With a career in the tech world, you have to stay up to date with everything that’s going on around you in the world of computers, social media, and IT. This includes knowing about the current status of the economy and the stocks that could affect the tech companies that you are working for. It’s an important part of the job because it can potentially affect your salary, the atmosphere of the workplace, and the safety of you and your coworkers’ positions.
Right now, the tech sector is where big money and lots of jobs are, but their growth has stagnant in the last year. The group of tech companies that make up the name "FAANG" have been the leaders in this growth, but is that trend still going strong or has the climb become an uphill battle that has met its match? How is FAANG dealing with a market that is expected to end up in a recession before 2023 meets its end? We'll get to all that, but first things first: what is FAANG?
What is FAANG?
If I were to ask you to think of the biggest companies out there, which ones would you mention? Probably companies like Google, Amazon or Facebook would be the first few you mention, and without a doubt at least one of the members of FAANG would come to mind. FAANG, so aptly named by Bob Lang back in 2013 and later popularized by Jim Cramer, is a group of the biggest tech companies and refers more specifically to their stocks and status as influential powers in the market.
These letters stand for Facebook (currently Meta), Amazon, Apple, Netflix and Google (currently Meta); unsurprisingly, these companies are some of the most powerful giants in the tech world with major influence on what happens in almost everything related to the economy. Let’s take a look at what is going on with them now.
Did you say growth?!
Unless you have been pulling a Thoreau for the past decade, you have most certainly heard of these five companies without flipping to Bloomberg - and with good reason. For the past ten or so years, they have become staple services that almost everyone uses, and as a result, they have seen consistent substantial increases to their stock prices and unending growth.
So much so, they also constitute a portion of the S&P 500 Index, which is used as an indicator of the health of the stock market. This means that since FAANG accounts for a sizable portion of the index, their weight in the system shows that these companies are connected to the overall economy’s health. But sometimes having all this influence can be detrimental.
Bubbles have to burst
Their impact on the stock market is significant, and some experts fear that this could become a problem in the future due to their potential as a bubble. A bubble in the stock market means that the value of the good has risen above the actual product’s real value and when the bubble bursts, there is a sudden decrease in value.
Some examples of a bubble come would be the infamous tulip frenzy of the 1600s, where the prices of tulip bulbs soared until one day a buyer didn’t show up to receive a shipment in a trade-based economy, which caused a major drop in value and a huge panic across Europe. Or another great example would be the US housing crisis of the 2000s.
In both cases, when the bubbles of highly influential and overpriced products burst, the prices of those products plummeted as a result. The rest of the market was impacted as well and as a whole, struggled to recover from the shock.
Why is this important?
Bubbles pop and if you consider FAANG to be one, then it’s possible that they are nearing the point of bursting soon. Unfortunately, this is evident when looking at the 2022 fiscal year. The tech industry has taken a big hit during 2022; in particular, Netflix and Meta have dropped by 52% and 65%, respectively. Although other FAANG members like Amazon and Apple have had their fair share of problems with declining prices as well.
A bit of a rough patch
There are a few contributing factors to why they have hit a rough patch. During the COVID-19 pandemic, tech companies had the advantage given people were at home on their devices, scrolling around and sharing anything they could get their hands on since there was nothing else they could do. This gave FAANG the opportunity to go on a hiring frenzy, but soon enough, confinement ended and people went out into the world leaving their devices unattended at home and corporations had to continue paying for these new employees.
To remedy this mistake, layoffs were on the menu. Not only have they been reducing the number of their staff, but also the number of new, open positions has diminished.
In addition, since the 2008 housing crisis, interest rates have remained dramatically low, which in turn has made debt quite cheap, and exponential growth became the name of the game for the past few years for the big tech giants. But now that interest rates are increasing thanks to the Fed, the game is changing, and growth and expansion isn’t the best strategy under these circumstances.
The smarter move in this situation is expense management and profitability, which means a strategic shift from their years of making growth their principal aim. All in all, the confidence of investors seems to have tapered off too and with a supposed recession on its way, the future does seem a bit bleak for FAANG.
Although these big corporations may have to pull back on the reins a bit in terms of their growth, they will still continue to have a big influence on the world’s economy. The decline in hiring opportunities and the potential bubble burst coming does mean trouble for sure. It may seem like FAANG having issues could end their running streak as tech companies, but if they shift their approach of constant growth, they have the potential to thrive again in the future.
For now what does that mean for the tech sector? These companies’ growth has started to slow down and taper off, but there will always be a need for more IT professionals! As the world comes to depend more and more on technology as a basic life necessity, you can be sure that there will still be plenty of jobs available for anyone looking to work as a computer programmer, website designer, or software developer. If that means working with smaller companies or as a freelancer, the number of opportunities is limitless.