The FAANG trade returns, as group gets boost from Alphabet to lead market comeback

Published Wed, Feb 2 202212:16 PM ESTUpdated Wed, Feb 2 20223:02 PM EST

After a weak start to the year, Big Tech stocks are roaring back and leading the market higher. Alphabet 's blowout quarterly earnings report Tuesday reminded investors that the mega-cap technology companies are highly profitable and can still thrive even as interest rates rise. "These tech giants ... used to be the innovator stocks with high risk, but now they've become bellwether stocks that bounce back stronger and sooner than the rest of the market," Steve Jang, founder and managing partner at Kindred Ventures, told CNBC's "Squawk Box" on Wednesday. "They continue to drive profits. ... They continue to increase their lead against a lot of their competitors." Alphabet blew expectations out of the water, reporting a fourth-quarter operating profit margin of 31% — it highest quarterly result in more than a decade. Apple in its latest quarterly results posted a gross margin of 43.8%. Investors are rewarding the Big Tech companies by bidding up their shares. Alphabet popped more than 7% Wednesday post-earnings. The FAANG stocks — Facebook parent Meta Platforms , Amazon, Apple, Netflix and Google parent Alphabet — are all up at least 8% in the past five trading days as of midday Wednesday, compared with the S & P 500's roughly 4.5% return in the last week. Earlier this year, tech stocks sold off as investors braced for the Federal Reserve to hike interest rates and tighten monetary policy to address inflation. Growth stocks trade on the promise of big earnings in the future, so tech shares are often susceptible to declines from rising rates due to their high valuations. But unlike other growth companies seeing big share-price hits in the last few months, these mega-cap tech are now tracking a different path. As their share prices fell, the Big Tech stocks became cheaper relative their earnings. For example, Alphabet's forward price-to-earnings ratio — price relative to its forecast earnings for the next twelve months — is currently 23.9. That's lower than both its five-year high of 32.9 and its five-year average of 25.6, according to FactSet. "Big Tech companies are clearly the most resilient and the most profitable ones in tech, so any discounted valuation that they are facing will see a reversal as we get these earnings," MKM Partners' Rohit Kulkarni said. Quarterly reports from Meta on Wednesday and Amazon on Thursday will give investors more insights into how FAANG stocks fare this year. "Market demand will trump interest rate and inflation worries, as we have seen with higher interest rates in the past," Kulkarni said. "Growth always trumps near-term hiccups." — CNBC's Nate Rattner and Michael Bloom contributed to this report. Correction: This story was updated to reflect that Steve Jang spoke on "Squawk Box" on Wednesday.

The logos of mobile apps, Google, Amazon, Facebook, Apple and Netflix, are displayed on a screen in this illustration image.

Regis Duvignau | Reuters

After a weak start to the year, Big Tech stocks are roaring back and leading the market higher.