What is the Best FAAMG Stock? Which One Is Outperforming?

Written by Sean GraytokUpdated: 21st Dec 2021
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FAAMG stocks have been carrying the market for years but still seem to be reasonably priced.

So, which FAAMG stock is best?

The Best FAAMG Stocks

#1. Best Growth Potential: Amazon (AMZN)

Amazon is already a $1.7 trillion company — why do we believe it has the best growth potential amongst FAAMG?

For starters, its growth metrics continue to … grow.

  • Q1 Revenue: $108.5 billion, up 44% YoY
  • Earnings per share: $15.79, up 215% YoY
  • AWS grew 32% to $13.5 billion, with an operating income of $4.1 billion

AWS has fueled Amazon’s recent surge, becoming a business with a $54 billion annual sales run rate.

We expect AMZN’s next catalyst to be its advertising arm.

This operation is currently grouped into Amazon’s “Other” revenue category (up 73% YoY to $6.9 billion), but its eventual “reveal” might have a similar effect on the stock price as the AWS reveal.

Similar to Google Search, companies pay Amazon to appear higher up in search results in the form of sponsored products.

Amazon is investing heavily in new deep learning models to optimize these sponsored products.

Amazon is an under-the-radar search engine — more consumers are turning to Amazon instead of Google for price discovery.

Expect the advertising dollars to follow and AMZN to rise accordingly.

#2. Best Business: Apple (AAPL)

Apple products alone make the company one of the best businesses globally, but its App Store has earned it “Best Business” amongst the FAAMG stocks.

Apple collects a 30% commission rate from the sales of apps and in-app purchases.

This means that Facebook shares approximately a third of its advertising revenue with Apple.

Even a company like Match.com pays Apple $500 million per year to exist in the App Store.

This is the result of Apple’s superior products and cult following.

People buy iPhones because it’s the best product, and the App Store is loaded onto each of these devices.

The App Store generates massive amounts of revenue, which are invested into R&D to make Apple products even better.

Improved products and services result in more users (or more loyal existing users), making the App Store even more necessary for companies trying to reach their customers.

Companies don’t have a choice — pay to play or sit on the sidelines.

However, some companies are pushing back. The recent Spotify (SPOT) and Epic Games uproar has caused Apple to lower its take to 15%, but only for developers that make less than $1 million per year.

In summary, Apple enjoys a monopoly by owning the rails of distribution. Antitrust is coming.

#3. Most Exciting: Google (GOOG)

Google controls more than 92% of the search market, an operation that raked in $182 billion throughout the last fiscal year.

Advertising pays the bills, but Google has successfully diversified its revenue streams beyond Search.

YouTube is probably a $600 billion company by itself, and Google Cloud is growing responsibly.

However, Google’s less profitable, more secretive operations make it the “most exciting FAAMG stock,” in our estimation.

This includes projects like:

  • X – The Moonshot Factory (semi-secret R&D facility)
  • DeepMind (AI)
  • Waymo (self-driving cars)
  • Calico (biotech)

These long-term initiatives are subsidized by Google Search and will likely operate at a loss for many years to come.

But imagine a world where DeepMind or Calico eradicates disease and makes humans immortal.

Or a tier below that — Waymo beats Tesla (TSLA) and develops truly self-driving cars.

The first, second, and third-order consequences of these breakthroughs are unimaginable.

Paraphrasing Downtown Josh Brown, GOOG is an index fund for the future.

#4. Most Disruptable: Facebook (FB)

We believe that Facebook (as we know it today) is the most vulnerable to disruption amongst FAAMG.

There are lower barriers to entry for new social platforms compared to cloud computingenterprises and customer-obsessed logistic networks.

There are only two players in the digital advertising space: Facebook and Google (with Amazon clipping at their heels).

However, Facebook has a weaker moat than Google, given the number of other successful social platforms and a less dominant market share.

In addition, Facebook relies exclusively on advertising revenue.

Apple recently attacked this single-point-of-failure in its iOS 14 update by changing its privacy and app tracking rules.

This results in less effective ads on Facebook and Instagram, which means less revenue.

Zuckerberg has been trying to diversify Facebook’s revenue beyond advertising — adding Social Commerce to the platform via “Shops” and investing in longer-term technology like augmented and virtual reality.

Zuckerberg has made a career of identifying the impact of certain technological trends before the rest.

Facebook receives criticism for the billions it spends on AR and VR. Critics argue the applications of this technology are in the far too distant future to add value for FB shareholders.

But Zuckerberg is betting big on this space. Currently, one in five Facebook employees are working on AR and VR, some 10,000 in total.

Zuckerberg will probably have the last laugh, again.

#5. Biggest Question Mark: Microsoft (MSFT)

Microsoft has been going through a complicated transition since Satya Nadella took the reins from Steve Ballmer in 2014.

Nadella has gone all-in on cloud computing, a decision that ultimately saved Microsoft.

However, as pointed out by Alex Kantrowitz, the shift to cloud services puts many of Microsoft’s products at odds with each other.

For example, Microsoft Azure is making Windows obsolete.

As outlined in our MSFT forecast, the success of Azure, despite its contradictions to Windows, is preferable to a painful decline to irrelevance, but it’s still less than optimal.

Microsoft has the most questions to answer to remain amongst FAAMG.

Next FAAMG Addition: Stripe

This acronym is on its third iteration, most recently swapping Netflix (NFLX) for Microsoft.

First, it was FANG, then FAANG, and now FAAMG. It will likely change again.

Whether a letter is added, removed, or swapped remains to be seen, but many believe Stripe will tack an S on the end.

Stripe is a financial technology company that builds economic infrastructure for the internet. It is the toll collector of the internet.

Companies like Amazon (AMZN), Shopify (SHOP), Zoom (ZM), and Salesforce (CRM) rely on Stripe for payments.

Stripe is still a private company. It recently raised $600 million in its Series H round, which values the company at $95 billion.

Plans for its IPO have not been announced, but secondary market transactions priced Stripe in the $125 – $150 billion price range.

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Bottom Line: Which FAAMG Stock Is the Best?

“Best” isn’t the right word to use when analyzing these companies. Each of them has unique characteristics that make them special in different areas.

But “best” in terms of investment returns? Factoring in current price levels, the chance of disruption, and pending antitrust allegations, we believe Amazon and Google have the most potential moving forward.

This article is for informational purposes only. It is not intended to be investment advice.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and leading expert in investing and financial management. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and technologies that are improving the world.