The rally in FAANG stocks in 2020 lifted the NASDAQ to record highs. The perfect conditions are in place to explain the incredible run so far. Value investors who have a narrow view on stocks – price multiples – will call FAANG a bubble. That is only partly true.
The U.S. Federal Reserve’s obsession to pump markets with excess cash lifted the valuations and removed most risks. This encouraged speculators to bid on the most dangerous investments: companies that make no money and are poised to fail. Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG) are benefiting from a sharp increase in online traffic.
The stay-at-home and work-from-home trend now appears more permanent than anyone thought. Investments will keep flowing away from physical retail and real estate and towards FAANG stocks.
Fortunately, Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) are enjoying a sharply higher demand for software and hardware, respectively. Microsoft is an especially compelling growth play for the rest of the year. Its Teams messaging app is invaluable to companies.
Though Zoom (NASDAQ:ZM) is a more flexible alternative and users have Facebook’s WhatsApp, Teams and the suite of Office products increase productivity.
Your Takeaway
The FAANG bubble may pop one day but companies like Google and Facebook may trade higher as their revenue levels continue to climb.
