Big tech stocks are continuing their solid form, and that includes Facebook (NASDAQ:) and Alphabet Class A (NASDAQ:).

I’m bullish for both stocks.

Driving Forces

Most know by now that tech stocks have outperformed the broader market since the start of the pandemic lockdowns, but few know why.

Three main reasons tech stocks have outperformed the broader market are increasing factor productivity and the use of the Yardeni model. Also, continued growth rather than outperformance.

To calculate total factor productivity, you include capital and labor productivity. Total factor productivity is considered the main driver of developed market growth. It has risen by 64% over the last 18 months from its 1985 peak of 4.33.

Yardeni’s model is an extension of the Fed model. It is used to predict the trajectory of stock markets. The Fed model looks for improvements in the ‘s earnings yield, and a decrease to label a bull market. Yardeni suggests that earnings growth should also be taken into consideration, which includes growth stocks.

Since the dawn of the 21st century, large-capital growth stocks beat large-capvalue stocks by around 14%. Two outstanding large tech growth stocks have proven to be a great investment opportunity. Growth stocks can thrive on expected earnings.

Facebook

Facebook’s organic growth has been supported by smart hypergrowth acquisitions such as Instagram, WhatsApp, Messenger, and Oculus. Because it uses horizontal integration, the company’s acquisition strategy has been able to add enormous value.

Facebook is also a good example of high-growth tech concepts, such as Snap’s Snapchat (NYSE:). Facebook is a copycat of smaller tech companies to grow into new markets. When it fails to replicate, it simply acquires them to get premiums.

Facebook’s stock price is justified by its PEG ratio, 0.41. EBITDA margins and free cash flow margins of the company are higher than sector medians, by 136.9% & 92.4% respectively.

Wall Street continues to be optimistic about this stock and believes it is a strong buy. The stock has received 24 ratings: four buy, one hold, and three sell ratings in the last three months. With an average FB target price of $421.86, there is 22.7% potential for upside.

Alphabet Class A

Alphabet is a revolutionary big tech company that started out as a search engine, via its illustrious Google brand. It has grown to be a technology giant with its presence in cloud computing and adtech, as well as video streaming and other innovative solutions.

Alphabet’s class A permits investors to exercise voting rights. It has less shares outstanding than Alphabet’s class C (GOOG), which allows for a higher stock price.

Alphabet’s strong Cloud division as well as its ongoing advancement in AI is key drivers for the business.

Alphabet’s earnings are expected to rise by 71.9% through December 2021 according to analysts, due to the continued growth of mobile Google search.

Google’s long-term prospects remain positive as they have focused their efforts on new areas, like machine learning and autonomous driving.

Google’s stock trades in sound multiples. PEG ratios of 0.29 indicate that Alphabet’s growth rate surpasses the stock’s. Alphabet’s EBITDA growth was 1,096.2% higher than its sector’s in the last year, and its cash flow exceeds its sector mean by an astounding 20,322.5%.

Wall Street considers Alphabet a Strong Buy with 28 Buy ratings. One Hold rating has been placed. GOOGL has an average target price of $3198.86 which indicates 14.8% potential upside.

Final Word

Facebook and Alphabet are two standout stocks due to their link to the current driving factors behind the tech economy.

Amazon (NASDAQ 🙂 has become a conglomerate and not a pure technology company. Apple (NASDAQ 🙂 (APPL), Microsoft (NASDAQ 🙂 both compete in the hardware and software spaces amid a shortage of chips. Netflix (NASDAQ 🙂 also faces fierce competition.

This is what makes Facebook and Google so special.

Disclosure: Steve Gray Booyens held a position in GOOGL and AMZN at the time this article was published.

Disclaimer: Information contained within this article does not necessarily reflect those of TipRanks. TipRanks does not warrant the accuracy, reliability or completeness of this information. This article is not intended to be interpreted as an offer or recommendation for the purchase or sale of securities. This article is not intended to provide advice on legal, professional investment or financial matters. TipRanks or its affiliates are not responsible for the contents of this article. Any action you take based on the information is your responsibility. TipRanks and its affiliates do not endorse or recommend this link. The past performance of TipRanks or its affiliates is not an indication of future prices, results, or performances.