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Chart of the Week: Are Big Tech’s Share Prices Set to Sell Off?

China and US technology stocks buy 2021

Tim Phillips

January 14, 2022

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With the ongoing sell-off in high-growth stocks in the US showing no signs of abating, it’s worth asking ourselves when “Big Tech” might be next.

That’s because the likes of Meta Platforms Inc (NASDAQ: FB), formerly Facebook, Apple Inc (NASDAQ: AAPL), Amazon.com Inc (NASDAQ: AMZN), Netflix Inc (NASDAQ: NFLX), Alphabet Inc (NASDAQ: GOOGL), and Microsoft Corporation (NASDAQ: MSFT) haven’t seen their stocks fall all that much from their highs.

Known as “FAANGM” – or “FANMAG” depending on what you adhere to – this group of Big Tech companies produce massive and consistent profits as well as cash flows.

That’s proven to be a boon in a rising rate environment as a large number of growth stocks have been crushed (many by over 50% from all-time highs), as my colleague Billy highlighted in his chart last week.

Holding up the indices

In contrast, the worst of the FAANGMs has been Netflix, which is off around 25% from its all-time high. The rest are at either 15% (or below) from their all-time highs.

While that might be a sign that the FAANGMs will be the next to fall hard, as they did on Thursday, it’s worth remembering how much they contribute to the S&P 500 Index. That’s true in terms of both market cap and earnings.

As the below chart illustrates, while the FAANGMs make up only 1.9% of revenues generated by S&P 500 companies, they make up a whopping 14.4% of earnings and an even bigger share of market cap.

These earnings have managed to grow over time. If the major indices, the S&P 500 Index and Nasdaq-100 Index, do get sold off further in the coming weeks and months then it’s likely to be the Big Tech players that drive these losses as the “growth to value” rotation continues.

Yet, that could provide long-term investors with a unique buying opportunity when we look back at this tumultuous period in five years or so.

FAANGM market cap earnings

Source: Yardeni Research, January 2022

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of Microsoft Corporation.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.