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What Lies Ahead for FAAMG Stocks After Explosive Success in 2020?
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The year 2020 has been a remarkable one for FAAMG stocks so far. FAAMG is a relatively new acronym coined by Goldman Sachs as a modification of FAANG wherein Microsoft (MSFT - Free Report) replaced Netflix (NFLX - Free Report) owing to the streaming giant’s comparatively smaller market capitalization.
Apple (AAPL) is currently the best-performing stock among FAAMGs, trailed by Amazon (AMZN - Free Report) . Both the stocks carry a Zacks Rank #3 (Hold).
The outperformance can be attributed to the strong resilience shown by the FAAMG group against the brutal coronavirus-led economic downturn. These stocks played a crucial part in curbing the spread of the infection.
Moreover, pandemic-driven change in consumer behavior and lifestyle has made these stocks household names.
Year-to-Date Performance
For instance, Amazon (AMZN - Free Report) benefited from strong demand for e-commerce and contactless delivery services. The company has been leveraging its distribution strength to meet the rapid surge in online delivery.
Facebook helped people keep in touch during the pandemic. Voice and video calling more than doubled on Messenger and WhatsApp. Further, the work-from-home, online learning and remote diagnosis wave benefited Apple and Microsoft.
Moreover, the cloud platforms of Amazon, Microsoft and Google helped organizations remotely process a massive amount of information, build and run crucial applications, and enable employees to collaborate from anywhere across the globe. Further, spike in media consumption benefited Apple, Facebook, Google and Amazon.
The growing optimism surrounding gradual economic recovery post arrival of vaccines from Pfizer, Moderna and a host of other pharma companies strengthens the prospects for FAAMG stocks in 2021.
Here we discuss some key drivers that are expected to provide a further boost to the FAAMG rally in 2021.
Acceleration in Cloud Computing Adoption
Cloud computing has been the backbone of the success of work-from-home, Internet-based learning and telehealth. Three out of five FAAMGs – Amazon, Microsoft and Google – are prominent cloud computing players.
Undoubtedly, the pandemic has accelerated digital transformation and cloud computing platforms are expected to play a key role. Per Forrester Research data, cited by crn.com, global public cloud infrastructure market will grow 35% to $120 billion in 2021. Moreover, Gartner estimates global end-user spending on public cloud services to grow 18.4% in 2021 to $304.9 billion compared with an estimated $257.5 billion in 2020.
Rapid adoption of cloud computing will surely boost demand for cloud infrastructure monitoring, web-based application performance management and human capital management solutions. This, in turn, enhances the prospects of cloud service providers in the FAAMG group.
Although public and private clouds are expected to attract the maximum spending, the emergence of hybrid cloud is hard to ignore. Hybrid cloud computing is rapidly gaining traction because of high speed and enhanced security.
Moreover, proliferation of server-less computing and infusion of AI and machine learning into cloud services are other growth drivers.
5G Going Mainstream in 2021
5G boasts lightning speed that facilitates seamless transfer of data. Markedly, 2021 is likely to see carriers racing to deploy 5G networks and manufacturers launching more 5G-supported devices.
FAAMG stocks are well-poised to benefit from rapid adoption of 5G. Apple is benefiting from solid demand for its 5G-supported iPhone 12. It has reportedly asked suppliers to raise production for the first half of 2021. (Read More: Apple to Boost iPhone Production: 4 Suppliers to Gain)
Moreover, blazing fast speed is expected to boost media consumption as users will be able download movies in seconds. This is expected to drive demand for content from Amazon prime video, Apple TV+ and YouTube in 2021.
Hybrid Work Model to Aid Prospects
A hybrid model that includes a couple of days of work from home is likely to be more popular among employees. According to Google CEO Sundar Pichai, the company is working on “hybrid” work models for long-term remote working.
The hybrid work model bodes well for the likes of Microsoft and Google as these companies offer a full-stack of video, chat, collaboration and office software.
Markedly, Microsoft Teams, Microsoft 365 commercial, Dynamics, and Outlook mobile have seen significant adoption owing to the pandemic.
Moreover, the hybrid work model is likely to drive demand for PCs, laptops and tablets. This will benefit hardware makers like Apple (Mac) and Google (Chromebook) as well as Microsoft (Windows OS).
Continued Expansion in India & South East Asia
FAAMGs have shown keen interest in expanding into India and South East Asia, which presents far more growth opportunities compared with Europe and the United States.
This year, Facebook and Google’s investment in Reliance Jio, Microsoft and Google’s investment in DailyHunt, Apple’s first online store launch and Amazon’s investments in India’s retail space reflect the growing importance of India for the FAAMG group.
Apart from India, FAAMGs including Amazon, Google, Microsoft and Facebook have invested in South East Asian economies. According to a report from Google, South East Asia’s Internet economy is estimated to reach a worth of $100 billion in 2020 and surpass $300 billion by 2025.
Markedly, Google invested in Indonesia’s Tokopedia this year. Facebook also invested in Gojek along with Google. Moreover, Amazon plans to open an AWS data centre in Indonesia in 2022.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?
Image: Bigstock
What Lies Ahead for FAAMG Stocks After Explosive Success in 2020?
The year 2020 has been a remarkable one for FAAMG stocks so far. FAAMG is a relatively new acronym coined by Goldman Sachs as a modification of FAANG wherein Microsoft (MSFT - Free Report) replaced Netflix (NFLX - Free Report) owing to the streaming giant’s comparatively smaller market capitalization.
Apple (AAPL) is currently the best-performing stock among FAAMGs, trailed by Amazon (AMZN - Free Report) . Both the stocks carry a Zacks Rank #3 (Hold).
Returns from Microsoft, Facebook and Alphabet (GOOGL - Free Report) have also outperformed the S&P 500, which is up 17.1% year to date. While both Facebook and Alphabet carry a Zacks Rank #3, Microsoft has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The outperformance can be attributed to the strong resilience shown by the FAAMG group against the brutal coronavirus-led economic downturn. These stocks played a crucial part in curbing the spread of the infection.
Moreover, pandemic-driven change in consumer behavior and lifestyle has made these stocks household names.
Year-to-Date Performance
For instance, Amazon (AMZN - Free Report) benefited from strong demand for e-commerce and contactless delivery services. The company has been leveraging its distribution strength to meet the rapid surge in online delivery.
Facebook helped people keep in touch during the pandemic. Voice and video calling more than doubled on Messenger and WhatsApp. Further, the work-from-home, online learning and remote diagnosis wave benefited Apple and Microsoft.
Moreover, the cloud platforms of Amazon, Microsoft and Google helped organizations remotely process a massive amount of information, build and run crucial applications, and enable employees to collaborate from anywhere across the globe. Further, spike in media consumption benefited Apple, Facebook, Google and Amazon.
The growing optimism surrounding gradual economic recovery post arrival of vaccines from Pfizer, Moderna and a host of other pharma companies strengthens the prospects for FAAMG stocks in 2021.
Here we discuss some key drivers that are expected to provide a further boost to the FAAMG rally in 2021.
Acceleration in Cloud Computing Adoption
Cloud computing has been the backbone of the success of work-from-home, Internet-based learning and telehealth. Three out of five FAAMGs – Amazon, Microsoft and Google – are prominent cloud computing players.
Undoubtedly, the pandemic has accelerated digital transformation and cloud computing platforms are expected to play a key role. Per Forrester Research data, cited by crn.com, global public cloud infrastructure market will grow 35% to $120 billion in 2021. Moreover, Gartner estimates global end-user spending on public cloud services to grow 18.4% in 2021 to $304.9 billion compared with an estimated $257.5 billion in 2020.
Rapid adoption of cloud computing will surely boost demand for cloud infrastructure monitoring, web-based application performance management and human capital management solutions. This, in turn, enhances the prospects of cloud service providers in the FAAMG group.
Although public and private clouds are expected to attract the maximum spending, the emergence of hybrid cloud is hard to ignore. Hybrid cloud computing is rapidly gaining traction because of high speed and enhanced security.
Moreover, proliferation of server-less computing and infusion of AI and machine learning into cloud services are other growth drivers.
5G Going Mainstream in 2021
5G boasts lightning speed that facilitates seamless transfer of data. Markedly, 2021 is likely to see carriers racing to deploy 5G networks and manufacturers launching more 5G-supported devices.
FAAMG stocks are well-poised to benefit from rapid adoption of 5G. Apple is benefiting from solid demand for its 5G-supported iPhone 12. It has reportedly asked suppliers to raise production for the first half of 2021. (Read More: Apple to Boost iPhone Production: 4 Suppliers to Gain)
Moreover, blazing fast speed is expected to boost media consumption as users will be able download movies in seconds. This is expected to drive demand for content from Amazon prime video, Apple TV+ and YouTube in 2021.
Hybrid Work Model to Aid Prospects
A hybrid model that includes a couple of days of work from home is likely to be more popular among employees. According to Google CEO Sundar Pichai, the company is working on “hybrid” work models for long-term remote working.
The hybrid work model bodes well for the likes of Microsoft and Google as these companies offer a full-stack of video, chat, collaboration and office software.
Markedly, Microsoft Teams, Microsoft 365 commercial, Dynamics, and Outlook mobile have seen significant adoption owing to the pandemic.
Moreover, the hybrid work model is likely to drive demand for PCs, laptops and tablets. This will benefit hardware makers like Apple (Mac) and Google (Chromebook) as well as Microsoft (Windows OS).
Continued Expansion in India & South East Asia
FAAMGs have shown keen interest in expanding into India and South East Asia, which presents far more growth opportunities compared with Europe and the United States.
This year, Facebook and Google’s investment in Reliance Jio, Microsoft and Google’s investment in DailyHunt, Apple’s first online store launch and Amazon’s investments in India’s retail space reflect the growing importance of India for the FAAMG group.
Apart from India, FAAMGs including Amazon, Google, Microsoft and Facebook have invested in South East Asian economies. According to a report from Google, South East Asia’s Internet economy is estimated to reach a worth of $100 billion in 2020 and surpass $300 billion by 2025.
Markedly, Google invested in Indonesia’s Tokopedia this year. Facebook also invested in Gojek along with Google. Moreover, Amazon plans to open an AWS data centre in Indonesia in 2022.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>