Goldman Compares 'FAAMG' Stocks To High-Flyers Of The Dot-Com Bubble

The concentrated outperformance of a handful of mega-cap technology stocks in recent years is getting reminiscent of a similar trend during the peak of the dot-com bubble nearly 20 years ago. These massive tech giants have created a “valuation air pocket” in the market, according to Goldman Sachs analyst Robert Boroujerdi.

A New Scoop Of Alphabet Soup

Boroujerdi is concerned specifically with five stocks, which he refers to by the acronym FAAMG: Facebook Inc FB, Amazon.com, Inc. AMZN, Apple Inc. AAPL Microsoft Corporation MSFT and Alphabet Inc GOOG GOOGL.

“This outperformance, driven by secular growth and the death of the reflation narrative, has created positioning extremes, factor crowding and difficult-to-decipher risk narratives (e.g. FAAMG’s realized volatility is now below that of Staples and Utilities),” Buroujerdi wrote Friday.

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His comments sent all five FAAMG stocks and the entire Nasdaq plummeting on Friday.

So, What Happened Friday?

The overall return of the entire Nasdaq and S&P 500 is getting increasingly dependent on these five stocks, Boroujerdi wrote.

Friday’s trading action is a perfect example of the phenomenon he described. While the Dow Jones Industrial Average was up more than 0.3 percent in midday trading, the sell-off in FAAMG stocks dragged the Nasdaq down 1.0 percent on the day.

In his note, Boroujerdi included the chart below, comparing the current market influence of the FAAMG stocks to the influence of Microsoft, Cisco Systems, Inc. CSCO, Intel Corporation INTC, Oracle Corporation ORCL and Lucent back in 2000.

Despite the troubling similarities, Boroujerdi concluded that the FAAMG stocks are much more reasonably priced today in terms of their share of the overall S&P 500, their PE valuations, their cash balances and their free cash flows. However, he noted asset productivity and ROIC were higher during the peak of the Dot Com Bubble, suggesting the tech bubble was more about valuation rather than underlying fundamental performance.