When FAANG was coined in 2013, the companies comprising the acronym were leaders in their markets and frequently superseded performance expectations of the industry with top-line growth of about 20 percent. But, fast forward to the next decade, markets are crashing, and the fickleness of tech stocks is more than ever. With inflation and increasing competition, gone are the days when leaders held monopolies.
Amongst the biggest semiconductor pioneers of the yesteryears, only Intel has sustained its former glory. Companies like IBM, GE, Xerox, and Hewlett-Packard were the bluest of the blue chips once and now, they are not in the top leagues anymore.
Tech stocks are facing downfalls in valuations and it begs one question – How quickly can tech businesses falter?
The Narrative Changes As Tech Stocks Tumble
For nearly twenty years, META, AMZN, AAPL, NFLX, and GOOG were consistently amongst the top-performing stocks in the market, but 2022 proved to be a miss.
Amidst rising interest rates, inflation, market saturation, a reset in tech valuations, and increasing competition, FAANG companies are facing turbulent times as their stocks take a hit.
Netflix unfortunately, became the cadaver of the tech aristocracy when its stock took a steep decline from a $300 billion market cap to a mere $130 billion in 2022, dropping behind its peers’ caliber.
The evolving market environment prompted industry experts to reinvent the acronym and include software and cloud services giant Microsoft (MFST) whose valuation has grown to over $1 trillion.
FAANG was rebranded touting MAMAA when Facebook became Meta, Google became Alphabet and Netflix had to be booted. The new acronym stands for Meta, Amazon, Microsoft, Apple, and Alphabet.
Are Big Tech Stocks Overrated? Has FAANG Lost Its Charm?
If the chronology of the downfall of conglomerates is to learn from, it is suggested that every few years there are big tech corporations that will ride the pinnacle of success. Then, they would fade away as competition increases, and markets and preferences change. Blackberry, Zenith, Compaq, Palm, Polaroid and many more companies are the biggest examples of this phenomenon.
But can one pause to ponder why the phenomenon comes into play?
The pervasive tendency of human nature is to dichotomize. Tech-centric businesses can disappear from their ranks if they lose out on a crucial quality which is – adapting. Companies lose their momentum in the market as soon as they stop being flexible to the market’s needs or stop adapting and creating demand.
Consider companies like Gaper, Toptal and Turning. Their plan of action gained immense traction right after they adapted to the ‘new normal’. These companies pivoted in the direction of the obvious need of the hour – hiring engineers from reputable companies, citing remote/ hybrid conditions, and that too at the right time.
Today, big tech companies are slick at staying ahead of the curve, which helps them pioneer changes and swerve the industry as a whole. But, competition has gotten tougher with more emerging companies rising to compete with FAANG and its other counter acronyms of MAMAA.
It was undoubtedly accomplishing a wild fancy to join the FAANG five in the 2000s and 2010s, but in the 2020s, they just seem overrated. Facebook, Amazon, Apple, Netflix, Google, and Microsoft are big tech corporations that may not be worth the 2,3 or 4x potential, albeit their market dominance.
Have the FAANG companies succumbed to profligate or can their ship be saved?
FAANG And Its Shortcomings
No one is unfamiliar with Facebook’s run-in with government laws, with chief executive Mark Zuckerberg facing the music on multiple scandalous cases. Zuckerberg faced the U.S. Congress in 2018 over the data sharing and privacy scandal. Primarily a social media company, Facebook is a thing of the past now, with the latest generations mainly using Instagram and WhatsApp. They are delaying the inevitable by either buying out worthy competitors or duplicating their features since their stock plunge. Meta Platforms is leading VR Development too.
There’s no denying that Amazon is doing its best by changing the way that the world used to shop by becoming the mega-retailer of the online market with over 12 hardware platforms. Under Prime membership, users are enjoying services like Prime Delivery, Prime Video and Prime Music. AWS (Amazon Web Services) is leading the Cloud computing platform globally, and Alexa is slowly becoming a normal smart household appliance.
But, good things don’t last for too long. With the advent of the greatest empires like Carnegie Steel Company, General Electric, and IBM eventually meeting their supremacy’s demise, it feels as though Amazon may lose its dominance over its niche market, soon enough. Strict Anti Monopoly Laws could bring down the corporation as Amazon faces backlash from its employees working in huge warehouses and the extent of the consequences of Amazon layoffs.
Apple’s Think Different shows their apparent belief that the forefront of technological change is led by innovation. The multinational big tech corporation does design, develop and sell computer software and consumer electronics but the sole reason they are still intrepid in the game is that Apple has trillion dollars in its pockets and a fantastic brand value backing. Under Steve Jobs’ leadership, Apple made its fame for top-grade tech, innovation and perfection.
But according to studies, their latest line of products focused on perfecting existing tech, rather than trying to innovate which has misplaced the ground reality of their name. They are mimicking the strategy of persuading Apple users to habituate to the Apple Ecosystem so that they never leave.
One product of Google which may face competition from the language model ChatGPT now, but not back down from the daunting challenge, is the Google Search engine. With the launch of AI rival Bard, investors thought CEO Pichai’s decision was too hasty, due to its blunders. The subsidiaries of Google including Gmail, YouTube, Maps (GPS) and Google Adsense have become the backbone of the revenue of the company, outperforming its shortcomings. Other products like Chrome OS are rivaled by Microsoft’s Windows and Google One is nowhere near replacing Microsoft Office in the corporate world.
Most of the world’s smartphones are powered by Google’s OS Android but with other competitors, it may lose its dominance in the next decade.
Final Words
As baffling as it sounds, FAANG may not fall dramatically but has lost its charm. A massive lot of businesses rely on Amazon’s cloud services and a controlled failure of the company could be tricky for the market but a surprise collapse would cause multiple hindrances to the broader economy. The other companies of FAANG have competitors at par and their collapse wouldn’t matter to the economy as a whole, but would deeply hurt investors.
