What if the FANG stocks dominate for the next eighty years?

By: TradeSmith Research Team

2 weeks ago | Educational

What if the FANG stocks dominate for another eighty years? What if Facebook, Apple, Amazon, and Google are still dominant in the year 2100?

It’s an intriguing question for at least two reasons.

First, if the FANGS are institutions that will last for generations, they should be seen in a different light.

Second, the idea of the FANGS dominating for the rest of the twenty-first century counters the conventional wisdom — which says giants eventually fall — and the way Silicon Valley markets itself.

At least in theory, tech companies are supposed to come and go — disrupted after a while by a new crop of dominators. After all, that is what the history suggests: IBM dominated the technology world for a while, then got eclipsed.

After IBM, it was Microsoft’s turn to dominate, with Apple rising and falling and rising again. Over time, Google, Amazon, and Facebook rose up.

And so, eventually, the FANGs will fall, and a new group of tech giants will rise. Or so the thinking goes. 

This conventional wisdom idea — that the current crop of tech giants will be displaced and replaced — is actively promoted by Silicon Valley and tech giants themselves.

It’s a form of public relations, basically. The tech giants don’t want to appear invincible, lest government regulators get too interested.

But as a counter to the “all giants fall” idea, there is another possibility: The path of the American automakers from 1920 to 2000.

As Ben Thompson of Stratechery recently pointed out, the first American automaker was founded in 1895. By the year 1900, there were 34 more. By the year 1910, another 233 auto makers sprang up. Between 1910 and 1919, there were 168 more.

And yet, by the year 1920, there were three giant automakers that dominated everyone else — Ford, Chrysler, and General Motors. Competition waned from that point.

From 1920 on out, the “big three” dominated car production for the rest of the 20th century. For most years following — until the rise of the Japanese auto industry — competition was a rounding error.

So, more or less, the first twenty years of the 20th century saw hundreds of American automakers enter the fray. But by the year 1920, there were three dominators who would last the rest of the century.

The FANGS could have a similar trajectory — dominating the next 80 years, from 2020 to 2100 — because of structural advantages comparable to what the “big three” automakers had circa 1920 to 2000.

At a certain point, scale becomes a massive sustainable edge. For example: One of the hardest feats in existence is acquiring a billion customers (let alone billions plural).

At a certain point, it becomes easier to permanently keep those customers, through lock-in and ongoing heavy investment, than to lose them to someone else.

Then, too, information technology has massive infrastructure requirements at mega-scale: The servers, the army of coders, the vast capex requirements for technology upgrades, and so on. Only a tech giant can have an R&D budget in the hundreds of millions to billions.

In these areas, the FANGS are like the auto makers of 100 years ago in the sense that a small group of companies — very small — has collected a series of mega-scale advantages that won’t go away, and could in fact last for generations.

Another key point is that consolidation does not mean stagnation — or at least it doesn’t have to.

For example, even though the “big three” American automakers had established their dominance by 1920, that did not stop the automobile, as a form of disruptive technology, from completely transforming American life over the course of the next eighty years.

Everything from shopping malls to fast food to long-distance work commutes revolved around the American car, with trillions of dollars’ worth of ecosystems springing up around mass car ownership.

If the FANGS continue to dominate, the flood of new innovations and breakthrough technologies that will hit in the coming decades could be like the stream of breakthroughs around cars and car culture in the years between 1920 and 2000.

Everything from the seat belt, to independent suspension, to car stereos, to drive-in movie theaters were car-centric innovations, and all of those redounded to the benefit of the big three automakers.

In this version of the future, the same thing happens with the FANGS — they wind up being the distribution point, and the funding-at-scale rollout source, for future innovations of all kinds.

If the market itself starts to view the FANGS this way, their general valuations could be pushed higher. The same profit stream is worth more, from a safety standpoint, if the dominance timeframe is extended.

This might be part of what’s going on with Apple (AAPL), which has seen a share-price rise of more than 100% over the past twelve months.

It may be that, instead of being on the backslope of a fading smartphone era, Apple is one of the juggernauts who will still be ruling tech fifty years from now. Or eighty years from now for that matter.

TradeSmith Research Team

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