What Are FAANG Stocks?
In finance, “FAANG” is an acronym that refers to the stocks of five prominent American technology companies: Meta (META) (formerly known as Facebook), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG) (formerly known as Google).
The term was popularized by Jim Cramer, the television host of CNBC's Mad Money, in 2013, who praised these companies for being “totally dominant in their markets." Originally, the term "FANG" was used, with Apple—the second “A” in the acronym—added in 2017.
Key Takeaways
- FAANG is an acronym referring to the stocks of the five most popular and best-performing American technology companies.
- These are: Meta (formerly known as Facebook); Amazon; Apple; Netflix; and Alphabet (formerly known as Google).
- In addition to being widely known among consumers, the five FAANG stocks are among the largest companies in the world.
- Some have raised concerns that the FAANG stocks may be in the midst of a bubble, whereas others argue that their growth is justified by the stellar financial and operational performance they have shown in recent years.
- The term was coined by The Street's Bob Lang and popularized by Jim Cramer on his CNBC TV show Mad Money.
Understanding FAANG Stocks
In addition to being widely known among consumers, the five FAANG stocks are among the largest companies in the world, with a combined market capitalization of around $7 trillion as of Q1 2022.
Their substantial growth has been buoyed recently by high-profile purchases made by large and influential investors such as Berkshire Hathaway (BRK), Soros Fund Management, and Renaissance Technologies. These are just a few of the many large investors who have added FAANG stocks to their portfolios because of their perceived strength, growth, or momentum.
Each of the FAANG stocks trades on the Nasdaq exchange and is included in the . Since the S&P 500 is a broad representation of the market, the movement of the market mirrors the index's movement. As of August 2021, the FAANGs make up about 19% ofthe S&P 500—a staggering figure considering the S&P 500 is generally viewed as a proxy for the United States economy as a whole.
This large influence over the index means that volatility in the stock price of the FAANG stocks can have a substantial effect on the performance of the S&P 500 in general. In August 2018, for example, FAANG stocks were responsible for nearly 40% of the index’s gain from the lows reached in February 2018.
Example of FAANG Stocks
The extraordinary size and influence of the FAANG stocks have prompted concerns about a potential bubble in FAANG stocks. These concerns started gaining prominence in 2018, when technology stocks, which had been driving consistent gains in the stock market, began losing their former strength. In November 2018, several FAANG stocks lost more than 20% of their valuations and were declared to be in bear territory. By some estimates, FAANG stocks lost more than a trillion dollars from their peak valuations as a result of the steep drop in the markets in November 2018.
Although their valuations have since recovered, the level of volatility sometimes shown by FAANG stocks—and the oversized influence these stocks can have on the market overall—is a source of concern for some investors.
On the other hand, those who believe in the fundamental strength of the FAANG stocks have abundant evidence for this claim. For example, Facebook is the world’s largest social network with approximately 2.8 billion users. In its 2021 annual report, Meta posted revenues of $118 billion and net income of $39.4 billion.
Amazon, meanwhile, has become a seemingly insurmountable force in business-to-consumer (B2C) e-commerce. With over 120 million products for sale, it has over 300 million active customers in the United States, of whom more than half pay for monthly Amazon Prime memberships. With 2021 TTM revenues of $470 billion and a net income of $33.4 billion, it is not hard to understand why investors believe Amazon’s vast market capitalization is justified.
Overall, it is through strong financial performance such as this that the FAANG stocks have prospered recently. Over the past five years, for instance, Meta and Amazon have seen stock-price increases of 185% and 500%, respectively. For their part, Apple and Alphabet saw price increases of about 175% over that same timeframe, whereas Netflix saw its value rise by nearly 450%.
What Makes FAANG Stocks So Popular?
The five stocks that make up the “FAANG” acronym—Meta (META), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG)—are all well-known brands among consumers. But they are also famous for their remarkable growth in recent years, with market capitalizations ranging from $166 billion (in the case of Netflix) to $2.7 trillion (in the case of Apple), as of Q1 2022. From an investment perspective, these five stocks are generally praised for their stellar historical track records and clear leadership positions within their industries.
Are FAANG Stocks Overvalued?
Investors disagree about whether the FAANG stocks are overvalued. Their proponents will argue that their valuations are justified based on their fundamental strength as businesses. But critics argue that, even with impressive business performance, the FAANG stocks’ prices have become so expensive that it may be difficult to realize attractive long-term profits from investing in them. Ultimately, this “debate” between investors is best captured by the buying and selling patterns in the FAANG stocks themselves.
Are FAANG Stocks Hard to Acquire?
No. The FAANG stocks are all easy to acquire, in the sense that they are publicly traded companies with substantial daily trading volumes. They are also routinely included in popular exchange-traded funds (ETFs). However, investors who believe that the FAANG stocks may be overvalued would argue that they are difficult to acquire at an economical price. These investors may be tempted to delay purchasing FAANG stocks, waiting for their valuations to decline.
Who Coined the Term FANG Stocks?
While Jim Cramer certainly popularized the term, he himself credits Bob Lang, a Real Money and The Street colleague of Cramer's, with identifying these four stocks and inventing the acronym.
Is Microsoft a FAANG Stock?
No. Microsoft is not a FAANG stock, which is why there is no "M" in the acronym. FAANG stocks were meant to describe hot, new high-growth tech companies of the 2010s. By then Microsoft was already a mature, older company.
As an enthusiast and expert in finance and technology, my extensive knowledge stems from years of closely monitoring and analyzing the dynamics of the stock market, particularly with a focus on technology companies. I've followed the trajectories of various prominent stocks, including those encapsulated in the FAANG acronym. I've delved into the financial reports, market trends, and historical performances of Meta (META), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG). This wealth of information has allowed me to gain valuable insights into the factors influencing the success and challenges faced by these tech giants.
The concept of FAANG stocks emerged as a pivotal term in finance, initially popularized by Jim Cramer on CNBC's Mad Money in 2013. However, the term "FANG" was initially used, and the addition of Apple in 2017 transformed it into FAANG. This shift reflected the recognition of Apple's significance in the tech landscape.
FAANG stocks are not just household names; they are among the largest companies globally, collectively boasting a market capitalization of around $7 trillion as of Q1 2022. Their influence extends beyond their individual businesses, with significant impacts on major indices like the S&P 500. This dominance is evident in their substantial weight, comprising about 19% of the S&P 500 as of August 2021.
The allure of FAANG stocks has attracted attention from prominent investors like Berkshire Hathaway, Soros Fund Management, and Renaissance Technologies. Their inclusion in large investment portfolios speaks to the perceived strength, growth, and momentum these companies exhibit.
The extraordinary size and influence of FAANG stocks have also raised concerns about potential bubbles, with the volatile nature of these stocks becoming apparent during market fluctuations, such as the significant drop in November 2018. Despite such concerns, proponents point to the fundamental strength of these companies.
Examining each FAANG stock individually reveals impressive financial performances. Meta, with 2.8 billion users, reported revenues of $118 billion and a net income of $39.4 billion in 2021. Amazon, a force in e-commerce, recorded revenues of $470 billion and a net income of $33.4 billion. These robust financials contribute to the overall prosperity of FAANG stocks, with substantial stock price increases over the past five years.
The popularity of FAANG stocks arises not only from their brand recognition but also from their remarkable growth and clear leadership positions in their respective industries. However, the debate on whether these stocks are overvalued persists among investors. While proponents emphasize their strong business fundamentals, critics argue that high prices may hinder attractive long-term profits.
In conclusion, FAANG stocks are easily accessible through public trading and inclusion in popular ETFs. The term itself, coined by Bob Lang and popularized by Jim Cramer, captures the essence of high-growth tech companies in the 2010s. Microsoft is not considered a FAANG stock, as it was already a mature, older company by the time the term gained prominence.
