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The stock market is full of acronyms – some are important, and others are not – but without a doubt, FAAMG is an acronym you want to know.
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What are FAAMG Stocks?
FAAMG is an abbreviation used to describe the top-performing tech stocks in the market, specifically Facebook, Amazon, Apple, Microsoft, and Alphabet’s Google.
FAAMG is the latest iteration of the acronym that previously included Netflix and excluded Apple (FANG, FAANG).
FAAMG stocks are famous for their incredible growth and influence across various industries.
While they are technology companies at their core, their ambitions extend beyond traditional market silos.
Some fear FAAMG companies are becoming too big and are demonstrating anti-competitive practices.
On July 29, 2020, the CEOs of Facebook, Apple, Amazon, and Google were hauled before Congress to testify against antitrust allegations.
Understanding the FAAMG Stocks
FAAMG stocks makeup around 18% of the overall U.S. stock market in terms of market cap but nearly 25% in terms of profit.
This is why Big Tech is said to “drive” the market – it has a massive allocation in large indices like the S&P 500 and Nasdaq.
There are only five U.S. companies with market capitalizations above $1 trillion, and each of them represents a letter in FAAMG.
Here are the market caps of the FAAMG stocks:
- Apple: $2.4 trillion
- Microsoft: $2.1 trillion
- Google: $1.8 trillion
- Amazon: $1.7 trillion
- Facebook: $957 billion
These companies grew at unprecedented rates because of their ability to scale by leveraging the internet.
Historically, a company’s growth slows as it becomes larger, but FAAMG continues to grow and innovate faster than mega-caps ever have before.
Packy McCormack argues that FAAMG companies’ market caps are the most important numbers in the market.
Consciously or not, investors are pegging their private and public tech company investments against them.
Packy shares an interesting way to value high-potential tech companies: Price / FAAMG Ratio, or a probability that the company will become as big as today’s biggest.
This further reveals the influence of FAAMG companies in the public and private markets.
Is FAAMG a Bubble?
Some speculate that FAAMG’s large concentration in the major indices makes the rest of the market more vulnerable to a crash.
A major pullback in Big Tech could be the first domino to fall that sparks a market nosedive.
However, these five companies are not like the ones that crashed and burned in the dot-com bubble – they are high-quality businesses that are innovation-obsessed to drive down costs and increase profits.
We’re not saying FAAMG companies are immune to 20% slides or multi-year bear markets, but we don’t believe they’re “bubbly” like other technology stocks may be.
Whether they all remain at the top remains to be seen – but FAAMG companies are here to stay.
FAAMG vs FAANG
CNBC’s “Mad Money” host Jim Cramer coined the acronym “FANG” in 2013 to describe the high-growth internet stocks Facebook, Amazon, Netflix, and Alphabet’s Google.
Four years later, Apple was added, causing it to be rewritten as “FAANG” (but not much a difference in its pronunciation).
As you can probably guess, Microsoft replaced Netflix in 2020. The abbreviation was changed once again, arriving at its current iteration of FAAMG, which is much harder to say.
Some suggest that Netflix was removed because it’s a consumer services and media company, but we believe it was cut because of its much smaller market cap and failure to keep up Big Tech as we know it today.
While Netflix (NFLX) is one of Silicon Valley’s best success stories, its $265 billion market cap makes it the 31st largest public company globally – a bit too small to be seated amongst the tech titans.
FAAMG (A Closer Look)
Let’s briefly highlight each FAAMG company and provide some insight into their DNA.
#1. Facebook (FB)
In 2004, a Harvard student named Mark Zuckerberg launched a social media website called “The Facebook” to connect his fellow college students with one another.
It has since become the world’s best data collector. Many consider it to be the most powerful company on the planet.
If data is truly the “new oil,” then Facebook’s 2.7 billion users suggest the company is sitting pretty.
Facebook makes money by selling advertisements on its platform. In 2020, 98% of Facebook’s global revenue was generated from ads, coming in around $86 billion.
An astonishing 86% of all marketers use Facebook to promote their brand.
Facebook Fun Fact
Facebook acquired Instagram in 2012 for $1 billion. Some call this the best acquisition in Silicon Valley’s history as Instagram is now estimated to be worth more than $100 billion if it were a stand-alone company.
#2. Amazon (AMZN)
Jeff Bezos founded Amazon in 1994, which originally was an online bookstore but quickly diversified its operations into every category of retail.
Nearly two decades later, the customer-obsessed marketplace became the largest online shopping retailer in the world.
But Amazon’s ambitions extend far beyond quick deliveries, made evident by the wide range of companies that it has founded or acquired:
- Blue Origin (space travel)
- Whole Foods (grocery)
- Amazon Web Services (cloud computing)
- Twitch (video games)
- PillPack (pharmacy)
- And the Oscar-winning Amazon Studios (entertainment).
Amazon Fun Fact
Amazon Web Services (AWS) grew 37% year over year in the second quarter of 2021, with revenue totaling $14.81 billion in the quarter alone.
AWS would be one of the most valuable businesses globally if it were to be a stand-alone company.
Essentially, AWS’s profits subsidize the rest of Amazon’s ambitious pursuits and allow them to operate at net losses, such as Amazon Studios.
Many believe that Amazon will proactively spin-off AWS before regulators force it to because of “anti-competitive” behavior.
#3. Apple (AAPL)
Apple was founded by Steve Jobs and Steve Wozniak in 1976 and sold computers out of the home of Jobs’ parents.
Jobs was the visionary that crafted Apple’s legendary aesthetics, but Wozniak was the engineer and programmer that brought Jobs’ designs to life.
Apple’s watershed moment was the launch of Macintosh in 1984, which benefited from what many consider the greatest TV advertisement of all time – the 1984 commercial that aired during Super Bowl XVIII.
Today, Apple is regarded as the best brand on Earth and has more than 1.5 billion users. It is actively expanding its hardware and software capabilities by competing in markets beyond computers and phones.
For example, Apple Pay is taking on mobile wallets and payments. The Apple Watch is dominating fitness wearables. AirPods are replacing Bose and Beats, and the Apple Car is planning to rival Tesla (TSLA).
Apple Fun Fact
In 2019, the AirPods product generated enough revenue to value it as a $175+ billion company if it were a stand-alone operation.
At the time, this would have made “AirPods Inc.” the 32nd largest company in the world.
#4. Microsoft (MSFT)
Microsoft was founded in 1975 by childhood friends Bill Gates and the late Paul Allen.
The two were fortunate enough to attend one of the only high schools in the world with access to a computer at the time, which sparked their interest and love for software.
Microsoft began dominating the operating system market in the mid-1980s and hasn’t looked back since.
Today, the company has diversified its business into more than just software.
It now has a suite of hardware devices like Xbox and tablets, a social media platform in LinkedIn, and the second-largest cloud computing business in Microsoft Azure.
While Microsoft’s margins expanded under Gates’ successor, Steve Ballmer, its innovation suffered.
The company became too reliant on one product: Windows. They missed the ball on mobile devices and let Apple control the entire market.
Since Satya Nadella took over as CEO in 2014, the company has embraced its technical roots again. It has doubled down on its cloud computing services – causing Wall Street to get excited about the company’s future.
Microsoft Fun Fact
Microsoft saved Apple from bankruptcy in 1997 when Bill Gates offered Steve Jobs a $150 million loan to keep Apple above water.
In exchange, Jobs dropped several lawsuits Apple filed against Microsoft.
However, the real reason Gates made the deal was to create competition in the computing market to prevent the U.S. government from breaking Microsoft up for its monopolistic presence.
#5. Alphabet’s Google (GOOG, GOOGL)
Google was founded in 1998 by Larry Page and Sergey Brin while they were PhD students at Stanford University.
The duo developed an algorithm that improved the conventional search engine system, which focused on the relationship among websites instead of just counting how many times the search term appeared on the page.
Like the startups mentioned in this article, Google’s original HQ was a garage in Silicon Valley.
The young company experienced massive growth when it began selling advertisements associated with search keywords in 2000, a strategy originally opposed by Page by Brine.
While most of Google’s revenue comes from search advertising ($182 billion in 2020), it is more than just a search engine, hence its creation of the parent company Alphabet in 2015.
Although Google and its suite of services like Search, Maps, and Gmail remain Alphabet’s leading subsidiary, it has an Amazonian pursuit to dominate several industries.
For example, Google owns or operates:
- YouTube (video platform monopoly)
- Google Cloud (cloud computing)
- Android (phone and mobile operating system)
- Waymo (self-driving taxi service)
- X (semi-secret R&D organization)
- DeepMind (AI research lab)
- Calico (Biotech)
- Wing (drones)
These are just a few of the companies Google owns. Google continues to push innovation, bring ideas to life, and make our lives easier.
Google Fun Fact
More than 500 hours of video are uploaded to YouTube every minute, equating to approximately 30,000 hours of newly uploaded content per hour.
How to Invest in FAAMG Stocks
While it’s perfectly fine to individually invest in each FAAMG company, another option is to consider a tech-heavy ETF to achieve more diversification.
We recommend the following sector ETFs to gain exposure to FAAMG stocks and competitors:
- Invesco QQQ Trust Series 1 (QQQ)
- Vanguard Information Technology ETF (VGT)
- Technology Select Sector SPDR Fund (XLK)
They each offer top of the line security, customer support, and personalized investing options.
How to Research FAAMG Stocks
There is no better place to stay up to date on FAAMG stocks than the Motley Fool. Their team of researchers, analysts, and contributors will provide you with daily, expert-level insights into all-things FAAMG.
You can’t afford to miss out on their market tips – if anyone is going to predict the next company to change the FAAMG acronym, it’s the Motley Fool.
Learn More: Motley Fool Review
FAAMG Stocks FAQ
Why is Microsoft not in FAANG?
Microsoft was added to the high-growth tech group in 2020, and FAANG turned into FAAMG.
Microsoft replaced Netflix because of its much higher market cap and influence in the technology space.
What are FANG stocks?
FANG was an acronym created in 2013 by Jim Cramer to describe the high-growth tech stocks Facebook, Amazon, Netflix, and Google.
Today, the abbreviation is FAAMG, which was updated to reflect Apple and Microsoft’s additions and the removal of Netflix.
Is it FAANG or FANG?
FANG came before FAANG – the only difference being that one acronym includes Apple while the other does not. Apple was added to the elite group in 2017.
What are tech stocks?
Tech stocks refer to any stock involved in the technology industry, from software providers to electric vehicle companies.
However, as our society’s technological capabilities expand, more types of companies embrace technology than ever before, resulting in “tech” getting amended too almost everything. For example, FinTech, BioTech, AgriTech, CyberTech, etc.
What is the best FAAMG stock?
The best FAAMG stock depends on which metric you define as “best” because each company is distinct from one another.
The best advertisers are Facebook and Google. The best brand is Apple. The best retailer is Amazon, and the best software provider is Microsoft.
However, we’d choose Amazon as the best FAAMG company – if we had to pick – because of its “moat” or ability to maintain competitive advantages over its competitors.
Bottom Line: FAAMG Stocks
Facebook, Amazon, Apple, Microsoft, and Google are among the best companies on this planet.
While their business models are distinct from each other, they all use and develop cutting edge technology to provide value to their customers.
This article is for informational purposes only. It is not intended to be investment advice.