FAANG Is Something Everyone Should Know About, Here’s Why
FAANG is an acronym for the five biggest and most economically influential tech companies in the stock market-- F - Meta (formerly Facebook), A – Amazon, A – Apple, N – Netflix, and G – Alphabet (formerly Google).
The term FAANG was introduced to the world by The Streets, Bob Lang but became widely used because Jim Cramer used it on his popular tv show Mad Money on CNBC back in 2013. The term refers to the stocks of America’s top five technology companies which are, F – Meta (formerly Facebook), A – Amazon, A – Apple, N – Netflix, and G – Alphabet (formerly Google). The reason why you should be aware of these stocks in combination with one another is that they have a massive influence on the stock market and the entire American economy.
The acronym was initially FANG, but in 2017 they added Amazon to the grouping, which is where it picked up the additional A. Whether they decide to come up with a different name for it now that Facebook and Google have changed their company names remains to be seen. For now, we will continue using the FAANG moniker for this grouping of distinguished companies.
When we look at the potential combined effects that these five companies can have on our nation’s economy you don’t have to look much further than their combined $7 trillion dollar market capitalization figure. This is a massive number and has been buoyed by recent high-profile investors such as Berkshire Hathaway, Soros Fund Management, and Renaissance Technologies making large purchases of these companies’ stocks to add to their investment portfolios. All five of these companies are traded on the Nasdaq exchange and are also included in the S&P 500 index.
The movement of the Nasdaq market will mirror the movement of the S&P 500 index because FAANG makes up about 19 percent of the S&P 500 as a whole. When economists look at the American economy, the S&P 500 index is used as a major component in figuring out its health and outlook. Therefore, whether those companies’ stocks are rising or falling has a major influence on our economy’s future projections.
An example of this influence was clearly observed in August 2018 when the FAANG stocks were responsible for 40 percent of the index’s gains from the low of that year, which was in February. Those five companies alone grew our nation’s economy despite many other businesses that struggled that year. Then a few months later FAANG stocks lost 20 percent of their total valuation which cost those companies over an estimated trillion dollars, as a result, the market bottomed out because of their combined influence on it.
Many investors cautioned that FAANG was in bear territory, which, in short, refers to a not wise investment choice. FAANG has since regained its prior valuations, but there is much debate on whether the high stock purchasing points make it worthwhile for most investors to make money on them. According to Investopedia, “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.”
You could draw a direct correlation to where these companies go is where our economy will go as together, they are one powerful driver in our state of affairs. When investing in any stocks, it is important to keep an eye on the FAANG stocks as they will be the precursor to either success or failure in our markets as a whole.
