By Manish Chowdhury
Technology investors had a painful journey since the Fed moved to a tighter monetary policy in November 2021. Stocks across the technology universe, including large, mid, small, and micro caps, had a bloodbath, with little regard to the pedigree of the company. With the NASDAQ Composite index shedding around 25% since the start of 2022, individual stocks have taken a further beating. The closely followed and highly invested, FAANG stocks, lost a combined $3 trillion in market capitalization from their highs. The term FAANG refers to the five well-known American technology companies, popularly known as Facebook (now Meta Platforms), Amazon, Apple, Netflix, and Google (now Alphabet).
With technology sector bulls putting their money where the mouth is, we remain cautious and selective on the FAANG stocks for 2023. The investor community had become accustomed to above-average results from these international titans and third-quarter results from these biggies surprised market participants on the downside.
We believe that with the global macroeconomic environment becoming more challenging in 2023 as the focus shifts from interest rate worries to economic growth worries, these long-term wealth creators would find it difficult to justify their premium valuations.
However, if someone is willing to be patient and stay ahead of the game, there are selective opportunities in the FAANG space. We believe that Amazon in the FAANG basket fits our bill and offers investors an opportunity to buy a good business at a reasonable valuation and a high margin of safety. The company’s cash-generating segment, Amazon Web Services, continues to fare well in this uncertain environment, clocking an annual run rate of $80 billion with an operating profit of about $20 billion (almost all operating profit of the company comes from this one segment).
The advertising revenue is also looking promising, with Amazon playing a fast-catch-up game with Alphabet and Meta Platforms. The e-commerce business, which is reeling under pressure, should make a comeback going forward when the macro scenario improves and provide further tailwinds to the business.
(Author is Head of Research at Stoxbox)