FANG Stocks Slammed after Goldman Warns of “Valuation Air-Pocket”
The comments above & below is an edited and abridged synopsis of an article by Tyler Durden
The fascination with giant tech stocks continues. Bank of America says the sector is the most overweight it has ever been, surpassing even the dot-com bubble. Goldman has issued a report on the five tech stocks in question—Facebook, Amazon, Apple, Microsoft and Alphabet (FAAMG)—which have added a total of $600 billion of market cap this year, or the equivalent GDP of Hong Kong and South Africa combined.
This is also the group that virtually every brand-name hedge fund purchased in the first quarter, as active managers abandoned value names and factors and rushed into momentum and growth.
FAAMG have been the key drivers of both the SPX and NDX returns year-to date. Their outperformance has created positioning extremes, factor crowding and difficult-to-decipher risk narratives (FAAMG’s realized volatility is now below that of Staples and Utilities).
Durden includes some of the unintended portfolio consequences that have resulted from everyone rushing into this biggest hedge (and mutual) fund ever. For those worried that this is a dot-com boom-bust all over again, Goldman offers a comparison of the five largest tech stocks at the peak to the Big-5 today on a number of different metrics including size, valuation, profitability and free cash flow.
The bottom line is that, despite valuation air pockets, there’s plenty of room to run on this epic bubble as long as G3 central banks keep buying.