What are FAANG stocks and how do you invest in them?

What are FAANG stocks?

FAANG is an acronym for Facebook (now Meta), Amazon, Apple, Netflix, and Alphabet (formerly Google). So, FAANG stocks refers to the publicly traded shares of these five prominent and influential Silicon Valley technology companies.

The original term was ‘FANG’ and excluded Apple. It was coined by influential trader Bob Lang on his trading show The Street in 2013 to describe the hottest upcoming, high growth US tech companies of the time. Later, the term was popularised Jim Cramer on the CNBC TV show Mad Money. The second ‘A’, for Apple Inc, was added in 2017.

The FAANG companies are all part of the S&P 500 index, which is considered not only a broad representation of the US market, but the US economy. In total, FAANG stocks make up 19% of the value of the entire S&P 500 (called the US 500 on our platform).

Though FAANG are some of the largest businesses in the world, they’re not necessarily America’s top five tech companies. For instance, most benchmarks’ top five would include Microsoft instead of Netflix.

What are the FAANG companies?

1. Meta
2. Amazon
3. Apple
4. Netflix
5. Alphabet

Meta (META)

Meta is a multinational technology conglomerate that owns Facebook — one of the world’s most well-known social media platforms. The story of how Facebook was started by teenage Harvard students Mark Zuckerberg, Eduardo Saverin, Andrew McCollum, Dustin Moskovitz and Chris Hughes in a dorm room has become legend. Perhaps more than any other company, Facebook embodies the Silicon Valley tech start-up dream.

However, Meta has matured significantly since its college days. Apart from Facebook, it also now owns 91 other companies, including Instagram, WhatsApp, Oculus VR and Onavo.

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Renamed on 9 June 2022, Meta is owned by Mark Zuckerberg, the founder of Facebook. It garners its revenue primarily from advertising.

The Facebook share price fell significantly in 2021, due to several user privacy breaches and news that the company had intentionally spread false information. The company rebranded to Meta in October that year. In December, it announced it had spent £8.5 billion on products and research.

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Amazon (AMZN)

Amazon is a multinational technology company primarily focused on e-commerce. It was founded by owner Jeff Bezos in his garage in the 1990s and quickly went on to make Bezos the richest man in the world for many years. Amazon has even been called ‘one of the most influential economic and cultural forces in the world.’¹

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While Amazon is routinely one of the highest valued companies in the world, Amazon shares could grow even more in the future, with the company investing in renewable energy and green technology. It’s also rapidly expanding internationally and experiencing growth in its advertising, entertainment and cloud computing operations.

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Apple (AAPL)

Steve Jobs standing on a stage introducing the first iPod in 2001 is one of the most iconic – and earliest – moments of FAANG stocks. Formerly the 1980s market disruptor Apple Computer Inc, the Apple Inc of the 2000s is a technology company that trades primarily in consumer electronics.

Created in 1976, it was the first of what would later be known as the FAANG stocks. It was also the first US company in history to reach a market cap of $1 trillion (in 2018).

Traditionally, the Apple share price has been affected by the sales of its popular iPhone, which first launched in 2007. However, for some years now, investors have been concerned that iPhone sales will decrease as the smartphone market becomes more saturated. As a result, Apple has started focusing more heavily on services such as streaming channels and gaming as growth drivers.

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Netflix (NFLX)

Netflix started as a DVD rental business changed the way movies were watched forever. Originally founded in 1997, with Marc Randolph and Reed Hastings posting DVD cassettes to customers in the mail. Now, it’s the world’s largest subscription streaming service. It has some 222 million subscribers worldwide and is available in 190 countries. Netflix has its own production house and has maintained its ethos of remaining advertising-free.

In April 2022, the company announced that it was looking for a way to tighten up password sharing so that it could monetise users who share one account. This move positively affected the company’s bottom line by ensuring primary users pay more, but also eroded some goodwill among its customers.

Netflix’s share price is primarily affected by competition in the subscription streaming sector. Its biggest competitors are typically Disney+, Amazon Prime, and Tencent. As this space looks like it’ll only get more cutthroat, investors will keenly watch the effect this has on NFLX price movements.

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Alphabet (GOOG)

Alphabet is a multinational tech company primary focused on its near-omniscient search engine technology, Google. Another tech stock legend, the quirkily-named Google was started by computer science students Sergey Brin and Larry Page in the 1990s.

In 2015, Page and Brin pivoted to create a parent company for Google (and, crucially, other projects like robotics) to be housed under. Alphabet is now considered one of the most powerful companies in the world.² While valuation figures for the firm have varied over the years – from as high as $5 trillion to as low as $143 billion – most agree that it’s among the highest valued stocks around.^{3, 4}

Alphabet stock is driven by brand recognition, as well as the continued growth of the technology section. The company makes its money primarily through advertising, but key innovations like artificial intelligence are expected to be a growth area for Alphabet.

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How have FAANG stocks performed?

FAANG stocks have performed well in the last decade and significantly outdone the market in terms of gains – including the average prices of the rest of the mighty S&P 500. In fact, after the 2020 stock market crash, FAANG stocks largely drove US market recovery.

Alphabet, for example, reached the $1 trillion market cap for the first time in November 2020 – a number it has surpassed several times since. By the end of 2021, it was worth closer to $2 trillion. Meanwhile, Apple became the first American company in history to achieve a market cap of $3 trillion.⁵

FAANG companies have benefitted, for a number of years, from the tech boom that has defined the 21st century so far – which is especially associated with these hallowed Silicon Valley stocks. The Covid-19 pandemic in particular spiked the need for technological solutions, and the years characterised by lockdowns and remote working have been among the best ever for FAANG stocks.

Considering that FAANG stocks make up a significant stake of the S&P 500, it’s useful to benchmark them against the index. FAANG stocks have historically outperformed the S&P index – although they don’t always do so.

For example, throughout most of 2022, Meta was the worst performer in the index, yet by June 2022 it had still outperformed the S&P 500 by about 70%. Then, closer to the end of 2022, Meta’s share price plummeted again. This usefully illustrates the ‘up again, down again’ correlation of the FAANG companies’ performance to that of the S&P 500.

How to trade or invest in FAANG stocks

1. Decide whether you want to trade or invest
2. Learn more about FAANG stocks
3. Create an account or practise on a demo
4. Set your deal size and manage your risk
5. Open and monitor your position

There are a number of ways you can gain exposure to the tech giants of FAANG with us. If you’d like to own shares in the companies outright, you can buy them via our share dealing platform.

Here, you’ll make a profit if the company’s share price goes up and you sell your shares for a higher price than you bought them for. You can also receive dividends if the company pays them, and you'll have voting rights. If the share price falls in value and you sell at this price, you’ll make a loss. However, unlike with trading, your risk of loss is capped to the amount you bought the stocks for.

If you trade on FAANG stocks instead of investing, you’ll use spread bets or CFDs, which are financial products called derivatives. These enable you to speculate on the price movements of FAANG shares without taking ownership of them. This means you can go long or short, making a profit if you predict FAANG stocks’ market movements correctly and a loss if you predict incorrectly.

You can also trade directly on indices with us. We offer a FAANG index, so you can trade on just the ‘big five’, directly, with a single position.

It’s important to note that derivatives trading is leveraged, enabling you to open a larger position when you put down a small deposit, known as margin. While this means you can stretch your capital further by opening bigger trades with less money, it also increase your risk of loss. That’s because both profits and losses of leveraged trades are calculated based on the total position size, not your margin amount – so managing your risk is key.

FAANG stocks summed up

• FAANG is an acronym for ‘Facebook, Amazon, Apple, Netflix and Google’. It represents five of the biggest US tech companies, which includes Meta, Amazon, Apple, Netflix, and Alphabet
• FAANG stocks have generally performed well in the past decade, compared with the S&P 500 index
• With us, you can invest in FAANG shares using our share dealing platform
• You can also trade on FAANG stock directly, or on indices like the S&P 500 or our FAANG Index, using spread bets or CFDs. You won’t own any shares outright but will instead speculate on FAANG stocks’ price movements
• Spread betting and CFD positions are leveraged trades, meaning you’ll pay a small deposit to open a larger position. However, profits and losses are calculated based on total position size and so both can significantly outweigh your deposit amount

Footnotes

1 PBS International, 2020
2 BBC News, 3017
3 Financhill, 2022
4 Yahoo Finance, 2022
5 CNBC, 2022