Time to Buy BIG TECH Stocks?
Investing in a BIG TECH (FAANG Stocks). Is it very risky at the current valuation or the best time to invest?
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Apple, Microsoft, Alphabet, Amazon.com, and Facebook had thrived in the pandemic, and their latest earnings reports hammered home the point. Is it worth investing is FAANG stocks? The five companies generated a combined $332 billion in revenue from April to June, up 36% from a year earlier. All of their profits were better than expected.
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Amazon stock has been under pressure since late last month when the company said it was seeing a slowdown in e-commerce growth as more people leave home to shop.
Should you invest in Amazon stock? It is also in the crosshairs of regulators and lawmakers. The FTC is reviewing the company’s proposed acquisition of the MGM film studio. The primary question is whether to allow the big to get bigger. So this is the main risk if you own Amazon stocks. Should the agency seek to block the deal, it would signal a shift in how regulators approach tech consolidation. But don’t expect a rejection to move Amazon’s stock in the long term.
The iPhone maker’s shares have doubled since the end of 2019, increasing the company’s market capitalization by more than $1 trillion. Apple grew sales 36% in its latest quarter, following 54% growth in the March quarter—the company’s two best quarters since 2012.
Among the Big Tech group, Apple could face the most immediate regulatory risk, given growing complaints about its hefty 30% commission rate on sales in its App Store. Think twice before investing in Apple stock. Epic Games sued Apple over the issue—a decision on the case is pending—and the situation has received attention in Washington.
Should you invest in Microsoft stocks? It has also thrived in the pandemic era, as more companies adopted digital processes to ensure their survival in a world of shuttered offices and limited travel. The surge in PC demand triggered by the work-from-home trend has boosted the Windows business, lifted sales of Microsoft’s Surface line of tablets and laptops, and buoyed demand for its Xbox videogame consoles. The company has even seen a pickup in ad revenue, thanks to both the company’s Bing search engine and growth on LinkedIn, which, as of the latest quarter, is generating revenue at an annualized rate of more than $10 billion.
The opportunity in online advertising, the primary domain of Alphabet (and Facebook), might get less attention than the cloud and smartphones, but it is no less compelling. In the recent June quarter, Alphabet’s ad sales grew 69%.
YouTube’s ad revenue soared 84%, to $7 billion, in the second quarter, putting the business on par with Netflix (NFLX), which reported quarterly revenue of $7.3 billion. Netflix is expected to grow sales by 19%, to $29.7 billion this year, while YouTube’s ad revenue is forecast to rise 45%, to $28.7 billion.
Facebook stock generates the most controversy of the Big Tech firms. In recent weeks, the social networking giant has drawn the ire of the White House over its treatment of Covid-19 vaccine misinformation, and some lawmakers have spoken out about what they perceive to be violations of their free speech. Through it all, though, Facebook has remained a compelling stock.
Even after a 30% gain this year, Facebook shares trade at just 23 times forward earnings, making it the cheapest of the Big Tech stocks and just a bit more pricey than the S&P 500, even though Facebook remains in clear growth mode.
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