In the world of share trading, there are some companies that everyone gravitates to when trying to determine how well tech stocks are doing collectively, these are known as the FAANG stocks.
These are companies that have proven to be some of the largest and most profitable stocks over the past decade or so.
FAANG stocks are a subset of the NASDAQ composite. These stocks were once considered "high-growth" tech companies, which included Facebook, Amazon, Apple Inc., Netflix, and Google's Alphabet. FAANG companies have been on a steady rise since November 2016 and have seen ups and downs in the stock market since, making their share CFDs assets an exciting opportunity.
FAANG is an acronym for the five largest companies in the technology sector of the US stock market.
Facebook, which has recently changed its name to Meta, is the parent organisation of Facebook, Instagram, and Whatsapp, some of the largest social media apps in the world. Meta's primary revenue stream comes from online advertising.
Amazon is a multinational technology company that focuses on cloud computing, digital streaming, e-commerce, and artificial intelligence to name a few. The organisation also surpassed Walmart to become the world's largest online retailer (outside of China).
Founded in 1976, Apple is today most well known for its consumer electronics such as its phones, tablets, computers, and laptops. By revenue, Apple is the largest information technology company in the world.
Shifting from a DVD mailing service in 2007 to an on-demand streaming service, Netflix now serves more than 200 million global subscribers worldwide.
Google is best known for its internet-related services, including the search engine, cloud computing, hardware, and online advertising technologies. Owned under the parent company Alphabet Inc., its rapid growth since the early 2000s has allowed massive growth and to offer more services including video sharing, mapping, language translation, and internet services to name a few.
As well as being household names due to the nature of the services they provide, these companies will be familiar to most people simply because of how large and profitable they are. But perhaps the most important thing for us as traders and investors is that they continue to have strong potential for growth.
With a $2.2 trillion dollar market capitalisation, many investors wonder why Microsoft missed out on being included in this all-important acronym.
When the acronym was created, Steve Ballmer had recently become the successor to Bill Gates and while he did a great job at growing the company, the trend perspective of the charts at the time wasn't looking good.
Now that the technology sector has such a big emphasise on cloud computing, the new acronym of FANMAG is becoming prominent thanks to Microsoft having nearly every segment of revenue driven by cloud software.
As of June 30th, 2023, the US stock market has a market capitalisation of 46.2 trillion dollars. Now, let’s take a look at just how much of this is made up of FAANG stocks:
*Market capitalisation as of 09/10/2023
This brings the total market capitalisation of the FAANG stocks to nearly 7 trillion dollars. To put that into perspective, that’s almost 13% of the entire US Stock Market.
To trade FAANG stocks, you can do it through a brokerage account. However, most brokerages only allow you to buy FAANG stocks, meaning you can only play the upside – in other words, you only profit when the share price goes up.
If you want to be able to trade both directions on FAANG stocks (i.e. selling when you believe it will drop in price, or buying when you believe it will rise in price), trading FAANG as share CFDs is a viable option as these allow you to go both long and short. Share CFD trading also allows you to apply leverage to your trades and when trading share CFDs with Axi you will not have to pay a single cent of commission.
Facebook live price chart in MetaTrader 4
To be able to invest in FAANG stocks through stock indices you will need to understand their weighting in the S&P 500 and NASDAQ.
You can diversify into FAANG stocks, without buying them directly, by investing in the S&P 500 index. This is because FAANG stocks make up close to 19% of the entire S&P 500, which is a substantial amount considering that the S&P 500 is generally viewed as a good proxy of how the US economy is performing as a whole.
If you’d like a higher weightage of your investment being in FAANG stocks through an index, you can consider the NASDAQ where FAANG stocks make up close to 33% of the entire NASDAQ.
There are, of course, many factors that a trader needs to consider when deciding if particular shares are going to be a good investment for their portfolio. But if we’re looking broadly at FAANG stocks, you only need to look at their track record to see that they have grown amazingly over the years; this is a group that has historically outperformed the S&P 500 index.
Quite simply, FAANG stocks are as popular as they are because they have proven to be good investments. They have continued to innovate and push the boundaries of their business model, leading to unrivalled growth over the years.
The thing making FAANG stocks as popular as they are today is their resilience – especially throughout the market turmoil created by the COVID-19 pandemic. They have a strong record of growth, matched by their future growth potential.
While FAANG stocks may steal the spotlight, there are a lot of other very popular US stocks for traders to consider.
For instance, there is Tesla (TSLA) that has gone from $80 to $800+ in the space of almost two years – at 1,000% growth, that’s a level not even the FAANG stocks can compete with. Then there’s Pfizer which has seen its price shoot up by almost 100% since January 2020 due to COVID-19.
It just goes to show that when you’re looking to diversify into the stock market, there are options outside of the FAANG stocks.
Amongst the FAANG stocks, the only company that pays dividends is Apple. The others have never paid a dividend to shareholders, instead choosing to use their available capital to generate high growth through acquisitions and investing in internal businesses.
As you can see, the reason why people are so interested in investing in FAANG stocks is because of their explosive growth and potential for future profits. If you're looking to invest in companies in the US tech sector, it may be worth your while to trade share CFDs. This way, if they go up or down in value, you are able to trade and don't have any risk involved with owning the actual stock.
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This information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. It has been prepared without taking your objectives, financial situation, or needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability regarding the accuracy and completeness of the content in this publication. Readers should seek their own advice.
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