It’s no secret that Big Tech has an outsized influence on the larger market. In fact, as of July 2021, five mega-companies accounted for nearly a quarter of the S&P 500. These five include the so-called FAAMG companies:
- Facebook (FB) – market cap $995 billion
- Apple (AAPL) – market cap $2.4 trillion
- Amazon (AMZN) – market cap $1.72 trillion
- Microsoft (MSFT) – market cap $2.21 trillion
- Alphabet (GOOG) – market cap $1.88 trillion
When the FAAMG stocks are combined with other growing tech companies like Netflix (market cap $262 billion), it is clear that the economy – and individual portfolios – depend on the health of technology stocks.
Microsoft is in a class by itself, and dozens of analysts consistently recommend that investors buy Microsoft stock. The real debate is between FAANG stocks – Facebook, Apple, Amazon, Netflix, and Google.
Which is the best FAANG stock for investors looking to harness the growth of technology companies in their otherwise balanced portfolios?
Is Facebook Stock a Buy?
The end of 2020 and the start of 2021 was a difficult time for Facebook (FB).
The company faced pressure from regulators, criticism of its inability to quash misinformation and hate speech on the platform, and declining revenue growth per user.
Many respected analysts lost interest in Facebook stock, and there was a general sense that it was time to sell.
However, despite its challenges, Facebook rallied in the first half of 2021. Its core advertising business regained traction, and revenue growth per user started trending upward again. In fact, Facebook saw four consecutive quarters of growth in this metric through the second quarter of 2021.
Between the main Facebook platform, Facebook Messenger, WhatsApp, and Instagram, 3.51 billion unique users log into one or more of the social media giant’s apps every month. That figure is rising, along with the average revenue per person (ARRP), which hit $8.31 per person in the most recent quarter.
Those gains pushed Facebook’s share price up by more than 30 percent year-to-date.
Though the second half of the year is projected to be slightly less impressive, the company has a solid strategic plan for the coming year. It is expanding the Facebook “metaverse” through its virtual and augmented reality products, which will ultimately reduce the company’s dependence on ad revenue to generate profit.
With so much positive news, one might suppose that Facebook stock is sky-high – but it’s not. As compared to its potential for growth, Facebook is on the cusp of being undervalued – that makes Facebook stock a buy.
The Advantages of Apple Stock
Has there ever been a time when Apple (AAPL) wasn’t leading the world in technological advancements?
Certainly, the company has had its ups and downs, but its growth under founder and CEO Steve Jobs was nothing short of extraordinary.
In fact, since the company held its IPO in December 1980, share prices have increased by an astonishing 363,325 percent.
Apple stock has gone up more than 25 percent in the past 12 months alone due to the excitement surrounding the latest and greatest versions of the iPhone. The newest models have 5G capability, which promises to open the door to all sorts of new features for users.
Of course, that constant growth has some investors concerned. The company can’t continue expanding at such a rapid rate forever… Can it? And if the rate of growth slows, does that mean new investors are too late to see meaningful returns?
The naysayers aren’t entirely wrong. In the first three quarters of fiscal 2021, Apple generated 54 percent of its revenue from iPhones. A significant portion of related iPhone sales were attributed to an interest in upgrading to 5G technology. If true, iPhone sales will slow relatively soon.
With that said, a majority of those who monitor and analyze Apple’s every move are convinced that the company has more growth in its future.
While it may not duplicate the past 40 years, it has plenty of lucrative projects in the works. For example, Apple is focused on developing augmented reality technology, and it is expanding the Apple ecosystem to include subscription-based services. Eventually, growth in these types of products will offset declines in iPhone sales.
Apple stock isn’t unreasonably expensive as compared to other technology companies. That fact, coupled with Apple’s unique genius for industry-leading products, has most analysts convinced that Apple stock is a buy.
Will Amazon Stock Go Up?
Amazon (AMZN) isn’t a one-trick pony.
In addition to chipping away at the market share of brick-and-mortar retailers, it is leading the cloud computing industry by a large margin.
Both businesses are rapidly expanding as the world relies more heavily on digital services to live, work, and play.
On top of these two critical operations, Amazon is growing in other areas like advertising, third-party seller services, and subscription services.
Amazon is also making inroads in the massive US healthcare market with prescription drugs and telehealth projects.
In short, Amazon has a long list of opportunities to continue its rapid growth rate, though it is already the fifth-largest company in the world.
It’s true that Amazon stock is on the expensive side by any measure. For example, its price-to-earnings ratio is over 59, which is more than double the average for other S&P 500 companies. However, the fact that Amazon shares are on the high side doesn’t negate their potential for delivering long-term returns.
Analysts generally agree that the company could see earnings per share grow by an average of 36 percent per year for the next five years.
In the past five years, Amazon shares have gained more than 300 percent, and that’s during a period when e-commerce and cloud computing were just starting to gain mainstream support. Both are now widely accepted as must-haves, but plenty of consumers and businesses have yet to make the transition.
Since no company is better prepared to take advantage of continued growth in e-commerce and cloud computing, Amazon stock is a buy.
Should I Buy Netflix Stock?
Netflix (NFLX) is credited with single-handedly creating the streaming video market after it started offering the service alongside its wildly popular DVDs-by-mail in 2007.
It quickly mastered the nuances of streaming technology to offer the best user experience and the most advanced features – a combination that put it in an industry leadership position.
To date, no other company has managed to dislodge Netflix from the top spot – or even pull customers away from the streaming giant. At best, some of the more popular newcomers have persuaded consumers to subscribe in addition to their existing Netflix memberships.
Netflix has two advantages that other streaming services have been unable to duplicate.
First, it has decades of user data that it has thoroughly mined to ensure it meets the very specific expectations of niche subscriber groups, regardless of their interests and location.
Second, Netflix has invested heavily in producing high-quality original content. That alone keeps existing members enrolled and new subscribers coming because they can’t stream the exclusive programming anywhere else.
When COVID-19 caused lockdowns and quarantines around the world, Netflix was there to keep homebound subscribers entertained. That led to massive gains in 2020 that are unlikely to be matched in 2021.
Brief year-over-year declines in subscriber growth rates and similar may cause temporary dips in Netflix’s share price. If that happens, most analysts agree those dips will be the best time to buy Netflix stock.
Will Alphabet/Google Stock Go Down?
Alphabet (GOOG) is still the world leader in online search, and its ability to generate ad revenue is second-to-none.
Parent company Alphabet has had a banner year, and the stock has outperformed FAANG peers Facebook, Amazon, and Netflix.
Year-to-date, Alphabet/Google stock is up by 63 percent, due in part to the reopening of many economies after pandemic-related shutdowns.
Ad revenue had declined when businesses closed, but it appears advertising volume has fully recovered and topped its previous heights.
Whether under the Google business unit or through Alphabet’s other divisions, the company is deeply invested in expanding its reach into areas outside of search engine advertising.
Artificial Intelligence is a top priority for the company, and it is investing heavily in its cloud computing infrastructure.
Under Alphabet’s “Moonshot” collection of projects, it is well into the development of an autonomous vehicle, and its Verily life sciences unit is considering an IPO of its own.
All in all, Alphabet/Google is likely to continue growing and expanding its business, though many analysts believe it won’t see the dramatic increase in share prices that marked its early years.
In short, Alphabet/Google stock is a buy, if for no other reason than it is very likely to produce reliable returns year after year.
Best FAANG Stock: The Bottom Line
Choosing between five top-notch stocks is a near-impossible task. After all, each has strengths that indicate shareholders will benefit long-term. However, if you have to pick, Amazon is the best FAANG stock to buy now. Between growth in adoption of e-commerce and cloud computing – not to mention the Amazon Prime streaming service and other projects – Amazon has more potential than its FAANG peers to outperform.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.