25 ms·

The FAANG Market Is Fading

88 points by woldemariam 5y ago

adventured 5y ago
AAPL $2.65t, MSFT $2.47t, GOOGL $1.89t, AMZN $1.72t, TSLA $1t, FB $853b, NVDA $764b Right now that's reasonably big tech in terms of publicly traded US tech companies. Everybody else is a long ways down. So. BRK $621b, JPM $476b, JNJ $419b, PG $362b, DIS $265b, KO $231b, VZ $215b, MCD $186b, BA $116, CAT $107b, MMM $100b All of those companies combined will fit inside Apple's valuation at the rate things are going. And just about every old-line blue chip with a consequential market cap is somewhere between pathetically slow growth and stagnant. Meanwhile big tech is still expanding. And you can replace any number of those companies with others, whether HD, or AT&T (T) or WMT or LOW or PEP or TGT, with much the same outcome. This article is, you guessed it, laughably, embarrassingly, false. Big tech will keep getting bigger in relation to most of the other quasi rotting blue chips. There is nothing coming up that will prompt a massive expansion of the old blue chips such that they're going to retake ground against big tech (not unless one believes all of big tech will be smashed to pieces by anti-trust - never gonna happen). The China boom is largely over, which means these old blue chips can't look forward to sucking off of that market any longer and there is no next China (nothing remotely comparable to that extreme of a boom). Are railroads and airlines going to start suddenly growing at 50% per year? Of course not. Productivity is about to skyrocket? Of course not. The US is going to suddenly take over the world's steel production? GM and Ford are going to put all of Germany and Japan's automakers out of business and every human on the planet is going to buy an extra vehicle? For no apparent reason companies like 3M are going to start growing rapidly? Pepsi and Coke are going to sell 2x the sugar water in an era that is turning against their core products (check out how pathetic Coke's business has been over the last 5-10 years)? How about big pharma, PFE's ass got saved by Covid, at least temporarily, as the vaccine threw them a bone. McDonald's, after so many years of stagnation (and given their saturation), is suddenly going to become a nice place to eat and start selling 2x the fries and burgers? Of course not. Americans are going to start buying a lot more Kraft box pasta or Heinz ketchup or Oreo's from Mondelez or soup from Campbell's? Of course not, it's all slow growth garbage. Campbell's is on a rocket ship to becoming a juggernaut $300 billion soup empire! Yeah, bullshit. And so on it goes. For most of these companies, if they're lucky, they'll have just enough pricing power to keep up with dollar debasement and not lose real ground over this decade. More likely some of these garbage companies like MCD or KO will lose 1/4 or more of their real business to USD erosion as their customers can't (and won't) pay $5 for a 20oz soda or $6 for fries. These companies have struggled for many years to gain ground in real-terms prior to the recent wave of inflation, it's only going to get more difficult for them (consumers will be trapped in hell between higher prices and eroding real household purchasing power, and that's all assuming household debt doesn't get more expensive (it's historically cheap)). If anything, the old blue chips will rot further and big tech will gain even more ground, over the next 3-5 years. Even if this market declines, relatively speaking big tech is still likely to take ground over time against the rest of the market.
- FredPret 5y ago
  You make some good points. However, note that there is a very long way to go for traditional industries. China is one big chunk of people, and they may be in for a rough couple of decades with their recent return to hardcore communism, but there is a lot of room to grow there still. And there is India and all of Africa. Untold numbers of people in the third world are rapidly approaching middle-class status, buying fridges and cars and so on. This will have the concomitant effects on the rest of the economic ecosystem, and tech will ultimately gain even more from more rich consumers. But it's not game over for the big old juggernauts.
  - adventured 5y ago
    If any of that were true, we'd have seen it in the old-line industries sales growth during the last five years. That hasn't been the case at all (and wasn't prior to Covid either). Global growth is not going to accelerate in some great way this decade, it's going to be mediocre as China struggles mightily with growth and debt, among other serious problems. Japan, Germany, Britain, France will all remain stagnant (as they have for most of the past decade plus net). Other Asia will produce growth, but there's no guarantee US industrials will have great access to that growth; if those countries (eg Vietnam, Indonesia, India, etc) are smart, they'll pull a China and favor their own domestic context as they grow (which India already does quite a bit of for its part). > Untold numbers of people in the third world are rapidly approaching middle-class status, buying fridges and cars and so on Not made in America fridges or cars. Those fridges won't likely be made by US companies in Asia, either. Not cars made by GM or Ford (trucks actually, as they hardly make cars these days). And those relatively poor global median consumers can't afford Teslas (now or in 20 years). And those emerging consumers aren't buying $45,000 US trucks either. The best case scenario for old US industry is to tread water, to not lose ground while sparring with China and all the other emerging market companies. Most of the major emerging markets are going to come up ready to fight with their own champions, as China has (although not as potently as they've done it). The US old-line companies are at risk of getting their collective head punched in as a lot of new companies come up out of emerging markets looking to dethrone them. Mid-tier manufacturing will plausibly see a huge threat from emerging market companies pushing up the value chain, while high-tier manufacturing is absolutely going to take a direct assault from China (Boeing, Deere, autos, semiconductors, et al.). As it pertains to the US, the only type of company I'd be interested in being over the next decade, is a tech company with (ideally) global use potential. Everything else is largely going to suck big time, either due to pricing power problems with USD erosion domestically (constant battle there), or intense competition problems overseas (and or market access problems in locations like China). An extra aside: along with particularly not wanting to be Boeing this decade, I wouldn't want to be Starbucks (just wait until you see what China does to them).
sofard 5y ago
I don't know if "% of total returns" is a fair metric. As a percentage of market cap, they still dominate the S&P500. Not to mention every asset manager has to own them otherwise they risk looking stupid. They're today's bluechip, for better or for worse.
ferdowsi 5y ago
It's beyond time to retire the FAANG acronym. At one point it signaled a group of companies that were dynamic players that were (to various extents) disrupting the existing business landscape. Now these companies are incumbent behemoths asking to be taken down in the same manner.
- ralusek 5y ago
  So long as the acronym has utility for identifying something in a more concise way than the alternatives, people are probably going to keep using it. Incumbent behemoths still need names.
- alexpetralia 5y ago
  Is that from where the acronym emerged? I thought it was really an investing term, which described tech stocks with tremendous returns. I did not think "dynamism" was part of it.
- deleted 5y ago
  [deleted]
- hammock 5y ago
  Remember when the BRICs were a trendy acronym? Obviously the individual parts have some relevance but not sure if the BRIC entity as a whole ever really meant as much as it was promised.
  - ghaff 5y ago
    BRIC was basically up and coming geos. (Obviously an oversimplification.) China became something much different (ADDED: and more complicated) from the other three. And the other three arguably didn't grow as much in relative economic importance as the acronym implied they would.
    - hammock 5y ago
      Exactly. Didn't turn out as promised.
Retric 5y ago
“So, to create a more useful comparison point, we're excluding those three years from our long-term average.” Sure, look at a few years while excluding ~1/4 of the data and I am convinced your analysis is just great.
- inshadows 5y ago
  Was just frowning when I read "For example, the three largest stocks accounted for less than 10% of returns in most years since 2009, and often just in the very low single digits." and saw that it was above 10% in 4 of 12 months in the table. What the hell, who is this text for?
- tedmiston 5y ago
  Same thought... Our trend looks great if we ignore 30% of the data that are massive and significant outliers :/.
neilo40 5y ago
FAANG is dead. Long live MANAMA! (Microsoft, Apple, Netflix, Alphabet, Meta, Amazon) Silly, I know but I’ve always wondered why Microsoft was left out of the original 5
- 2OEH8eoCRo0 5y ago
  I call the big 4 antitrust cartel the FAAG (Facebook, Apple, Amazon, Google) because I'm childish.
  - serverholic 5y ago
    I've made a similar joke that the N in FAANG really holds the whole thing together.
  - asiachick 5y ago
    They call it GAFA on Japanese news https://www.youtube.com/watch?v=gU6QVlPq4gA https://www.youtube.com/watch?v=gU6QVlPq4gA
  - vore 5y ago
    Don't throw around slurs like that.
    - 2OEH8eoCRo0 5y ago
      Don't tell me what to do. I try to assume good intentions. The word you're referring to has multiple meanings.
      - vore 5y ago
        This is the least good intentioned response you could have made.
- detaro 5y ago
  Because FAANG was a stock market term for "hot tech stocks", and Microsoft was old and not-hot at the time.
Incerto 5y ago
Shouldn't we be calling it MANGA now?
- red_trumpet 5y ago
  If you change Facebook to Meta, you also should change Google to Alphabet, right?
  - outsomnia 5y ago
    MAAAN...
  - endisneigh 5y ago
    Google did not change its name to Alphabet, nor has the ticker changed. Don't know why people keep saying this.
    - nostrademons 5y ago
      Sort of. GOOG(L) the ticker now represents Alphabet - when you buy GOOG, you are also getting shares of Waymo, Verily, Calico, and the rest of the "Other Bets". In that sense, Google did change its name to Alphabet. OTOH, Google as a separate company still exists within the Alphabet umbrella, and Google employees remain employees of Google (though they get Alphabet stock compensation). Also Waymo employees do not get GOOG stock (they get Waymo stock, which is currently privately held and majority-owned by Alphabet), so there is a real distinction between them.
cblconfederate 5y ago
Maybe that s why Elon, Nadella, Bezos are selling lately
- mattferderer 5y ago
  Might also have something to do with taxes. Washington state is increasing capital gains tax next year. +7% I believe. Elon had options expiring soon & was forced to. Might be other reasons but those should not be overlooked.
chris_wot 5y ago
It's a MAANG market now, I guess. Can't wait for it to be the AANG market. Or perhaps the NAGA or NAAG market. Perhaps the GAAN market might be inappropriate.
- dryst 5y ago
  You seriously just going roll right past MANGA like that?
  - chris_wot 5y ago
    Oh dear god, you are right. Missed it completely!
ultrasounder 5y ago
FAANGMULATAD-FacebookAppleAmazonNetflixGoogleMicrosoftUberLyftAirBnBTwitterAlphabetDropbox Attribution- Blind
- gibbonsrcool 5y ago
  Square Salesforce Shopify Stripe SpaceX Netflix Alphabet Apple Amazon AirBnb Krispy-Kreme Equinix Zoom "SSSSSnaaaakez"
  - prog5 5y ago
    dang why u gotta throw krispy kreme under the bus like that!
    - xchaotic 5y ago
      it's probably a blockchain-cannabis tech company by now (to boost stock price)
- fouc 5y ago
  Alphabet = Google
jstx1 5y ago
Saying that they're fading because they grew more last year is oversimplifiing things just to get a headline.
- wepple 5y ago
  Exactly, it’s an absurd headline. Their influence over growth has gone back to more-or-less normal. This article says very little of value.
DeathArrow 5y ago
Time to short FAANG and TSLA. :)
mro_name 5y ago
nice, that my lightning talk at 35c3 (2018) turned out so effective: https://media.ccc.de/v/35c3-9566-lightning_talks_day_2#t=3337 https://media.ccc.de/v/35c3-9566-lightning_talks_day_2#t=333...
inshadows 5y ago
Can someone help me translate To measure just how concentrated stock returns have been, we calculated the impact that the 10 largest stocks have had on the Morningstar US Large-Mid Index, which essentially tracks 90% of the stock market. We took the 10 largest stocks at the end of each year going back to 2009, and using Morningstar Direct's equity attribution tool, excluded their returns from the index's performance and compared that number with each year's total return. into mathematics so I can interpret the percentages in the table below? Why do people involved in finance hate mathematics so much? Is it obvious to everyone? EDIT: I think it is: returns_of_index_per_year - returns_of_index_minus_returns_of_top_N_stocks_per_year EDIT 2: What does "Cumulative Market Impact" mean? When you google it or "Market Impact" it gives bunch of unrelated measures... Finance jargon is such a mess.

88 points by woldemariam 5y ago

AAPL $2.65t, MSFT $2.47t, GOOGL $1.89t, AMZN $1.72t, TSLA $1t, FB $853b, NVDA $764b Right now that's reasonably big tech in terms of publicly traded US tech companies. Everybody else is a long ways down. So. BRK $621b, JPM $476b, JNJ $419b, PG $362b, DIS $265b, KO $231b, VZ $215b, MCD $186b, BA $116, CAT $107b, MMM $100b All of those companies combined will fit inside Apple's valuation at the rate things are going. And just about every old-line blue chip with a consequential market cap is somewhere between pathetically slow growth and stagnant. Meanwhile big tech is still expanding. And you can replace any number of those companies with others, whether HD, or AT&T (T) or WMT or LOW or PEP or TGT, with much the same outcome. This article is, you guessed it, laughably, embarrassingly, false. Big tech will keep getting bigger in relation to most of the other quasi rotting blue chips. There is nothing coming up that will prompt a massive expansion of the old blue chips such that they're going to retake ground against big tech (not unless one believes all of big tech will be smashed to pieces by anti-trust - never gonna happen). The China boom is largely over, which means these old blue chips can't look forward to sucking off of that market any longer and there is no next China (nothing remotely comparable to that extreme of a boom). Are railroads and airlines going to start suddenly growing at 50% per year? Of course not. Productivity is about to skyrocket? Of course not. The US is going to suddenly take over the world's steel production? GM and Ford are going to put all of Germany and Japan's automakers out of business and every human on the planet is going to buy an extra vehicle? For no apparent reason companies like 3M are going to start growing rapidly? Pepsi and Coke are going to sell 2x the sugar water in an era that is turning against their core products (check out how pathetic Coke's business has been over the last 5-10 years)? How about big pharma, PFE's ass got saved by Covid, at least temporarily, as the vaccine threw them a bone. McDonald's, after so many years of stagnation (and given their saturation), is suddenly going to become a nice place to eat and start selling 2x the fries and burgers? Of course not. Americans are going to start buying a lot more Kraft box pasta or Heinz ketchup or Oreo's from Mondelez or soup from Campbell's? Of course not, it's all slow growth garbage. Campbell's is on a rocket ship to becoming a juggernaut $300 billion soup empire! Yeah, bullshit. And so on it goes. For most of these companies, if they're lucky, they'll have just enough pricing power to keep up with dollar debasement and not lose real ground over this decade. More likely some of these garbage companies like MCD or KO will lose 1/4 or more of their real business to USD erosion as their customers can't (and won't) pay $5 for a 20oz soda or $6 for fries. These companies have struggled for many years to gain ground in real-terms prior to the recent wave of inflation, it's only going to get more difficult for them (consumers will be trapped in hell between higher prices and eroding real household purchasing power, and that's all assuming household debt doesn't get more expensive (it's historically cheap)). If anything, the old blue chips will rot further and big tech will gain even more ground, over the next 3-5 years. Even if this market declines, relatively speaking big tech is still likely to take ground over time against the rest of the market.

FredPret 5y ago
You make some good points. However, note that there is a very long way to go for traditional industries. China is one big chunk of people, and they may be in for a rough couple of decades with their recent return to hardcore communism, but there is a lot of room to grow there still. And there is India and all of Africa. Untold numbers of people in the third world are rapidly approaching middle-class status, buying fridges and cars and so on. This will have the concomitant effects on the rest of the economic ecosystem, and tech will ultimately gain even more from more rich consumers. But it's not game over for the big old juggernauts.
- adventured 5y ago
  If any of that were true, we'd have seen it in the old-line industries sales growth during the last five years. That hasn't been the case at all (and wasn't prior to Covid either). Global growth is not going to accelerate in some great way this decade, it's going to be mediocre as China struggles mightily with growth and debt, among other serious problems. Japan, Germany, Britain, France will all remain stagnant (as they have for most of the past decade plus net). Other Asia will produce growth, but there's no guarantee US industrials will have great access to that growth; if those countries (eg Vietnam, Indonesia, India, etc) are smart, they'll pull a China and favor their own domestic context as they grow (which India already does quite a bit of for its part). > Untold numbers of people in the third world are rapidly approaching middle-class status, buying fridges and cars and so on Not made in America fridges or cars. Those fridges won't likely be made by US companies in Asia, either. Not cars made by GM or Ford (trucks actually, as they hardly make cars these days). And those relatively poor global median consumers can't afford Teslas (now or in 20 years). And those emerging consumers aren't buying $45,000 US trucks either. The best case scenario for old US industry is to tread water, to not lose ground while sparring with China and all the other emerging market companies. Most of the major emerging markets are going to come up ready to fight with their own champions, as China has (although not as potently as they've done it). The US old-line companies are at risk of getting their collective head punched in as a lot of new companies come up out of emerging markets looking to dethrone them. Mid-tier manufacturing will plausibly see a huge threat from emerging market companies pushing up the value chain, while high-tier manufacturing is absolutely going to take a direct assault from China (Boeing, Deere, autos, semiconductors, et al.). As it pertains to the US, the only type of company I'd be interested in being over the next decade, is a tech company with (ideally) global use potential. Everything else is largely going to suck big time, either due to pricing power problems with USD erosion domestically (constant battle there), or intense competition problems overseas (and or market access problems in locations like China). An extra aside: along with particularly not wanting to be Boeing this decade, I wouldn't want to be Starbucks (just wait until you see what China does to them).

sofard 5y ago

I don't know if "% of total returns" is a fair metric. As a percentage of market cap, they still dominate the S&P500. Not to mention every asset manager has to own them otherwise they risk looking stupid. They're today's bluechip, for better or for worse.

ferdowsi 5y ago

It's beyond time to retire the FAANG acronym. At one point it signaled a group of companies that were dynamic players that were (to various extents) disrupting the existing business landscape. Now these companies are incumbent behemoths asking to be taken down in the same manner.

ralusek 5y ago
So long as the acronym has utility for identifying something in a more concise way than the alternatives, people are probably going to keep using it. Incumbent behemoths still need names.
alexpetralia 5y ago
Is that from where the acronym emerged? I thought it was really an investing term, which described tech stocks with tremendous returns. I did not think "dynamism" was part of it.
deleted 5y ago
[deleted]
hammock 5y ago
Remember when the BRICs were a trendy acronym? Obviously the individual parts have some relevance but not sure if the BRIC entity as a whole ever really meant as much as it was promised.
- ghaff 5y ago
  BRIC was basically up and coming geos. (Obviously an oversimplification.) China became something much different (ADDED: and more complicated) from the other three. And the other three arguably didn't grow as much in relative economic importance as the acronym implied they would.
  - hammock 5y ago
    Exactly. Didn't turn out as promised.

Retric 5y ago

“So, to create a more useful comparison point, we're excluding those three years from our long-term average.” Sure, look at a few years while excluding ~1/4 of the data and I am convinced your analysis is just great.

inshadows 5y ago
Was just frowning when I read "For example, the three largest stocks accounted for less than 10% of returns in most years since 2009, and often just in the very low single digits." and saw that it was above 10% in 4 of 12 months in the table. What the hell, who is this text for?
tedmiston 5y ago
Same thought... Our trend looks great if we ignore 30% of the data that are massive and significant outliers :/.

neilo40 5y ago

FAANG is dead. Long live MANAMA! (Microsoft, Apple, Netflix, Alphabet, Meta, Amazon) Silly, I know but I’ve always wondered why Microsoft was left out of the original 5

2OEH8eoCRo0 5y ago
I call the big 4 antitrust cartel the FAAG (Facebook, Apple, Amazon, Google) because I'm childish.
- serverholic 5y ago
  I've made a similar joke that the N in FAANG really holds the whole thing together.
- asiachick 5y ago
  They call it GAFA on Japanese news https://www.youtube.com/watch?v=gU6QVlPq4gA https://www.youtube.com/watch?v=gU6QVlPq4gA
- vore 5y ago
  Don't throw around slurs like that.
  - 2OEH8eoCRo0 5y ago
    Don't tell me what to do. I try to assume good intentions. The word you're referring to has multiple meanings.
    - vore 5y ago
      This is the least good intentioned response you could have made.
detaro 5y ago
Because FAANG was a stock market term for "hot tech stocks", and Microsoft was old and not-hot at the time.

Incerto 5y ago

Shouldn't we be calling it MANGA now?

red_trumpet 5y ago
If you change Facebook to Meta, you also should change Google to Alphabet, right?
- outsomnia 5y ago
  MAAAN...
- endisneigh 5y ago
  Google did not change its name to Alphabet, nor has the ticker changed. Don't know why people keep saying this.
  - nostrademons 5y ago
    Sort of. GOOG(L) the ticker now represents Alphabet - when you buy GOOG, you are also getting shares of Waymo, Verily, Calico, and the rest of the "Other Bets". In that sense, Google did change its name to Alphabet. OTOH, Google as a separate company still exists within the Alphabet umbrella, and Google employees remain employees of Google (though they get Alphabet stock compensation). Also Waymo employees do not get GOOG stock (they get Waymo stock, which is currently privately held and majority-owned by Alphabet), so there is a real distinction between them.

cblconfederate 5y ago

Maybe that s why Elon, Nadella, Bezos are selling lately

mattferderer 5y ago
Might also have something to do with taxes. Washington state is increasing capital gains tax next year. +7% I believe. Elon had options expiring soon & was forced to. Might be other reasons but those should not be overlooked.

chris_wot 5y ago

It's a MAANG market now, I guess. Can't wait for it to be the AANG market. Or perhaps the NAGA or NAAG market. Perhaps the GAAN market might be inappropriate.

dryst 5y ago
You seriously just going roll right past MANGA like that?
- chris_wot 5y ago
  Oh dear god, you are right. Missed it completely!

ultrasounder 5y ago

FAANGMULATAD-FacebookAppleAmazonNetflixGoogleMicrosoftUberLyftAirBnBTwitterAlphabetDropbox Attribution- Blind

gibbonsrcool 5y ago
Square Salesforce Shopify Stripe SpaceX Netflix Alphabet Apple Amazon AirBnb Krispy-Kreme Equinix Zoom "SSSSSnaaaakez"
- prog5 5y ago
  dang why u gotta throw krispy kreme under the bus like that!
  - xchaotic 5y ago
    it's probably a blockchain-cannabis tech company by now (to boost stock price)
fouc 5y ago
Alphabet = Google

jstx1 5y ago

Saying that they're fading because they grew more last year is oversimplifiing things just to get a headline.

wepple 5y ago
Exactly, it’s an absurd headline. Their influence over growth has gone back to more-or-less normal. This article says very little of value.

DeathArrow 5y ago

Time to short FAANG and TSLA. :)

mro_name 5y ago

nice, that my lightning talk at 35c3 (2018) turned out so effective: https://media.ccc.de/v/35c3-9566-lightning_talks_day_2#t=3337 https://media.ccc.de/v/35c3-9566-lightning_talks_day_2#t=333...

inshadows 5y ago

Can someone help me translate To measure just how concentrated stock returns have been, we calculated the impact that the 10 largest stocks have had on the Morningstar US Large-Mid Index, which essentially tracks 90% of the stock market. We took the 10 largest stocks at the end of each year going back to 2009, and using Morningstar Direct's equity attribution tool, excluded their returns from the index's performance and compared that number with each year's total return. into mathematics so I can interpret the percentages in the table below? Why do people involved in finance hate mathematics so much? Is it obvious to everyone? EDIT: I think it is: returns_of_index_per_year - returns_of_index_minus_returns_of_top_N_stocks_per_year EDIT 2: What does "Cumulative Market Impact" mean? When you google it or "Market Impact" it gives bunch of unrelated measures... Finance jargon is such a mess.