Can't tell your FANG from your FAAMG? And should you be worried?
As a technologist, you may have wondered about the technological insight behind suddenly popular acronyms such as FANG, FAANG, and FAAMG. There isn't one, so far, but maybe we should be worried about GAMAF...
As a technologist, you may have wondered about the technological insight behind suddenly popular acronyms such as FANG, FAANG, and FAAMG. At the moment, there isn't one: they are just shorthand terms being used by stock traders. However, maybe we should be worried about GAFAM, which controls so much of the technology business.
FANG has been around for a long time. Apparently it was coined in 2013 by Jim Cramer of Cramer's Mad Money fame. In this case, FANG stood for Facebook, Amazon, Netflix and Google as a group of technology stocks to watch. Technically, it should now be FANA, because Google became Alphabet. However, Cramer has since switched to FAAA, which stands for Facebook, Amazon, Alibaba and Alphabet.
Someone unknown (to me at least) extended Cramer's original acronym to FAANG by adding Apple, which sounds a reasonable thing to do, even though Apple's stock hasn't exactly been roaring.
More recently, Goldman Sachs came up with its own variation: FAAMG. I expect you already worked this one out. FAAMG stands for Facebook, Amazon, Apple, Microsoft and Google. However, the purpose had changed somewhat. FAAMG refers to a group of technology companies with huge market capitalizations. This meant Netflix had to be ditched - it's too small - and Microsoft added.
According to Goldman Sachs, the famous five FAAMG companies made up 13 percent of the value, by market capitalization, of the whole S&P500. However, they only deliver six percent of the revenues and 10 percent of the profits. In other words, Goldman Sachs reckoned people had too much invested in FAAMG, though it wasn't suggesting they dump their stocks.
JP Morgan also prefers to use A for Alphabet instead of G for Google, so it has started using FAAMA for these "mega-cap stocks". I haven't seen much evidence that this has really caught on.
Stacks. In 2012 it made less and less sense to talk about "the Internet," "the PC business," "telephones," "Silicon Valley," or "the media," and much more sense to just study Google, Apple, Facebook, Amazon and Microsoft. These big five American vertically organized silos are re-making the world in their image.
If you're Nokia or HP or a Japanese electronics manufacturer, they stole all your oxygen. There will be a whole lot happening among these five vast entities in 2013. They never compete head-to-head, but they're all fascinated by "disruption."
Sterling saw the development of five big "silos", and if only he'd coined GAFAM, we might have spent the past five years talking about it. (I note that ZDNet.fr used it last year in Une semaine chez les GAFAM.)
In the New York Times, Jonathan Taplin also failed to coin GAFAM or even GAMAF, though he did raise alarm about them becoming the five largest companies by market capitalization. As he pointed out, the top five a decade ago were Exxon Mobil, General Electric, Microsoft, Citigroup and Shell Oil.
In Taplin's case, the problem is their monopoly power. "We are going to have to decide fairly soon whether Google, Facebook and Amazon are the kinds of natural monopolies that need to be regulated, or whether we allow the status quo to continue, pretending that unfettered monoliths don't inflict damage on our privacy and democracy."
Needless to say, the "big five" are not the whole technology business. There are other suppliers including ARM, Cisco, Dell, HP, IBM, Intel, Lenovo, Nvidia, Oracle, Samsung, Qualcomm and many more. But how much do these depend on GAMAF?
This is something you might consider when deciding whose stack you are in, and how far you are locked into it.