Microsoft Corp. (MSFT) stock as well as a few other software firms, have been doing great and even outperformed FAANG in 2018. The trajectory has continued into 2019 and MSFT just might be taking some shine away from FAANG.
For a long time now, FAANG stocks have been the unofficial standard by which the S&P 500 is measured. FAANG which is an acronym for five of the biggest tech and internet companies – including Facebook, Apple, Amazon, Netflix and Google parent Alphabet Inc., – were regarded by investors, traders and even analysts alike, as the stocks that account for a large percentage of the general returns gotten from the index.
For the better part of 2018, FAANG pulled in amazing returns for investors and seemed to be a bubble in the otherwise not-so-impressive stock market. However this didn’t last throughout the year because in the last three months, these stocks began to suffer and as much as 20% was shed, almost completely dissolving all of the gains it had gathered in the year.
FAANG stocks haven’t performed poorly in 2019 but their poor end for last year seemed to have caused the market to divert its attention towards other tech stocks, specifically to software as a service (SaaS) firms. The impressive performance of these firms in the market has largely not been very popular, probably because of FAANG’s own popularity. Now, the market is slowly starting to pay attention.
Speaking to MarketWatch, Jon Caplis, the CEO at hedge fund research and intelligence platform Pivotal Path, has pointed out that SaaS performance in the stock market has been quite “outstanding.” Caplis revealed that in 2018, FAANG gained only 7%.
In comparison, some of the biggest SaaS firms including Microsoft Corp. (MSFT), Workday Inc. (WDAY), ServiceNow Inc. (NOW), Salesforce.com Inc. (CRM), as well as Atlassian Corp. Plc. (TEAM), pulled in gains almost closing in at 77%. The company also recently released a report which pitched FAANG stocks against SaaS. Apparently, SaaS has successfully made 2019 year-to-date (YTD) gains of 46.5% with FAANG just a little over half of that, at 24%.
Atop the current market is MSFT. With a market cap of $1.06 trillion, it is the biggest in the S&P 500. Its trajectory has been quite measurable for about 6 years as MSFT has surged over 400% in that period. A large part of MSFT’s success can be traced to its Azure cloud computing service, which pulled in a 91% revenue increase in the 2018 fiscal year.
Since there is no official record from Microsoft on actual sales, analysts have suggested that the figure could be $13 billion, suggesting a $5 billion increase this year and representing up to a third of the firm’s total revenue.
Investors are starting to see the light and – if the numbers are anything to go by – might be slowly replacing FAANG. Between 2018 and July this year, hedge fund ownership of these stocks has lost more than $23 billion. On the other hand, the same period has seen SaaS growth by $13.6 billion and rising.
Generally, FAANG stocks have had a much better 2019 than last year but MSFT’s upward surge is too remarkable to pass on. Even though not completely, certain macroeconomic and political factors that seem to easily put a dent on FAANG does not seem to have that much of an effect on MSFT. Could MSFT be the new safe haven?