What Are FAANG Stocks?
In wherewithal, “FAANG” is an acronym that refers to the stocks of five prominent American technology companies: Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG) (way back known as Google).
The term was coined by Jim Cramer, the television host of CNBC’s Mad Money, in 2013, who praised these public limited companies for being “totally dominant in their markets”. Originally, the term FANG was used, with Apple—the second “A” in the acronym—joined in 2017.
- FAANG is an acronym referring to the stocks of the five most popular and best-performing American technology companies: Facebook, Amazon, Apple, Netflix and Alphabet (time past known as Google).
- In addition to being widely known among consumers, the five FAANG stocks are among the largest flocks in the world, with a combined market capitalization of nearly $5.6 trillion as of Aug. 13, 2020.
- Some have raised concerns that the FAANG stereotypes may be in the midst of a bubble, whereas others argue that their growth is justified by the stellar financial and operational execution they have shown in recent years.
Understanding FAANG Stocks
In addition to being widely known to each consumers, the five FAANG stocks are among the largest companies in the world, with a combined market capitalization of wellnigh $5.6 trillion as of Aug. 13, 2020.
Their substantial growth has been buoyed recently by high-profile purchases made by large and efficacious investors such as Berkshire Hathaway (BRK), Soros Fund Management, and Renaissance Technologies. These are just a few of the many unselfish investors who have added FAANG stocks to their portfolios because of their perceived strength, growth, or force.
Each of the FAANG stocks trades on the Nasdaq exchange and is included in the S&P 500 Index. Since the S&P 500 is a broad presentation of the market, the movement of the market mirrors the index’s movement. Together, the FAANGs make up about 15% of the S&P 500—a dumfounding figure considering the S&P 500 is generally viewed as a proxy for the United States economy as a whole.
This large pressurize over the index means that volatility in the stock price of the FAANG stocks can have a substantial effect on the effectuation of the S&P 500 in general. In August 2018, for example, FAANG stocks were responsible for nearly 40% of the index’s increment from the lows reached in February 2018.
Example of FAANG Stocks
The extraordinary size and influence of the FAANG stocks sooner a be wearing prompted concerns about a potential bubble in FAANG stocks. These concerns started gaining prominence in 2018, when technology founders, which had been driving consistent gains in the stock market, began losing their former strength. In November 2018, a handful FAANG stocks lost more than 20% of their valuations and were declared to be in bear territory.
By some evaluates, FAANG stocks lost more than a trillion dollars from their peak valuations as a result of the marinate drop in the markets in November 2018. Although their valuations have since recovered, the level of volatility on shown by FAANG stocks—and the influence these stocks can have on the market overall—is a source of concern for some investors.
On the other relief, those who believe in the fundamental strength of the FAANG stocks have abundant evidence for this claim. For example, Facebook is the incredible’s largest social network with approximately 2.7 billion users. In its trailing twelve months (TTM) as of June 2020, it assigned revenues of $75 billion and net income of $24 billion.
Amazon, meanwhile, has become a seemingly insurmountable force in trade to consumer (B2C) e-commerce. With over 120 million products for sale, it has over 150 million active fellows in the United States, of whom more than half pay for monthly Amazon Prime memberships. With TTM revenues of $322 billion and a net gains of $13 billion, it is not hard to understand why investors believe Amazon’s vast market capitalization is justified.
Overall, it is into done with strong financial performance such as this that the FAANG stocks have prospered recently. Over the sometime five years, for instance, Facebook and Amazon have seen stock-price increases of 185% and 500%, respectively. For their divide, Apple and Alphabet saw price increases of about 175% over that same timeframe, whereas Netflix saw its value start by nearly 450%.
Frequently Asked Questions
What makes FAANG stocks so popular?
The five stocks that set up up the “FAANG” acronym—Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG)—are all well-known manufacturers among consumers. But they are also famous for their remarkable growth in recent years, with market capitalizations cook-stove from $238 billion (in the case of Netflix) to $2.26 trillion (in the case of Apple), as of January 2021. From an investment position, these five stocks are generally praised for their stellar historical track records and clear leadership whereabouts within their industries.
Are FAANG stocks overvalued?
Investors disagree about whether the FAANG stocks are overvalued. Their defenders will argue that their valuations are justified based on their fundamental strength as businesses. But critics reason that, even with impressive business performance, the FAANG stocks’ prices have become so expensive that it may be demanding to realize attractive long-term profits from investing in them. Ultimately, this “debate” between investors is overcome captured by the buying and selling patterns in the FAANG stocks themselves.
Are FAANG stocks hard to acquire?
The FAANG estimates are all easy to acquire, in the sense that they are publicly traded companies with substantial daily trading aggregates. They are also routinely included in popular exchange-traded funds (ETFs). However, investors who believe that the FAANG handles may be overvalued would argue that they are difficult to acquire at an economical price. These investors may be tempted to defer purchasing FAANG stocks, waiting for their valuations to decline.