In finance, “FAANG” is an acronym that refers to the stocks of five prominent American technology companies: Meta (formerly known as Facebook), Amazon, Apple, Netflix, and Alphabet (formerly known as Google).
The term was popularized by Jim Cramer, the television host of CNBC’s Mad Money, who praised these companies for their market dominance. Initially coined as “FANG” in 2013, the acronym added Apple in 2017 to become “FAANG”.
Key Takeaways
- FAANG represents the stocks of five of America’s most popular and best-performing tech companies.
- These are: Meta (formerly Facebook), Amazon, Apple, Netflix, and Alphabet (formerly Google).
- Collectively, they are among the world’s largest companies by market capitalization.
- Concerns exist over a potential bubble in FAANG stocks, while some believe their growth is backed by stellar financial performance.
- The term was coined by Bob Lang and popularized by Jim Cramer on his TV show Mad Money.
The Powerhouse of FAANG Stocks
Apart from being household names, FAANG stocks hold a combined market capitalization of around $7 trillion as of Q1 2022, placing them among the world’s largest companies.
Recent growth can be attributed to high-profile purchases by influential investors like Berkshire Hathaway, Soros Fund Management, and Renaissance Technologies. These funds see value, growth, and momentum in these stocks.
All FAANG stocks trade on the Nasdaq exchange and are part of the S&P 500 Index. As of August 2021, they account for about 19% of the S&P 500, a testament to their massive influence on the index and the broader U.S. economy.
The FAANG stocks’ significant sway brings notable volatility impacts, as observed in August 2018 when these stocks drove nearly 40% of S&P 500 gains from the lows of February 2018.
Concerns and Resilience: An Example of FAANG Stocks
The remarkable size and influence of FAANG stocks have raised concerns about a potential bubble. These concerns became prevalent in 2018 when tech stocks began dipping from their usual highs. By November 2018, several FAANG stocks were down more than 20%, entering bear territory. This resulted in a cumulative loss of over a trillion dollars from their peak valuations.
While valuations have rebounded, the volatility of FAANG stocks remains a concern. On the flip side, the robust financials justify investor confidence. For instance, Facebook continues to be the largest social network with approximately 2.8 billion users, posting 2021 revenues of $118 billion and net income of $39.4 billion.
Similarly, Amazon dominates B2C e-commerce with over 120 million products and more than 300 million active U.S. customers. In 2021, Amazon reported TTM revenues of $470 billion and a net income of $33.4 billion.
Over the past five years, Meta and Amazon stock prices soared by 185% and 500% respectively. Apple and Alphabet saw around 175% increases, while Netflix’s stock rose by nearly 450%.
The Magnetism of FAANG Stocks
These stocks captivate both consumers and investors. Meta, Amazon, Apple, Netflix, and Alphabet are revered not just for their brands but also their impressive historical growth and market leadership.
By Q1 2022, their market caps ranged from Netflix’s $166 billion to Apple’s $2.7 trillion, exhibiting exceptional growth and solidifying their statuses as prime investment choices.
Are FAANG Stocks Overvalued?
Investors remain divided on whether FAANG stocks are overvalued. Proponents argue their high valuations mirror their business acumen and fundamental strength. Critics claim the pricing is excessive, possibly limiting long-term profitability. This debate manifests in the trading patterns of FAANG stocks.
Accessibility of FAANG Stocks
FAANG stocks are straightforward to acquire due to being publicly traded with substantial daily volumes. They are also entrenched in popular ETFs. However, perceptions of overvaluation may make acquiring these stocks at reasonable prices challenging, leading some investors to await price corrections.
Unveiling the Origins of ‘FANG Stocks’
Jim Cramer popularized the term but credits Bob Lang, a Real Money and The Street colleague, for identifying these four high-growth stocks and creating the acronym.
Is Microsoft a FAANG Stock?
No, Microsoft is not a FAANG stock. The FAANG acronym highlights the prominent tech firms of the 2010s. During this period, Microsoft was already a mature company, distinct from the then-emerging tech giants.
Related Terms: financial markets, technology sector, stock investment, Nasdaq.
References
- Yahoo Finance. “Alphabet Inc. (GOOG)”.
- Yahoo Finance. “Apple Inc. (AAPL)”.
- Yahoo Finance. “Netflix, Inc. (NFLX)”.
- Yahoo Finance. “Amazon.com, Inc. (AMZN)”.
- Yahoo Finance. “Facebook (FB)”.
- Yahoo Finance. “5 Tech Stocks That More Than Doubled FAANG in 2018”.
- Facebook. “Facebook Reports Fourth Quarter and Full Year 2021 Results”.
- Amazon. “Sell Worldwide with Amazon”.
- Amazon. “Amazon.com Announces Financial Results and CEO Transition”.
- CNBC. “Cramer: Does Your Portfolio Have FANGs?”
