Good to know: FAANG stocks have nothing to do with oversized, modified molars, but they can give your portfolio some serious bite.
What are FAANG stocks?
“FAANG” is an acronym involving five specific stocks, all of which are traded on the Nasdaq stock market:
- Google (Alphabet)
These stocks are often grouped together for a couple of reasons. First, they are all tech companies, meaning that they all generally operate within the same market sector. For example, Netflix and Amazon both operate online streaming services, and Facebook and Google are both in the social media space.
Second, the stock performance of these companies has far exceeded almost any other over the past decade—more on that in a minute. And generally speaking, they tend to typify for investors so much of the promise and innovation in the technology world.
In fact, this handful of companies has grown so big that they account for more than a quarter of the Nasdaq’s total market capitalization.
Note: Don’t confuse FAANG stocks with the stock ticker for Diamondback Energy, FANG. They are unrelated.
Why is everyone talking about FAANG stocks?
Aside from a fun acronym, FAANG stocks are a hot topic of conversation mostly because of their explosive market performance over the past decade. While growth has slowed more recently due to increased market volatility—or market uncertainty—some FAANG stocks have hit record-high share prices.
For example, Netflix’s share price has soared in 2018 and has recently hit more than $400, as of July 2018. At the beginning of December 2017, the stock was still under $200. Likewise, Facebook shares have also hit record highs, as of July 2018, peaking at more than $200 after gaining 28% since the summer of 2017.
While performance is the primary reason FAANG stocks have been the talk of the town, some analysts are signaling concern—and in some cases, warning of a bubble. In the late 90s and early 2000s, a similar tech stock bubble manifested (commonly called the dotcom bubble”), and subsequently burst.
While the FAANG rally is more concentrated in a subset of stocks than the dotcom craze, there’s always a risk to consider.
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