Blue chip shares – everyone wants to own them. But what are they? And do the world’s largest technology companies – Facebook, Amazon, Apple, Netflix and Google (the “FAANGs”) – count as blue chip?
In this discussion, I spoke with Owen Raszkiewicz, founder of Rask, about what a blue chip company is, and whether the “FAANGs”—Facebook, Amazon, Apple, Netflix, Google—qualify.
For Owen, blue chip companies have four attributes: maturity, brand strength, wide moats and dividends. This means that for him, FAANGs do not qualify as blue chips. This is because they are still growing very quickly and are, therefore, not mature. Additionally, many of them do not pay dividends. He adds, however, that what counts as blue chip is subjective.
While not necessarily blue chips, Owen believes that the FAANGs may be “unstoppable” nonetheless, given their near-total control of global communication. The FAANG’s dominance today bears a resemblance to big oil 100 years ago—where market power begat greater profits for oil companies, which begat greater market power still. But with great market power comes the possibility of regulation, which has been a lurking threat for the FAANGs. Absent regulation, the only question left is valuations and what investors should be willing to pay for the FAANGs.
For my part, I agree that the FAANGs seem unstoppable. For the same reason, I wonder whether the FAANGs can be valued the same way as more traditional blue chips. Even at $2 trillion market capitalization, Apple is growing very quickly making it different to local blue chips like Woolworths and Westpac. Potentially justifying a different PE ratio, among other things.