FAANG Stocks: Definition and Companies Involved
The stocks of five well-known American technological companies are referred to in finance as “FAANG”: Netflix (NFLX), Apple (AAPL), Amazon (AMZN), Meta (META), and Alphabet (GOOG), formerly known as Google.
The phrase gained popularity in 2013 when Jim Cramer, head of CNBC’s Mad Money, commended these businesses for being “totally dominant in their markets.” Before Apple became the second “A” in the acronym in 2017, the word “FANG” was used.
The Basics of FAANG Stocks
The five FAANG stocks are not only well-known to investors, but they are also among the most prominent businesses globally, with a combined market valuation of around $7 trillion as of Q1 2022.
Recent high-profile acquisitions by prominent and influential investors like Berkshire Hathaway (BRK), Soros Fund Management, and Renaissance Technologies have contributed significantly to their growth. Because FAANG stocks are thought to be strong, growing, or momentum-driven, these are only a handful of the several significant investors who have added them to their portfolios.
Every FAANG stock is part of the S&P 500 Index and is traded on the Nasdaq exchange. The market’s movement is reflected in the direction of the index because the S&P 500 represents a broad market representation. The FAANGs account for roughly 19% of the S&P 500 as of August 2021, a startling percentage given that the S&P 500 is typically used as a stand-in for the US economy.
Due to their significant influence over the index, fluctuations in the FAANG stocks’ stock prices can have a substantial impact on the S&P 500’s overall performance. For instance, FAANG stocks contributed around 40% of the index’s increase from its February 2018 lows in August 2018.
A FAANG Stock Example
FAANG stocks are large and powerful, raising fears of a bubble. These concerns grew in 2018 when technology equities, which had been rising steadily, began to wane. In November 2018, some FAANG stocks fell 20% or more, indicating a bear market. According to some estimates, FAANG stocks lost over $1 trillion from their high values after the November 2018 market crash.
While FAANG companies’ values have rebounded, some investors worry about their volatility and market dominance.
Conversely, there is ample data to support FAANG stock fundamentalists. With over 2.8 billion users, Facebook is the largest social network in the world. Meta reported $118 billion in revenue and $39.4 billion in net income in its 2021 annual report.
In contrast, Amazon has become an almost unstoppable force in business-to-consumer (B2C) e-commerce. Amazon sells over 120 million goods and has over 300 million active US customers. Around half of them pay for Amazon Prime. Investors may understand Amazon’s massive market worth since it predicts $470 billion in sales and $33.4 billion in net earnings by 2021.
What’s so great about FAANG stocks?
Meta (META), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG) are well-known “FAANG” stocks. They are also noted for their rapid ascent, with Netflix’s market worth at $166 billion and Apple’s at $2.7 trillion as of Q1 2022. These five stocks are generally considered investments due to their vital track records and industry leadership.
Are FAANG stocks too expensive?
Regarding whether the FAANG stocks are overvalued, investors cannot agree. Supporters of these companies will contend that their intrinsic strengths as enterprises justify high values. However, detractors argue that despite the FAANG stocks’ stellar financial results, their high prices make it potentially challenging to generate appealing long-term returns from owning them. Ultimately, the buying and selling patterns in the FAANG stocks best represent this “debate” among investors.
Are FAANG stocks challenging to invest in?
Nope. Since the FAANG stocks are all publicly listed businesses with high daily trading volumes, they are all simple to purchase. Moreover, they are frequently added to well-known exchange-traded funds (ETFs). On the other hand, investors who think the FAANG stocks might be overpriced would counter that it’s hard to get them for a reasonable price. These investors could be inclined to hold off on buying FAANG stocks to wait for their prices to drop.
Who First Invented the Name “FANG Stocks”?
Jim Cramer undoubtedly made the word famous. He credits Bob Lang, Cramer’s colleague on Real Money and The Street, for recognizing these four stocks and creating the acronym.
Is Microsoft one of the FAANG stocks?
Nope. There is no “M” in FAANG since Microsoft is not one of those stocks. The 2010s’ hottest, new, fast-growing tech companies were intended to be characterized as FAANG stocks. Microsoft was an established, seasoned business by that point.
Conclusion
- FAANG stands for the stocks of the top five performing and most well-liked technological businesses in the United States.
- These are Amazon, Apple, Netflix, Meta (formerly Facebook), and Alphabet (formerly Google).
The five FAANG stocks are not just well-known to investors but also some of the largest corporations globally. - Some think the FAANG stocks’ recent financial and operational performance justifies their ascent, while others believe they’re in a bubble.
- On Mad Money, Jim Cramer popularized the phrase, which Bob Lang of The Street coined.
