Stop Recommending FAANG Stocks!

Exoswan Insights·April 29, 2024·0 comments

Tired of hearing the same old investment advice? Every time a hot new technology emerges – AI, quantum computing, the metaverse – the same chorus starts: “Buy those FAANG stocks!” Well, are you looking to truly capture the next big tech boom… or just add another “blue chip” stock to your portfolio? If you truly want to reap the rewards of emerging technologies, you’ll need to look beyond the usual suspects.

Stop recommending FAANG stocks! Credit: Maurice Norbert/Adobe

FAANG Fatigue: Why Big Tech Isn’t Always the Best Bet

The term FAANG (Facebook/Meta, Amazon, Apple, Netflix, and Google/Alphabet) was coined in the early 2010s to represent the titans of the tech world. Back then, these companies were known for their rapid growth and dominance of their respective sectors.

Of course, the acronym has evolved over time. Some people added Microsoft (creating FAAMNG). Others decided to replace Netflix with Meta (MAMAA). It’s almost like a game of financial music chairs. Nonetheless, the core idea remains – these are large, established tech players.

The problem is that these companies are lazily over-recommended to the point that their meaning has gotten lost. For practically any new and exciting technology, if you google “best <technology> stocks”… you’ll get a host of mainstream media outlets and “financial writers” telling you to buy Alphabet.

We get it. These are big tech players who have their fingers in virtually every pie. But if you’re looking to truly capture the upside of emerging technologies, then you can do better. Sure, these giants likely have some involvement, but they are so heavily diversified that your investment gets diluted. You’re betting on that one company’s broader success, not the specific technology’s growth potential.

Pure-Play Power: How to Truly Capture the Upside

If the FAANG stocks are a broad bet on the tech sector, then pure-play companies are your laser-focused investment. A pure-play company operates within a single industry or market segment. This means its entire business model is tied to the success of a specific emerging technology.

Here’s why pure-play companies hold so much potential for investors seeking outsized gains:

Singular Focus: These companies dedicate all their resources, research, and development to mastering their niche. This leads to faster innovation cycles compared to tech giants balancing multiple priorities.
Direct Exposure: Investing in a pure-play company means you’re directly betting on the growth of the underlying technology. Your returns are tied to its breakthroughs, not the overall stock market performance of a massive corporation.
Agility: Smaller, pure-play companies are often more agile than larger conglomerates. They can adapt to changing market conditions or pivot their strategies faster. This can prove to be a vital edge in emerging tech where the landscape evolves rapidly.

Of course, investing in pure-play companies comes with higher risk. Their fate is intrinsically tied to the success of a single technology. However, this higher risk also translates to much higher upside potential if the technology takes off.

How to Invest in Emerging Technologies

FAANG stocks undoubtedly have a place in a well-diversified tech portfolio. They offer stability and exposure to broad market trends. But if you really want to capture the growth potential of AI, drones, quantum computing, etc… you’ll need to add pure-play companies. After all, before Nvidia became the Nvidia of today, it was just a relatively small company that made GPUs.

We’ve put together a growing compendium of the top stocks for specific emerging technologies, ranked by pure-play focus. Each list provides an overview of the most promising publicly traded companies for that technology, explaining their roles in the value chain.