FANG Stocks: Will They Show Their Teeth In 2018?

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The FANG group of closely watched internet stocks had a great year on the stock market in 2017. The big question now is whether they can continue to make big gains in the market in 2018.

The FANG stocks are Facebook ( FB ), Amazon.com ( AMZN ), Netflix ( NFLX ) and Google parent Alphabet ( GOOGL ). Each is a dominant force in their respective fields: Facebook in social networking and online advertising, Amazon.com in e-commerce and cloud computing, Netflix in subscription video on demand, and Google in online search and advertising.

Through Tuesday, Facebook stock was up 53% year to date, Amazon up 57%, Netflix up 52% and Alphabet up 35%.

Facebook, Amazon, Netflix and Google are supported by "network effects" that have created "meaningful barriers to entry," Evercore ISI analyst Anthony DiClemente said in a Dec. 5 report that outlined his bullish thesis for the FANG stocks.

GBH Insights analyst Daniel Ives said the FANGs are well-situated for 2018.

"Overall, we continue to be very bullish on secular tech themes heading into 2018 around streaming/content, e-commerce growth, online ad growth, and the transformational cloud shift among enterprises," Ives said in a Dec. 7 report . "While the regulatory environment, corporate tax changes and the macro backdrop create both opportunities and challenges for these FANG names as well as the rest of the tech sector, we believe the underlying fundamentals, spending environment and consumer/enterprise landscape looks very healthy heading into 2018."

But as the FANGs have grown in prominence, government officials have voiced concerns that Facebook, Amazon and Google in particular have become too powerful and might need to be reined in.

Facebook had a rocky 2017. It was accused of allowing the spread of fake news that impacted the 2016 U.S. presidential election. And it has been criticized for changes to its newsfeed algorithms that have hurt news publishers.

Paul Armstrong, who runs the technology advisory firm Here/Forth, believes that " 2018 will be the year Facebook really falls from grace ." Legislators and regulators in the U.S. and European Union will be looking for ways to hold Facebook accountable, he said.

Google likely will have another rough year in 2018, Armstrong said. Last June, the EU slapped Google with a record $2.7 billion antitrust fine for giving preference to its online shopping platform over competitors.

CFRA Research analyst Scott Kessler predicted that Google could face at least one more fine of $2 billion or more in 2018. He noted that the European Union is still looking at Google's online advertising system AdSense and its Android mobile operating system.

IBD'S TAKE: For a roundup of 2018 predictions for the stock market, visit the IBD page " 2018 Stock Market Outlook: What To Watch For In The New Year ."

As the FANG companies search for growth opportunities, they are increasingly stepping on each other's toes.

Amazon and Google's YouTube are looking to compete with Netflix in online video.

Amazon and Google are major rivals in voice-response digital assistants. Amazon sells a line of Echo smart speakers with its Alexa voice-command technology, while Google has its Google Home smart speaker with Google Assistant.

Amazon and Google also are competitors in cloud computing. Amazon leads the market with its Amazon Web Services, while Google trails with its Google Cloud Platform.

One of the big stories of 2018 will be Amazon's announcement of which city it has chosen to locate its second corporate headquarters, aka HQ2. Amazon received more than 200 bids from cities and regions in North America to house HQ2.

Amazon expects to invest more than $5 billion in the construction of the headquarters, which will house as many as 50,000 workers.

Meanwhile, Netflix will continue its aggressive spending on original content. It expects to spend $7 billion to $8 billion on content in 2018. That's up from $6 billion in 2017.

Netflix wants its library to have 50% original shows and movies by the end of 2018.

Competition is expected to increase in the subscription video-on-demand space over the next two years, with Apple ( AAPL ) and Walt Disney (DIS) both planning over-the-top online video services.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks
Referenced Symbols: FB , AMZN , NFLX , GOOGL , AAPL

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