may be identified by the use of such words as “believe”, “expect”, “anticipate”, “should”, “planned”, “estimated”, “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success of or lack of success of particular investments (and may include such words as “crash” or “collapse”.) All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results.