Among the elite group of the top five mega-cap tech companies dubbed the FAANGs, Alphabet (NASDAQ:) (NASDAQ:) and Apple (NASDAQ:) are on track to deliver the best returns to investors this year to be delivered.
Shares of the digital advertising giant and parent company of the Google search engine are up more than 70% this year, while the iPhone maker has gained 39%. This achievement was delivered in an environment where many companies faced supply chain disruptions, labor shortages and escalating material costs.
The rest of the FAANG group members all gained in value in 2021, but the YTD performance was not that great: Meta Platforms (NASDAQ:) is up 28% YTD; Amazon (NASDAQ:) up 8%; and Netflix (NASDAQ:), have added 17% so far this year.
Alphabet is on track to close its best year since 2009, helped by strong demand during the pandemic for its digital advertising space from companies large and small. Alphabet, which derives most of its revenue from Google's advertising business, has seen a strong uptick in sales during the pandemic, with consumers preferring to shop online.
As the work-from-home trend continues, so does the California-based company's cloud infrastructure, after struggling for years. In October, Alphabet reported a 43% increase in ad revenue and a similar increase in YouTube ad sales.
While other ad-based internet companies, such as Facebook and Snap (NYSE:) were hit by the privacy changes in Apple's iOS, Google seems to be doing much better, thanks in part to its control of the Android operating system and lack of dependence on Apple.
Alphabet: more room for growth
Alphabet also still has significant opportunities for growth. Shares should continue to do better, according to a note from UBS this month. While analyst Lloyd Walmsley raised the company's price target on the stock from $3,925 to $3,925, analyst Lloyd Walmsley said its parent company Google was UBS's top share of Internet advertising companies.
The note said:
“We think Alphabet stock could see positive estimate revisions and multiple expansions as a result of faster-than-expected revenue growth and margin change at Google Cloud. We think investors are overly dismissive of Cloud's ability to move the needle based on the relative size of its potential EBIT contribution."
For the full year, Alphabet's sales are expected to deliver the fastest growth since 2007.
Apple: The world's largest company considered a safe haven. resilience in 2021. The stock continued to outperform even as other top tech companies faced volatility.
This superior performance was surprising given some evidence that the company is struggling to meet demand as global supply chain bottlenecks continue to hamper its ability to produce more hardware during the crucial holiday season.
One explanation for this unusual strength is that investors now view Apple as a safe haven with the ability to weather economic shocks more effectively than some comparable stocks. The company has a rock-solid balance sheet and more than $200 billion in cash on tap.
The world's largest company by market value, which is about 3% less than hitting a $3 trillion valuation, continues to generate very powerful revenue gains for its many companies. Last season, Apple reported a whopping 36% increase in sales, surpassing $81 billion in the three-month period.
Apple's core product, the iPhone, grew approximately 50%, confirming that this business segment is entering another super-growth cycle, despite supply chain issues driven by the new 5G-enabled iPhone models. AAPL's wearables, home decor and accessories segment also grew 36%. That category includes the Apple Watch, AirPods, Apple TV, the HomePod, and several other accessories.
Morgan Stanley's Katy Huberty in a note this month raised Apple's price target from $164 to $200, saying that Apple's new products, such as an augmented reality headset or self-driving car, are not yet in the stock price. processed
Her note said:
"Today we know that Apple is working on products to address two significantly large markets – AR/VR and Autonomous Vehicles – and as we get closer to the reality of these products, we believe that valuation can reduce the optionality of these future opportunities.”
In addition to the FAANGs, Microsoft (NASDAQ:), NVIDIA (NASDAQ:) and Tesla (NASDAQ:) are other tech megacap stocks that have so far outperformed the benchmark index in 2021, showing that investors prefer to own high-quality companies with track records of profitable growth.
Bottom Line
The dominance of these tech giants in 2021 marks a shift from the broad-based recovery we saw after the market crash in 2020. Investors' preference for the top tech companies also indicates they are seeking safety, as the Federal Reserve signals rate hikes , the pandemic continues to rage and the global economy grapples with supply-side bottlenecks.
