Are FAANG stocks past their prime? – The Average Joe

    Are FAANG stocks past their prime?

    Victor Lei — Head of Research

    May 3, 2022

    May 3, 2022

    The FAANG stocks may no longer be the stocks we once loved, but they still have a place in many investor portfolios. It’s Meta and Netflix that are questionable choices…

    Deprecating the FAANG stocks acronym

    The FANG+ Index — which tracks the performance of 10 highly-traded tech stocks (i.e., FB, AAPL, AMZN, GOOGL, NFLX) — is down 25.3% in 2022.

    Amazon, Meta and Netflix reported their slowest growth in nearly 20 years, 10 years and 5 years, respectively — expecting even slower growth to come.

    Many wouldn’t even be considered growth stocks with their current growth rates. Among the FAANG stocks:

    • Low-growth: Netflix, Apple and Meta’s growth has slowed to single digits.
    • High(er)-growth: Alphabet, Microsoft and Amazon forecast double-digit growth this fiscal year.

    What now? Data shows that the best performers of one decade are unlikely to stay the best in the next decade. If history repeats itself, who could contend with replacing them?

    Breaking the $1 trillion mark

    Becoming a trillion$ company isn’t easy. Stars must align, and companies must have all the ingredients. Two important ones:

    • High-growth, large addressable markets — i.e., digital media, e-commerce, electric vehicles and cloud computing/software.
    • Exceptional founders — i.e., Steve Jobs, Mark Zuckerberg, Jeff Bezos, Larry Page and Elon Musk.

    Tesla has become a favorite among investors — but already broke the $1T mark and now trades at a $942B market cap. Who else do we see as potential contenders?

    1/ Nvidia ($491B market cap), with well-regarded CEO Jensen Huang, provides chips to high growth industries like data, cloud and gaming.

    2/ Berkshire Hathaway ($707B market cap), but it’s uncertain how Greg Abel, the planned successor to Warren Buffett and Charlie Munger, could perform once and if he takes reign.

    Others in play: Visa ($434B market cap) and Taiwan Semiconductor ($473B market cap).

    Investors: Looking far and small

    Across the ocean, Chinese tech giants had nearly reached $1T. Tencent (OTC:TCEHY) passed $940B, and Alibaba (NYSE:BABA) passed $850B before losing over half their values.

    • The next trillion$ company could also break out from $100B to $1T in a matter of years, as Tesla did.
    • It took ~8 years for Meta to go from $100B to a $1T market cap, but it took Tesla less than two years.

    The next $1T company will need another bull market to help take it there — which is looking increasingly unlikely in the next few years with rising interest rates and growing recession fears.

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