Exploring Investment Opportunities: FAANG vs. MAMAA Stocks

It’s difficult to discuss the stock market in general without bringing up one or more FAANG stocks. Given that the S&P 500 index contains a large chunk of the tech titans, many investors already have at least some exposure to them. Investors would benefit from learning more about FAANG stocks due to their significant weighting in indices like the S&P 500.FAANG is an abbreviation for some of the most well-known internet businesses, and Jim Cramer first used it in 2013.

FANG, which stood for Facebook, Amazon (AMZN 1.84%), Netflix (NFLX -0.59%), and Google, was the original abbreviation. The moniker FAANG was created in 2017 when investors began putting Apple (AAPL -2.92%) in the group.

The abbreviation has persisted despite several notable firm name changes, such as Facebook becoming Meta Platforms (META -0.17%) and Google becoming Alphabet (GOOGL 0.59%) (GOOG 0.61%). But with Netflix losing favour with investors and Microsoft (MSFT -0.89%), a different tech behemoth, doing well, some people have begun discussing a group of equities frequently referred to as MAMAA, or Meta, Apple, Microsoft, Amazon, and Alphabet.

The FAANG stocks and Microsoft shares have increased in value more rapidly over the past ten years than the S&P 500 as a whole or the more tech-focused Nasdaq.

The first four FANG equities were all internet-based businesses, but when Apple — largely a consumer hardware company — was later added, FAANG expanded to include other technology-related corporations. Microsoft’s membership in MAMAA solidifies the organization’s decision to focus on mega-cap technology rather than the internet as originally planned.

1. Meta Platforms

Facebook and Instagram, two of the most popular and influential social media platforms in the world, as well as WhatsApp and Messenger, two of the largest messaging platforms, are all owned by Meta. It generates revenue by showing users adverts while they peruse photo and video feeds. Oculus, a virtual reality headset from Meta, is the main focus of the company’s significant investment.

The corporation changed its name to Meta Platforms to reflect its shift to virtual reality and the metaverse, despite the fact that Reality Labs, its metaverse-focused subsidiary, is currently losing more than $10 billion yearly.

2. Amazon

The biggest business-to-consumer e-commerce company in the world is called Amazon. More than 200 million people throughout the world subscribe to its Prime membership programme, demonstrating their tremendous loyalty to the business’s online marketplace. Although e-commerce makes up the majority of Amazon’s revenue, the company has also discovered profit-making opportunities in cloud computing and advertising.

In actuality, Amazon Web Services, which provides cloud infrastructure, now accounts for the majority of company profits.

3. Apple

One of the largest smartphone producers in the world is Apple. Apple’s revenue is primarily derived from the sale of devices, but recently the company has also placed a strong emphasis on higher-margin subscription services like streaming music and video, games, news, and cloud storage.

The switch to the following key computing platform could be sparked by the company’s recent release of its new spatial computing headset, called Vision Pro.

4. Netflix

One of the first media companies to emerge from the internet is Netflix. It started to transition from a DVD-by-mail service to on-demand streaming in 2007, and in 2012, it began to invest in its own original material for the streaming service. With more than 200 million users worldwide, Netflix is currently one of the largest buyers of films and television shows.

Although established media organisations have started their own streaming services, Netflix continues to hold the global lead.

5. Alphabet

A tech giant, Alphabet is mostly made up of its “other bets” division and Google. Google began as an internet search company, but it has since expanded to include other consumer-focused services and products. Nine of these services and products have a combined user base of more than 1 billion. Google also includes a developing cloud computing division and a modestly sized hardware division. Alphabet’s moonshot projects, such as the automated vehicle company Waymo and the health research firm Verily, are included in the “other bets” section.

Since the release of OpenAI’s ChatGPT, Alphabet has proclaimed its leadership in artificial intelligence (AI) and unveiled its own chatbot interface, Bard AI.

6. Microsoft

After 40 years, Microsoft has expanded significantly from its humble beginnings as a corporation that licenced the Windows operating system to PC makers. Microsoft’s cloud computing services, Azure, and Office productivity suite now dwarf Windows’ licencing sales. Additionally, the corporation runs a gaming division lead by Xbox as well as an advertising operation throughout its search engine, online portal, and social network LinkedIn. Additionally, the consumer device market is quite modest.

The corporation sees AI as the next big frontier and has made large investments in new products like the AI-powered Bing because of its partnership with OpenAI.

In the past, FAANG stocks have performed better than the S&P 500 index. Although Alphabet has had the lowest performance of the group since June 2013, it has still outperformed the S&P 500 by a factor of more than two. Apple has been the best performer over that time, increasing by a factor of almost 14.

Together, the five FAANG companies make up about half of the Nasdaq-100 Index and around 20% of the S&P 500. By substituting Microsoft for Netflix, the percentages rise to around 26% and 60%, respectively.

Every investor should be aware that past performance is no guarantee of future success. In fact, during the bad market of 2022, Microsoft, the FAANG stocks, and the S&P 500 all underperformed. Having said that, FAANG firms have a number of competitive advantages that make them desirable long-term investments. The majority of businesses profit from network effects.

Together, the five FAANG companies make up about half of the Nasdaq-100 Index and around 20% of the S&P 500. By substituting Microsoft for Netflix, the percentages rise to around 26% and 60%, respectively.

Every investor should be aware that past performance is no guarantee of future success. In fact, during the bad market of 2022, Microsoft, the FAANG stocks, and the S&P 500 all underperformed. Having said that, FAANG firms have a number of competitive advantages that make them desirable long-term investments. The majority of businesses profit from network effects.

• Because Meta has billions of other active users, its offerings are useful to new users.
• The billion-plus users of Google’s products, including YouTube and Search, are beneficial.
• Tens of millions of customers visit Amazon’s marketplace every day thanks to its Prime subscription, which increases the appeal of its seller services to independent retailers.
• Tens of millions of Netflix subscribers offer opinions on the types of material the firm should produce and contribute the money necessary to cover its enormous budget.
• For iOS users, the Apple ecosystem’s lock-in effect results in high switching costs. As Apple creates more services, like Apple Music and Apple Arcade, this advantage grows larger.

The widespread use of Microsoft’s Windows encourages the creation of Windows-specific programmes, which forces users to stick with the operating system. It has been able to hold onto its position in a market that is becoming more platform neutral because to its transition to cloud computing and software-as-a-service.

Microsoft and the other four FAANG companies all have intangible assets that should increase their profitability over time.

Since switching to original programming and exclusive rights, Netflix has created an irreplaceable content library. One of the rare firms that produces both the hardware and software for its products is Apple, and it is undoubtedly the only one of this size. A manager shouldn’t risk losing his job by choosing a different suite of services and retraining everyone on how to utilise it since the switching costs are too high.

The FAANG (or MAMAA) stocks can be excellent potential investments because to these competitive advantages. However, before purchasing, investors should assess each stock’s valuation in relation to its own historical value and that of its rivals.