Strategy – FAANG 2.0, the new paradigm?

has. Facts

FAANG is an acronym that has been used countless times to refer to the top five tech stocks listed on the US stock market. Facebook (Meta), Amazon, Apple, Netflix and Google make up the FAANG equity group. Meta is Facebook’s parent company while Alphabet is Google’s.

FAANG shares’ unparalleled run to 2021 has made them stand out among other stocks listed on the US stock market. Some have seen this as a bubble which, at the end of last year, began to deflate “naturally”.

However, faced with this decline, other sectors and companies have taken over, allowing the American indices to “limit the damage”. And on closer inspection, we see that it is certain specific sectors that have been circled, the FAANG 2.0. Or the return of the “old economy”…

b. FAANG 2.0

Taking root in economic questions, political upheavals or even the many geopolitical developments, a new trend has emerged recently and has gained momentum (and pace) on technological stocks: the FAANG 2 which represent 5 distinct sectors : fuels, aerospace and defence, agriculture, nuclear and gold/metals/minerals. Review:

  • F (for fuel in English) – Fuels. The energy sector has declined as a market force over the past few decades, accounting for just 4.7% (according to Bank of America) of the total S&P 500 market capitalization today, down from 13.4% in 1990. Yet the combination of geopolitical tensions, limited supply, high demand, and underinvestment drove energy prices high.
  • A – Aerospace and Defense. As war rages in Ukraine, European countries are gradually rearming. Germany, for example, has decided to devote more than 2% of its GDP to defence. Asian countries are also increasing their defense spending, and the increase in spending is not only on armaments, but also on cybersecurity. Defense stocks outperformed the broader market in 2022, and spending increases are expected to continue.
  • A- Agriculture. Agriculture is also a key sector that has been highlighted in recent months. For good and bad reasons. to monitor. Equipment shortages, rising input costs, climate challenges and growing demand from the middle class in emerging markets all point to upside potential for profits for the global agricultural complex. Should we also remember that for everyone to be able to eat in 2050, world agricultural production will have to be doubled?
  • N (for nuclear in English) – Nuclear and renewable energy. Nuclear has the highest capacity factor of any power source, producing reliable, carbon-free power more than 92% of the time. This is twice as reliable as coal or natural gas plants and almost three times more than wind and solar plants. It should be noted that there are still today 4 real disadvantages linked to nuclear energy. The first concerns the delays in the construction of new nuclear power plants. Then the recycling of nuclear waste (less than 1% of spent fuel and less than 2% of other so-called recoverable materials are actually used). The third is the feasibility and impact of storing highly radioactive waste in a deep geological layer. Finally, last but not least, the level of risks associated with this technology given the serious compliance problems in the sector.
  • G (for gold in English) – Gold and minerals. There is a glaring difference between buying flows on gold and its stock market evolution. If since the start of the war we have noted a growing attraction towards this asset considered as a refuge from inflation and geopolitical unrest, the rise in real rates and the rise of the dollar have put some pressure on the yellow metal. However, this category (G therefore), also includes certain minerals that are essential to the transition to cleaner energy, in particular the batteries that power electric vehicles (EVs). Lithium needs, for example, could be multiplied by 40 compared to current demand (feel free to ask me for my study on the matter)

vs. And so what?

The current question for your portfolio is obviously whether this new (old) trend will (per) last? And the answer is quite complex. Indeed, first of all we can note that the emergence of FAANG 2.0 was initiated by several extraordinary events (in the literal sense of the term) including the war in Ukraine (which highlighted the lack of renewable energy) and Covid-19 (which initially boosted global demand before it was reduced due to China’s Covid-zero policy and rising inflation).

Then, for FAANGs to be replaced by FAANG 2.0, the cycle (economic and/or innovation) would have to move into a new phase, which is not the case today.

Let us recall here that we recognize today, according to Joseph Schumpeter’s cycle of innovation, 6 waves (without going into details):

  • First: During the first wave of the Industrial Revolution, water power was instrumental in the manufacture of paper, textiles, and iron products.
  • Second : The second wave, between about 1845 and 1900, saw major advances in rail, steam and steel.
  • Third : The emergence of electricity powering lighting and third-wave telephone communication dominated the first half of the 1900s.
  • Fourth: During the fourth wave, aviation revolutionized travel.
  • Fifth: New media altered political discourse, news cycles, and communication during the fifth wave.
  • Sixth : The sixth wave is marked by artificial intelligence and digitization through information of objects (IoT), robotics and drones. At the same time, clean technologies will come to the fore.

d. Synthesis

The emergence of potential FAANG 2.0 “opportunities” (due to extraordinary elements) does not mean that you should abandon the other investments in your portfolio, including the technology sector. Quite the contrary. We know that at the heart of every technological innovation is the resolution of complex problems, and climate concerns are increasingly pressing. The fall in the costs of solar photovoltaic and wind power also suggests advantages in terms of efficiency and, of course, investment.

We want to say thanks to the author of this short article for this remarkable material

Strategy – FAANG 2.0, the new paradigm?


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