The abbreviation FAANG has nothing to do with sharp teeth, although trading stocks in this group might be even more exciting than observing the Shark Week. As we watched the collective value of FAANG stocks go up over 1500% in the past decade, more and more traders began to invest in technology stocks.
But just with any other trading instrument, the very first step is to find out more about the specifics of trading any particular asset. Today we will explore whether FAANG are the best technology stocks to invest in and how to do it correctly.
What Are FAANG Technology Stocks?
It is no secret that some companies do better than others. And some companies do so well that they eventually begin to control and drive entire economies. Very logically, the traders who put their trust and funds in successful enterprises rise tremendously. But guessing which business will become the next big thing is not that easy.
In order to understand how each specific company affects the local economy and the global trading scene, it is important to be familiar with the industry it operates in. Then you look around and choose a general path: pick a new company to grow your trading balance along with it or steer into the main traffic of the large businesses that were around for a while. The FAANG group is a great example of why you might not want to look for new technology stocks to invest in, but rather focus on the well-established ones.
For starters, let’s decode this catchy abbreviation. FAANG is a group of stocks that includes technology industry giants: Facebook, Amazon, Apple, Netflix and Google. All of these names are more than familiar to you, not even as a trader, but as a person who lives in the 21st century. The five companies carry a lot of power: from affecting the everyday life of users to shifting the course of global economy and technological development.
Each company in the FAANG group has originated in the United States and is listed on the S&P 500 index list. S&P is a collection of five hundred large American companies’ stocks. It is rightfully considered one of the major contributors into the economy of the US. Here is a few interesting facts about FAANG:
Originally FAANG was only FANG, as it didn’t include Apple until 2017
FAANG is not an official market term, but more of a commonly-used abbreviation. It was introduced by TV financial analytic and host, Jim Cramer
The G in FAANG stands for GOOG or Google, but technically this stock represents a technical industry conglomerate Alphabet. Google just happened to be one of its first successful projects and the name stuck
As of 2020 FAANG is responsible for 15% of the entire S&P 500 list, making them the most noteworthy stocks in America and in the world. FAANG’s current market capitalization exceeds $4.1 trillion
Traders around the world are divided into two opinion camps regarding FAANG: some say that they’re peaking, while others are sure that five giants are going to continue to grow
Now that we have established the meaning of FAANG and its general role on the international trading scene, let’s zoom in to each of the five components. As we take a closer look, you will be able to see why they are considered the best technology stocks to invest in.
What Are FAANG Companies Known For?
The majority of the world’s population are not concerned about the value of FAANG stocks. Not everyone is a trader. But within this particular stock category almost everyone is contributing to the overall value and therefore, the significance of the group’s combined effect on the market.
So, you can continue to scroll through the Facebook feed while streaming something on Netflix, without going too deep into how you are contributing to the global economy. Or you can do the same and take a different perspective: not just enjoy the services offered by FAANG companies, but also actively profit from their success.
In trading, one of the approaches to forecasting is analyzing past performance. This is exactly what we are going to do next: look at each of FAANG companies in terms of their origins and previous accomplishments.
Who doesn’t have a Facebook profile? This question can be roughly answered with over 2.6 billion active monthly users that go to the website for communication, work, research and more. Practically everyone in the world has used or at least come across Facebook once in their lifetime. On top of that FB owns Instagram, What’s App, Messenger, Oculus and 9.9% share in Jio Platforms.
Founded back in 2004 by Mark Zuckerberg and a group of his classmates, Facebook quickly grew in popularity first connecting people based on the school they attended and then pretty much anyone across the globe who wanted to connect. In February 2012 the social platform had already hosted 845 million active users and filled an IPO looking to raise $5 billion.
Stock trading began just a few months later, in May as NASDAQ welcomed Facebook into the process. Initially the stock struggled slightly, but as it picked up in 2013 it grew nearly 400%.
To successfully trade it is important to understand its general scheme of operation. Being an info-tech platform, FB makes the most income from advertisements. So, overlooking the policy updates and how they comply with local and global businesses’ requirements might help a lot during trading. Additionally, as it handles massive amounts of private data of billions of users, the company’s position on confidentiality and data processing plays a big role.
For example, back in 2018 Facebook was involved in a course-shifting scandal. It became public that Cambridge Analytica harvested personal info of millions of FB users without their knowledge or consent. That data was allegedly used for political purposes, which ultimately put Facebook in very bad light and caused a $100 billion reduction in its value.
The stock then slowly picked up, after Zuckerberg willingly in front of the United States Congress. In June 2020 the FB price reached $228, which is a tremendous leap from the absolute low of $17 back in August 2012.
Have you ever googled the richest people in the world? If yes, you are familiar with the name of Jeff Bezos, founder of Amazon. Bezos is one of the most influential businessmen in the world, who is considered to be on a fast track to becoming the very first trillionaire in human history.
Amazon.com originated in 1994 as an online bookstore. From the beginning the company picked up a rapid growth rate, expanding to various areas of e-commerce and becoming one of the most promising technology stocks to invest in.
Unlike Facebook, Amazon went public rather quickly — in 1997. As it grew in the number of sold products and committed customers, AMZN almost never experienced significant drops in its value. Amazon Prime membership has over 150 million active subscribers, which translates into an equal number of recurring paying visits.
The biggest driver of Amazon stock’s growth, apart from the company's exemplary accomplishments, is a FOMO factor. A fear of missing out leads traders everywhere to include constantly raising in value AMZN into their portfolios.
As an example, we can look at the starting announced price of $18 in May 1997, which didn’t pick up right away, but tripled over the next decade, becoming $68 in May 2007. Anyone who invested in AMZN back then would be currently facing an over 1300% growth. In June 2020, the stock price reached $2,545 and it doesn’t seem to be slowing down.
Disregarding which operating system you prefer on your smartphone, you can’t deny that Apple is a big deal. The company was founded back in 1976 and originally focused on designing and building computer hardware and software. We all know too well that modern Apple is much more than just computers.
With the iPhone being the most recognizable Apple product, there is an entire segment of electronic products that feature a bitten apple at the back. Right now there are approximately 1.5 billion activated devices across the map. Throughout the years the company grew to be one of the largest and most valuable in the world in terms of market capitalization and revenue. And as of 2018 Apple became a first public American company to be valued over $1 trillion. Making it one of the most important on the S&P 500 list.
APPL stock went public in 1980 at $22 per share. After the launch of the first computer that did not require the input of a programming language in 1984, stock value started gradually growing. Over the past ten years APPL grew over a 1000%, resulting in the price of $338 per share in June 2020.
The most volatile times for APPL stocks are the scheduled events that include announcements of new and improved products, usually followed up by presentations. Depending on the level of the revolutionization of the market, Apple trading experts can foresee the market’s next move.
While some Netflix and chill, others Netflix and trade. Although they don’t necessarily cancel each other out. Just as Amazon started as a bookstore, Netflix was first a DVD over mail order service, with their direct competitors — Blockbuster. And today Blockbuster gone extinct, while Netflix has over 182 million active users worldwide.
Netflix was founded in 1997 and rapidly grew into what it is today. Statistics from 2017 show that Netflix has successfully replaced or combined with cable in nearly 80% of American households. And in 2018 the company bit off the largest streaming video share among competitors: 26.6%, while Alphabet’s YouTube got 21.3% and Amazon Prime Video 5.7%.
NFLX stock history is less ancient than that of the other members of FAANG. The stock went public in 2002 at $15 per share and, after adjusting for stock splits at $1.07. Rapid growth of the stock started in 2013 when Netflix released their first original content, The House Of Cards. Since then the streaming service is both creating their own content and acquiring the most promising creations by large networks, such as NBC.
Netflix also became one of the companies that stayed strong through the first stage of COVID-19 quarantine restriction which caused great disruption at the global market. With more people staying at home, often with not a lot to do, Netflix became a number one subscription choice for a large number of new users.
NFLX is also the best performing out of the FAANG group. A trader from 2010 who would’ve put their trust in the stock, will not be gathering the equivalent of over 4000% rise, as Netflix went from $7.61 per share in January 2010 to $418.07 in June 2020.
Alphabet, Formerly Google (GOOG)
The verb “to google” has become a rightful part of most languages across the planet. As of 2020 the most popular and the most recognized search engine processes over 3.5 billion searches per day. But googling is just a small part of the company behind GOOG and GOOGL.
Google was founded in 1998 by Larry Page and Sergey Brin, PhD students at Stanford University. It quickly grew after it was listed in 2004. And in 2015 the company restructured and became a part of Alphabet Incorporated. This way when trading GOOG you don’t only trade Google stocks, but also the others under Alphabet, which include: Android operating system, Gmail, YouTube and many others.
After filling an IPO in 2004 GOOG entered the trading scene at a confident rate of $85 per share and started confidently increasing in value right back then. One of the first massive growth waves was caused by the acquisition of YouTube back in 2006.
One of the noteworthy facts about the Alphabet’s stocks is that they are divided into three categories: A, B and C. A class shares listed as GOOGL are typical stocks with one share one vote structure. The A-class shareholders have a right to participate in the company’s decision-making process. The B class shares are only available to founders and high-ranked insiders, these stocks are ten shares per vote. B-type stocks are not available for public trading. And finally the C-class shares are the ones you will most likely come across, the C shareholders have no voting rights.
The C-class stocks are the only commonly traded ones, so the price for GOOG is usually the C category price. And that price has gone from the initial $85 per share in 2004 to $1413 in June 2020.
By this point you have a general understanding of how each of the FAANG’s stocks participates in the trading process. Now we will talk about whether you personally should invest in technology stocks and what are the crucial steps to doing so.
Should I Invest in FAANG Stocks?
From what you’ve read above, you might now be under the impression that FAANG stocks are constantly rising and are overall a win-win. Which is not exactly the case. Since the group consists of five massive companies, judging them as one is nearly impossible. This means that anyone who is looking to invest in technology stocks needs to evaluate all pros and cons first.
The first thing to grasp is that just because all of the FAANG companies have a history of tremendous growth, doesn’t mean that they grow symmetrically or consistently. For example, Facebook and Google might be experiencing a rough patch, while Netflix and Amazon are stronger than ever, such as in the beginning of 2020.
Another factor to consider is the amount of regulations associated with the five companies. Growing bigger in their case also means being controlled on higher levels. The increased levels of regulation in term mean less and less room for companies to grow and explore new areas. For instance, since the scandal of 2018 Facebook was obligated to submit evidence to the UK and the USA governments. In other words, something that would’ve got away with ten years ago is now making their job significantly harder.
Then there is always competition. It is difficult to imagine that Google is ever going to be replaced as a most popular search engine, but we also know that GOOG stock also refers to YouTube. And YouTube is competing with several other services inside of FAANG group, such as Netflix, Amazon Prime Video and Apple TV, as well as with others on the outside, like Hulu or Disney+.
Depending on the content each of the competitors offers and how it will be received, the value of each company can go up and down. So, studying the behavioral patterns in every category of technology stocks to invest in can be very important. That’s why educating yourself on the past performance of FAANG companies is important to get a feel of the overall dynamic, but cannot always be used as an indicator of upcoming success.
Instead, you will have to get ready to master technical analysis of each particular stock and learn to interpret sales reports, major announcements, product releases and others from the perspective of trading opportunities. At this point it would make sense to summarize what you will need to do in order to successfully invest in technology stocks.
How To Successfully Invest In Technology Stocks
FAANG is a group of the best technology stocks to invest in, but them being the best option doesn’t mean that they absolutely guarantee stable profit. To successfully invest in technology stocks, you will need to consider the following:
Before you invest in technology stocks, pick one you will start with. As previously mentioned, even the strongest trading instruments have their downsides. Start by taking a close look at a particular stock and try to gather as much information as possible on what the company is planning to do next. Based on your personal experience and the expert opinion, you’ll get a pretty good feel of whether the stock is worth your attention.
While holding onto a stock will be most likely beneficial in a long run, it might not necessarily be effective over short term trading periods. This means that if you don’t have much time to wait for the value to rise slowly, you will want to choose a stock that is associated with the most volatility. On one hand FAANG stocks are known to be highly popular, but on the other this can change at any moment, so you need to be on a constant lookout.
Always keep learning about new technology stocks to invest in. We live during times when new tech companies open on a nearly daily basis. Very often, when a new company has a lot of potential it will get acquired by the giant from FAANG group. A great example of this is Instagram taken over by Facebook.
Experiment with different trading strategies and analytical approaches. Trading stocks can get very tricky, if you keep implementing the same method. Because the tech market is ever-changing and there are not a lot of ways to tell for sure how it will change. So, by having a good set of tricks up your sleeve, you can be prepared for any type of scenario at the market.
Practice before you start trading. Some traders come into stocks trading from other markets, such as Forex, while others are entirely new to the whole thing. Whatever is the case it is always a good idea to invest in technology stocks in a practice mode first. You can either do it by making your first trades very minimal in terms of size or opening a demo account to try out your skills in a simulation mode.
FAANG are great technology stocks to invest in, as long as you understand the instrument you’re trading with and have a trustworthy broker for a partner. Which brings us to the next short section: trading technology stocks with PaxForex.
Why trade FAANG Technology Stocks with PaxForex?
PaxForex is a great solution for traders across the globe. Whether you are interested in exchanging currencies, cryptocurrencies or trading stocks, PaxForex has everything you’ll need.
Affordable spreads and swaps, comfortable shares trading hours, multiple educational and informational channels: PaxForex has everything for successful trading. Take advantage of professional support from trading experts on our team, who can tell you how to choose the best technology stocks to invest in and how to do it correctly.
Plus, we offer the most technologically advanced and at the same time easy to navigate trading platform: the Metatrader 4. MT4 is the most popular trading terminal in the world, mostly because it is simple enough to comprehend even for the beginners and sophisticated enough in terms of included instruments for most experienced traders.
Learn more about FAANG technology stocks to invest in by opening an account with PaxForex and getting access to constantly updating tools, blogs and other helpful materials.