While many parts of the market have experienced a rise in price volatility in recent months, it has largely been a one-way street for the tech darlings of Wall Street: Apple, Facebook, Amazon, Netflix and Google, also known as FANG + Apple, have grown their collective market value by more than 40% in the past year to $3 trillion,and now accounts for a staggering 25% of the Nasdaq Composite, with Apple ($900BN in mkt cap) and Amazon ($760BN) racing to see which company hits the historic $1 trillion in market cap first.

However, what has until recently seen by most investors as the least risky market sector, has experienced some unexpected “heaviness” in the past week, with some strategists warning that investors reliance on just this handful of momentum stocks exacerbates the risk of a steep downturn.

For one thing, there’s valuation, which on a forward basis remains mostly in the nosebleed levels. Below we show the Bloomberg consensus forward estimates for these five companies:

  • Amazon: 2018P non-GAAP EPS: $16.75; 2018 Adj. Net Income: $7.56BN; fwd P/E 189.9x
  • Netflix: 2018P non-GAAP EPS: $3.07; 2018P Adj. Net Income: $1.435BN; fwd P/E 116.4x
  • Google: 2018P non-GAAP EPS: $12.11; 2018P Adj. Net Income: $8.55BN, fwd P/E 27.3x
  • Facebook: 2018P non-GAAP EPS: $8.388; 2018 Adj. Net Income: $24.65$BN;fwd P/E 25.6x
  • Apple: 2018P non-GAAP EPS: $11.51; 2018P Adj. Net Income: $58.5BN, fwd P/E 15.5x
  • Adding across, the 5 companies are projected to make just over $100BN in adjusted net income in 2018 (far less on a GAAP basis), much of which is expected to come from ad sales. Which means that as a sector, these 5 companies are now trading at a 30x blended forward P/E multiple.  Hardly cheap.

    Just as concerning is that as Goldman recently showed, technology stocks are the most “crowded trade” on Wall Street – with Amazon, Facebook and Google 3 of the top 4 most widely held hedge fund stocks – which is great when times are good and prices keep rising, and problematic to say the least in case of a downturn with a significant potential for a volatile selloff if sentiment changes and the “hedge fund hotel” begins evacuation.

    Print Friendly, PDF & Email