FAANG Stocks is an acronym pertaining to the stocks of the five most successful technology mega-corporations listed on the American stock market – Facebook (now Meta), Amazon, Apple, Netflix and Google. These companies are among the best-performing ones not just in the US but also internationally.
These companies have, in fact, altered the definition of what it means to interact, socialise, shop, or perceive entertainment. The FAANG stocks are extremely popular and hold a position in the portfolios of many investors due to their size, dynamism, historical performance, growth prospects, and most significantly, the leaders that represent these firms.
Read on to find out more about this topic in detail!
FAANG is an acronym for Facebook (now Meta), Amazon, Apple, Netflix and Google. The acronym was first used by Jim Cramer, the host of the “Mad Money” show . Initially, the acronym was just FANG. Apple was included later in 2017.
These companies hold a combined market capitalisation of around $7 trillion as of Q1 2022.
Let’s now dig deep into each of the FAANG stocks:
Formerly known as Facebook, Meta Platforms or Meta owns two of the most popular social media platforms in the world – Facebook and Instagram, in addition to two of the most used chat applications – Whatsapp and Messenger. Online advertisements are the company’s main source of revenue. The total market capitalisation is $449.12 billion (as of 8th August 2022).
Mark Zuckergerg, who co-founded Facebook, is the chairman and chief executive officer of Meta.
Amazon is the largest online retailer in the world. It is a platform for retailers to sell books, music, movies, gadgets, apparel, footwear, home items, cosmetics, toys, pet supplies, and more. Amazon has several revenue streams.
It makes money off each transaction by offering products like its Alexa hardware for direct sale to customers. Additionally, it offers Amazon storefronts where independent vendors offer their products and services, with Amazon acting as the intermediary. Prime services are another major source of revenue for the company. The market capitalization is $1.43 trillion (as of 8th August 2022).
Apple Inc. is a market leader known for selling personal electronics, such as Macbooks, iPhones, Apple watches, iPad, and a range of accessories. In addition to electronics sales, Apple generates revenue from membership fees for services like its Apple Music, iCloud data storage systems, AppleTV and so on. Apple products have a huge fan base with millions of users who immediately purchase new products the company releases. It is the oldest member of the FAANG stock club, having been formed in 1976 by Steve Jobs and two others. In December 1980, Apple went public with an IPO that raised more than $100 million.
Apple is the world’s largest IT corporation in the world. It became the first American business with over $1 trillion market capitalisation on August 2, 2018. Apple Inc’s market capitalisation is $2.66 trillion (as of 8th August 2022).
Netflix Inc. is a media company that offers online streaming of movies and TV programmes for a monthly subscription fee. When the company first launched its DVD-by-mail service, customers could rent two DVDs at once through a mail service catalogue. When the internet was ready to support the download speeds required for digital content, Netflix launched its streaming services, enabling users to watch or download movies, TV shows, and documentaries whenever they want.
Netflix generates revenue from its subscription services, charging a monthly price in exchange for the viewer’s unlimited access to download content. With nearly 200 million paid subscribers globally, Netflix is a major player in the entertainment sector. In addition to operating in more than 190 nations, it also creates a range of Netflix Original content.
Netflix’s market capitalisation is $100.85 billion (as of 8th August 2022).
Google is an American company that offers internet-based services. It was established in 1998 by Larry Page and Sergey Brin, and its web search engine is arguably its most well-known feature. In August 2004, the business went public, offering over 20 million shares for $85 each. Google Search’s popularity led to the development of various additional products, including email (Gmail), work and productivity tools (Google Docs, Google Sheets), and video sharing (YouTube).
Additionally, Google created the Android mobile operating system, which powers the majority of today’s smartphones across the globe. The business also manufactures consumer goods like Google Home gadgets, Pixel smartphones, and Chromebook laptops.
Google’s market capitalisation is $1.54 trillion (as of 8th August 2022).
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All five FAANG companies originated in the U.S but have a presence around the world. These companies are not only well-known around the globe but also financial powerhouses. These companies are the tech sector’s blue-chip stocks and account for around 30% of technology-focussed NASDAQ 100 and 15% of the Standard & Poor’s 500 indices as a whole.
They, therefore, represent not only one of the largest industries in the U.S but also a major portion of the U.S stock market. This implies that FAANG stocks have a very strong foothold in the stock market and can sway the U.S economy, the U.S market, and even global markets as a whole with their performance.
Source: investing.com (Google’s and Amazon’s stock prices depicted are from before the split)
|Stocks | Year||2012||2016||2022|
Note: Both Google and Amazon have split their stock recently.
As an Indian resident, there are three primary ways through which you can invest in FAANG stocks:
Some Indian brokers have partnered with U.S brokers which allows you to open an Overseas Trading Account and U.S brokers to execute the trades on your behalf.
Few foreign brokerage houses have established their presence in India. This allows you to invest in U.S stocks by opening a brokerage account directly with these foreign brokerage firms.
You can invest in U.S stocks directly through various investment platforms.
You can also directly invest in U.S stocks in a highly transparent and cost-effective manner by investing in any of the relevant US-focused fund of funds, index funds, etc.
Investors can enjoy the following benefits from investing in FAANG stocks:
FAANG stocks are highly sought after by investors due to their potential to generate significant returns. Their multifold growth over the years has made them popular among investors. For example, in 2009, FAANG stocks outperformed the S&P 500 index. While the S&P 500 Index grew by 181%, Meta grew by 307%, Amazon grew by 877%, Apple by 578%, and Netflix grew by 1,530%.
FAANG stocks have historically been highly stable over the years. These stocks have weathered volatility and have been a stable investment option.
These stocks also benefit from the “network effect” wherein, their size attracts more users, products and partners. They all have intangible assets like the user data repositories of Google, Facebook, and Amazon; original Netflix content; and Apple’s capacity to market hardware and software. These companies have users who are loyal to the brand’s products and services. The companies also use technologies like Machine Learning, Artificial Intelligence and predictive models to customise the user experience, which keeps the customers hooked. This ensures that the companies’ user base is ever-growing, generating higher revenues for them.
The following factors should be taken into consideration before investing in FAANG stocks:
Like Indian stocks, U.S stocks too, declare dividends. FAANG stock dividend income is added to the investor’s annual income and taxed at the investor’s tax slab. For example, if the investor falls in the 20% tax bracket after adding the dividend income from FAANG stocks to their annual income, they will have to pay 20% tax, as per the Indian tax laws.
As for long-term capital gains (LTCG), after two years of retention, a 20% LTCG tax plus cess is applied to earnings from the sale of FAANG stocks. The returns on these equities are subject to individual income tax rates if they are sold before the full two years have passed. Short-term gains will be added to the investor’s annual income and taxed as per their tax slab.
If you intend to invest directly in FAANG stocks, you will need to convert your INR funds to USD and deposit them in a U.S trading account. This necessitates taking the currency rate into account.
This is why investing in a mutual fund that invests in foreign stocks, especially FAANG stocks is one of the best options for Indian investors.
Also Read: What Are Small-Cap Stocks?
The FAANG companies alone have a market capitalisation worth trillions of dollars and hold a strong dominance on the market. According to Jim Cramer, these businesses brought about some of the most rapid developments across the globe. Whatever topic you’re discussing—electronics, data, commerce, entertainment, or socialising—FAANG businesses are the ones that laid the foundation of this technologically-driven world.
It should be noted that before adding stocks to their portfolio, investors looking to buy shares should think about and consider the risk of each stock they invest in. Investors should have a high-risk tolerance for their investments because of the high volatility in these stocks. Additionally, investors should conduct their own analysis and see if the investment fits in with their investment goals.
Ans. FAANG is an acronym for five of the USA’s global tech giants namely Facebook, Amazon, Apple, Netflix, and Google. Originally, the acronym was only FANG (without Apple) but later on, Apple was added because of its massive revenue growth.
Ans. You may find it beneficial to track S&P 500 index, Dow Jones Industrial Average (DJI), Nasdaq composite index, Nasdaq-100 index, and RUSSEL 2000 index among other indices.
Ans. FAANG stocks are popular with investors because they have consistently provided positive returns over the years, have great fundamentals, and have a solid leadership base.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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