Five Numbers That Show Just How Strong Big Tech Is Right NowBy
FAAMG sales grow at fastest pace in more than five years
Tech giants account for half of S&P 500’s earnings surprises
Everyone knows how dominant Facebook, Apple, Amazon, Microsoft and Google are in the stock market. They top the list of the world’s largest companies, the first time all five have belonged to the same industry. They’re up an average of 46 percent in 2017, three times the S&P 500’s. Were they a market by themselves, their $3.3 trillion combined worth would make it the sixth-biggest among countries, between the U.K. and France.
As impressive as their shares are, the discussion isn’t complete without mention of their profit prospects. For bears who see a parallel to the dot-com bubble, an often-missing piece in the debate is their arguably more impressive recent record of earnings.
Here are some key data points compiled by Goldman Sachs that put into perspective just how dominant tech profitability is.:
- The FAAMG group saw collective sales expanding 21 percent in the third quarter, the fastest pace in more than five years and three times the growth rate in S&P 500 revenue.
- Tech strength is not limited to just FAAMG. Overall industry profit grew 22%, beating all other sectors except for energy.
- More than 80 percent of tech firms beat earnings estimates by more than one standard deviation, the best performance in at least 19 years; Apple, Microsoft, Facebook and Google accounted for half of the S&P 500’s index-level surprise.
- Tech profit margins expanded by 72 basis points, countering a decline expected by analysts.
- FAAMG growth supremacy will continue in 2018, with sales seen increasing 20 percent, versus 11 percent for S&P 500.
Thanks to solid earnings, FAAMG valuations aren’t particularly out of whack with history, even with their outsize returns. The group’s enterprise value sits at 4.9 times sales, versus 2.3 for the S&P 500, in line with the 10-year average, data from Goldman showed.