Jim Cramer warns FAANG shares: Amazon, Netflix & Co. have to adapt to market conditions

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• Weak quarter for FAANG stocks
• Tech stocks replaced by financial stocks?
• High degree of customization required

Tech giants under pressure

After the beginning of the corona pandemic caused the markets to collapse briefly in March 2020, some sectors then quickly recovered. Tech stocks in particular were among the winners of the crisis, as the demand for high-performance hardware and software increased with the trend towards social distancing and working from home. The FAANG titles were also able to benefit from strong share prices. The abbreviation stands for the tech giants Facebook (Meta Platforms), Amazon, Apple, Netflix and Google (Alphabet) and was coined by TV presenter and entrepreneur Jim Cramer. In the current accounting season, however, the formerly dominant “Big Tech” stocks were no longer able to score.

Poor environment for tech stocks

In addition to the impact of high inflation rates on consumer spending, FAANG Group is also suffering from the higher interest rates that are currently prevailing. Unlike value stocks, whose market values ​​are based on current performance, tech stocks are often priced on high valuations and with them hopes of attractive future returns. While investors were kept in a good mood with substantial price increases in the previous two years, a general lower willingness to take risks can currently be observed, which has also left its mark on the industry giants.

FAANG shares ‘got too big’

And Cramer himself warns that the situation for FAANG shares is currently difficult. “For more than a decade, tech stocks were the market leader,” the TV personality told CNBC’s Mad Money. “And we got so used to it that we forgot that this group was often an underdog.” However, after the Facebook parent company Meta, Amazon, Netflix and the Google group Alphabet disappointed with their balance sheets and Apple was able to report a new record turnover, but significantly slowed down in growth compared to previous reporting periods, investors have to admit that the sector stumbled. “It’s time to realize that FAANG names have gotten too big,” Cramer said.

Financial stocks could overtake tech stocks

Instead of tech stocks, stocks from the financial sector could now lead the market, as Cramer suspects. “I always thought the group had the potential to become a leader again, but the banks could never make it because the Fed kept interest rates so low that it was difficult for them to make money,” said the market insider. “Not anymore.” In contrast to Amazon & Co., banks benefit from higher interest rates, at which they can park excess funds with the Fed. At the same time, the interest rates for credit customers of the financial institutions also rise, which also benefits them.

U-turn can still succeed

So is this the beginning of the end for “Big Tech”? Not necessarily, Cramer continues. “Can they turn things around? Sure, but they really need to change the way they work.” For example, the stock exchange guru praised the fact that the streaming provider Netflix wants to continue to take decisive action against the sharing of accounts among several viewers and is now also offering an advertising-financed subscription model. The tech companies cannot avoid adapting their business practices. “Forget leadership — big stocks are now followers in a post-COVID era where we’re learning their earnings have been inflated by the pandemic much more than we knew,” Cramers said.

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