Microsoft and Nvidia on their way to Join the Top Companies
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Head of Research Sales at Instinet, a subsidiary of the Nomura Group,Prashant Sundararajan recently commented that market may not be in love with major companies as much as they may be in love with their stock styles. Tech giants like Facebook, Amazon, Netflix and Google have amazing stock values. The scale to judge a tech company’s performance is not through their products, but by the growth in their stocks.
The leaders in the tech industry- Facebook, Amazon, Netflix, and Google- are commonly referred as FANGs on the stock market and have amazing returns per annum. All these tech giants are leading in innovation as well as growth in the tech market by a significant margin. They have quashed their competitors and newer entrants are highly unlikely since they buy off anyone who tries to come in their way.
Sundararajan has recently carried out a performance analysis of the FANGs. He carefully pin points the key characteristics that they possess that other companies may not. He has broken down his analysis into systematic factors and stock specific ones providing an insight into how the companies increase value. A portfolio is created that is later on compared against groups of stocks. All of these stocks contain certain characteristic which include earnings growth or stock-price momentum.
Sundararajan then goes on to check whether the correlations are strong. This move explains most of a portfolio’s movements and whereabouts which then go on to explain how the portfolio is responding. If unresponsivene to the fundamentals of its specific stocks, including individual companies’ earnings or products, it may then become the key factor to judging where the company stands.
All the tech giants in the FANGs have returns that have been entirely driven by high earnings growth ratios, high variability of earning ratios as well as increased liquid trading. This gives way to other tech giants like Microsoft and Nvidia who also possess a similar approach to be added to the FANGs. With the addition to the number of letters increasing, stockholders can see an increase in value of stocks. Both the companies contain the resources and returns to play an active role in the market. The head on collision of all these tech companies may affect prices and increase the probability that no new entrants will ever be able to access the market.
Having offsetting style factors in your portfolio as a tech investor can prove to be beneficial in such a time. Sundararajan commented on how factor-diversified portfolios can prove to be essential in the years to come. Whether the company you want to invest is in Microsoft or Apple, the tech giants are going to see an increase in growth as more people get access to newer technologies. More innovation can increase stock value to that of Apple, provided it is something that customers wish to have and not anything out of the blue.
As of now, welcome to the FANGs Microsoft and Nvidia!