FAAMG is an acronym that describes the largest and best-performing publicly traded tech stocks. Created by Goldman Sachs, it refers to Facebook, Amazon, Apple, Microsoft, and Google (Alphabet). FAAMG is a variation on two other tech stock classifications, FANG and FAANG.
If you’re an investor, it’s helpful to know why FAAMG stocks are considered market leaders. Here’s a closer look at what this term means and why it matters.
Definition and Examples of FAAMG Stocks
Thousands of stocks trade on public exchanges like the New York Stock Exchange (NYSE) and the Nasdaq, but only a select few are classified as FAAMG stocks.
FAAMG is an acronym that refers to five specific stocks:
- Google (Alphabet)
So why these stocks and not a different set of companies?
The simple answer is that these five stocks are among the largest in terms of market capitalization. Market capitalization is a way to measure a company’s value. It’s calculated by multiplying a company’s total outstanding shares by its per-share price.
The largest companies by market capitalization are referred to as large cap. These are companies that have a market value of $10 billion or more. FAAMG stocks, however, classify as mega-cap stocks based on their value.
Here’s a quick rundown of each FAAMG stocks’ market cap as of May 18, 2021:
- Facebook: $893.7 billion
- Amazon: $1.67 trillion
- Apple: $2.19 trillion
- Microsoft: $1.85 trillion
- Google: $1.54 trillion
As you can see, each of these companies is well beyond the $10 billion mark. With the exception of Facebook, the majority have surpassed the $1 trillion valuation threshold. Collectively, these five stocks are worth more than $8 trillion.
Market capitalization can increase or decrease as stock prices move up or down or as new shares are issued.
How FAAMG Stocks Work
FAAMG stocks are considered to be market leaders, based on not only size but also the level of returns they generate and their overall influence on stock movements. In September 2020, S&P Global reported that these five stocks accounted for about 23% of the S&P 500's capitalization. Over recent trailing periods, these stocks have contributed 40% or more to the S&P 500’s returns, according to investment management firm BMO Global Asset Management.
The five FAAMG stocks have the ability to influence broader market movements. For example, if Apple or Amazon stocks go up in price, smaller tech stocks might get a lift across the board. On the other hand, if tech stocks are down, that could cause other stock prices to trend down as well. This is largely because of how much weight the FAAMG stocks carry in the S&P 500. They could cause tandem up or down movements.
In terms of how the individual stocks work, they're all different. Amazon, for example, is focused on e-commerce, while Facebook is a social media giant. Google is best known as a search engine, while Microsoft and Apple are centered on manufacturing computer software and electronics, respectively.
All five FAAMG stocks do have some things in common:
- They’re all tech stocks.
- Each is considered to be a mega-cap stock, based on valuation.
- All five are growth stocks.
Growth stocks are associated with companies that are continuing to expand versus those that have already done most of their growing. Generally, instead of paying dividends to investors, they reinvest profits into the company to fuel more growth. While rare, some growth stocks do offer dividends, with Apple and Microsoft being two of them.
FAAMG stocks may also be referred to as blue chip stocks. This means they’re considered to be stable industry leaders that can be counted on to generate consistent returns for investors. Because it’s still relatively new compared to its FAAMG counterparts, Facebook is not always characterized as a blue chip stock by market analysts.
Apple is the oldest of the five stocks—it went public in 1980. Next is Microsoft, followed by Amazon, Google, and, finally, Facebook.
FAAMG vs. FANG vs. FAANG
As mentioned, the FAAMG acronym is similar to two others, FANG and FAANG. All three refer to tech stocks, but they don’t all include the same combination of companies.
Netflix has often been considered a tech company and a media company, hence its inclusion in FANG and FAANG. But in 2019, Netflix CEO Reed Hastings asserted in an interview with CNBC that it was actually an entertainment company. It has a market capitalization of $216.8 billion as of May 18, 2021.
How To Invest in FAAMG Stocks
If you’re interested in investing in FAAMG stocks, it’s possible to do so through an online brokerage account. You can buy or sell individual shares of these five companies or invest in a mutual fund or exchange-traded fund (ETF) that includes FAAMG stocks. This can allow you to own multiple tech stocks at one time. ETFs offer the added flexibility of trading on an exchange like a stock.
When investing in these or any other tech stocks, consider your risk tolerance and goals. Also, pay attention to cost. For example, if you’re trading FAAMG stocks inside a taxable brokerage account, consider how much you might pay in commissions. While many online brokers have shifted to commission-free stock and ETF trades, some still charge a fee per transaction.
With tech mutual funds or ETFs, consider the expense ratio you’ll pay. This is the annual cost of owning a fund, expressed as a percentage. The lower this number, the less expensive the fund is to own.
If a FAAMG stock is out of your budget—one share may cost $100 or more—you may be able to buy fractional shares instead.
- FAAMG stocks represent the largest publicly traded tech stocks by market capitalization: Facebook, Amazon, Apple, Microsoft, and Google.
- Besides FAAMG stocks, there are also FANG and FAANG stocks, which refer to slightly different groups of tech companies.
- FAAMG stocks account for a significant share of the S&P 500’s capitalization, and thus are often considered to be market movers.
- Opening an online brokerage account is one way to invest in FAAMG stocks, by purchasing either full shares, fractional shares, or funds that offer exposure to these stocks.