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Netflix Out, Microsoft In? Assessing the Changed Mega-Cap Tech Landscape

FAANG stocks have been the kings of the investing world for years, but with some underperformance and a new slate of safe-haven tech stocks, is it time to switch up the roster?

Netflix Building

Since the term FANG stocks was popularized in the early 2010s, those companies (Facebook, Amazon, Netflix, Google) have been placed on something of an investment pedestal. And with good reason, from the end of 2014 to the end of 2019, FANG stocks (which became FAANG stocks with the addition of Apple in 2017) returned over 178%, four times that of the S&P 500 (46% return for the same period).

Whether you knew it or not, if you were investing in the late 2010s, you likely owned your fair share of the FAANGs. During that same 2014 to 2019 window, FAANGs grew from 7.4% of the S&P 500 (market cap share) to 14.4%. Put another way, if you were investing through a plain vanilla ETF or large-cap mutual fund in a retirement plan, the FAANGs may have been a sixth of your equity holdings, even if you didn’t own any “tech” investments.

The strong performance of the FAANGs meant that investors were all on the lookout for the “next” FAANG stock, which was a common shorthand for the next multi-bagger, mega-cap tech company.

The combination of Facebook’s name change to Meta Platforms (META) and significant performance lag from Netflix has resulted in two competing replacement acronyms: FAAMG and MAAMA.

FAAMG (Facebook, Apple, Amazon, Microsoft, Google) and MAAMA (Meta Platforms, Apple, Amazon, Microsoft, Alphabet) both represent the same five underlying mega-cap tech stocks and are simply a matter of semantics.

The important point for investors is not which acronym is better, but rather, whether it’s time to jettison Netflix (NFLX) in favor of Microsoft (MSFT). The conversation has become increasingly relevant of late as the mega-cap tech companies have been attracting investors looking for “safer” growth. The thesis is that these companies have fortress balance sheets, with tons of cash on hand, positioning them to weather whatever else might be coming down the pike. In essence, the thinking is that nothing short of the end of the internet could drag these companies down, and if that happens (to steal a line from an old-school trader friend) it’s canned food and shotgun shells anyway.

One problem with a “vanity” category like FAANG/MAAMA stocks is that there are no clear criteria for inclusion on the list; this isn’t exactly an index fund with clear rules (other than both being internet-powered and attention-fueled, Meta and Netflix don’t exactly have a lot in common). So in the interest of being fair arbiters, let’s look at three data points (market cap, cash on hand, performance) for each of the possible FAANG/MAAMA stocks and see if it’s time to cut Netflix loose and add Microsoft to our lineup.

FAANG/MAAMA Stocks Market Cap & Cash on Hand

StockMarket Cap (In Billions)Cash On Hand (In Billions)
Apple (AAPL)$2,620.00$51.40
Microsoft (MSFT)$2,140.00$99.50
Alphabet (GOOG)$1,340.00$113.70
Amazon (AMZN)$1,050.00$70.00
Meta Platforms (META)$552.00$40.70
Netflix (NFLX)$154.00$6.00

Apple, Microsoft, Alphabet and Amazon are all clearly in a class of their own as trillion-dollar companies. Even Meta Platforms, which has only one-fifth the market cap of Apple, is a behemoth with a market cap of over $500 billion, making it nearly four times the size of Netflix (strike one for Netflix). If we were going by market cap alone, the $1 trillion mark seems like a fair cut-off, which would cut our MAAMA stocks down to MAAA.

If we pay closer attention to cash on hand, however (remember, the thesis is “safer” growth in any non-canned food and ammunition scenario), Meta certainly deserves a seat at the table as the $40 billion+ cash on hand leaves it well positioned to hunker in the bunker, cut costs (as they’re doing now) and weather the storm. Even the spectacular failure of Meta Platforms’ Metaverse initiatives cost only about $10 billion.

Netflix’s $6 billion is a lot of money for content creation (Disney acquired Lucasfilm and Marvel for $4 billion apiece) but doesn’t a fortress balance sheet make, which is a second strike against it in the current environment.

So, Netflix is in an 0-2 hole (two strikes against it), but all it takes is one good pitch to turn an at-bat around. Let’s look at the performance of all six stocks and see which of the FAANG/FAAMG/MAAMA stocks has a slugger’s chance of keeping their spot in the lineup.

One/Three/Five-Year Performance of FAANG/MAAMA Stocks

StockOne-Year (%)Three-Year (%)Five-Year (%)
Apple (AAPL)-7175294
Microsoft (MSFT)-987219
Alphabet (GOOG)-2791108
Amazon (AMZN)-39846
Meta Platforms (META)-93835
Netflix (NFLX)-12-420
S&P 500-116557

Unsurprisingly, given that the growth stock sell-off started 18 months ago, all six stocks have negative one-year returns, but Apple, Microsoft and Google are clearly in the lead having beaten the S&P 500 on all timeframes and with high double-digit three-year returns (or better) and triple-digit five-year returns.

Amazon, Meta and Netflix, on the other hand, have underperformed the S&P in two or more timeframes.

Considering it in the context of the thesis (“too-big-to-fail” tech stocks for “safer” growth), only MAA (Microsoft, Apple, Alphabet) tick the market cap/cash on hand/performance boxes. As the only other member of the trillion-dollar club, Amazon ($70 billion in cash, ticks off two boxes) warrants inclusion, even if returns have been subpar. Meta Platforms gets close on the market cap front and certainly boasts plenty of cash, but that lack of longer-term performance makes it a tougher call. Let’s give them credit on cash alone and say they got on base (hit by pitch?).

Netflix, though? Doesn’t boast the size, balance sheet or performance of a mega-cap tech leader and gets cut from the lineup. So FAANG stocks are out and MAAMA stocks are in, even if only three of them make a case as safe-haven tech stocks.

Brad Simmerman is the Editor of Cabot Wealth Daily, the award-winning free daily advisory.