Big Tech has gotten so huge that all it takes is a few Silicon Valley giants nudging into trillion-dollar territory to keep the S&P 500 on its record-breaking trajectory.
If you haven’t updated your portfolio since 2015, that’s great news. We have plenty of great news to share with you today.
Apple Inc. (NASDAQ:AAPL) is up a breathtaking 77 percent this year. Microsoft Corp. (NASDAQ:MSFT) and its 53 percent year-to-date (YTD) performance aren’t far behind. Between them, they’re responsible for a full 1/5 of the S&P 500’s return, but the bulge bracket below the trillion-dollar duo (the so-called “FANG” group) hasn’t done as well.
Only Facebook Inc. (NASDAQ:FB) has outperformed the index. While Amazon.com Inc. (NASDAQ:AMZN) and Netflix Inc. (NASDAQ:NFLX) are up on the year, they’ve actually turned into a drag on the broad market.
And Alphabet Inc. (NASDAQ:GOOG), still known to many as “Google” or the “G” in the FANG, is only a few percentage points ahead of the S&P 500. Even now, it has taken 18 months to move 7 percent above where it peaked.
I’ve spent the year arguing that FANG was running out of steam. These companies have been juggernauts in their day, dazzling Wall Street and making many investors extremely rich over time. Now we’re seeing what happens when their stories mature.
Profit growth throughout the group has gotten patchy. The days of reliable double-digit-percentage earnings expansion projected endlessly into the future are over.
But while that’s a sad moment for investors who were hoping to chase historical returns forever, it’s really only business as usual. Every generation’s growth stocks eventually saturate their target markets and transition into more sedate propositions.
Even with innovation on your side, the gravity of big numbers ensures that every disruptive new product or service you create has to work harder to move the fundamentals. Amazon, for example, now needs to capture an extra $7 million a day simply to raise its top line an anemic 1 percent a year.
That might be achievable. But unless Jeff Bezos can feed another $300 billion into his company over the next 12 months, we’re never going to see triple-digit-percentage growth here again.
Alphabet and Apple are in the same general situation. Facebook is still small enough to have bigger prospects, but it’s slowing too. Microsoft expands through achieving massive synergies between its operations, not by capturing substantial amounts of revenue.
It is past time to start looking for the next wave of technology powerhouses, the “baby FANG” if you will.
Where the Growth Is
Start by reversing the big numbers math. If gigantic companies struggle to innovate, smaller ones are nimbler. More importantly, dollar for dollar, every account they land or every sliver of market share they take factors more heavily into their fundamentals.
The same $7 million a day that Amazon needs to avoid stagnation translates into 80 percent growth for a relatively tiny company like Shopify Inc. (NASDAQ:SHOP). That’s huge.
As it is, SHOP is no slouch, with revenue rising twice as fast as what Jeff Bezos is able to deliver. Is it any wonder the stock is up 180 percent this year?
Or take Roku Inc. (NASDAQ:ROKU), which you know I love as a small and hungry combination of Apple and Netflix. Lifting the sales curve a lowly $7 million a day would take this company across the profitability line overnight.
It has rallied close to 350 percent YTD. Not even Apple came close.
I could keep listing small stocks that are doing the real work of the market as 2015 recedes and 2025 gets closer. The FANG is where you wanted to be then. You want to be elsewhere in the future.
This is why I’ve launched a new IPO service that focuses exclusively on the newest kids on Wall Street. GameChangers has always given subscribers a taste. Now is the time to play the disruptors on their own.
Join Me for the Orlando MoneyShow, February 6-8, 2020, at the Omni Orlando Resort at ChampionsGate. I will be speaking Friday, Feb. 7, 3:00 p.m. about The Stealth Value Investor: Ten Amazing Dividend Yield Plays Flying Under the Radar. On Saturday, Feb. 8, I will talk at 5:15 a.m. about Identifying the Real Future GameChanger Stocks: Ten Companies Positioned to Double — Even if the Bears Take Over Wall Street. Other investment experts who will be speaking include retirement and estate planning specialist Bob Carlson, income and options expert Bryan Perry and world-traveling, free-market economist Mark Skousen, who leads the Forecasts & Strategies newsletter. Register by clicking here or call 1-800-970-4355 and mention my priority code of 049252.