There is a lot of money betting against the big tech stocks that have led the market to new highs over the past decade. According to data from Bloomberg and S3 Partners, short positions in the big-tech FAANG stocks have risen by more than 40% over the past year to a whopping $37 billion.

That means there is $37 billion out there that is directly betting on FAANG stocks going down from here.

Ostensibly, this bet makes some sense. After all, each of the FAANG stocks are up more than 90% over the past three years. And, as the old saying goes, what goes up, must come down.

Thus, there is a substantial amount of money out there betting that as this market cools off over the next several quarters, the beloved FAANG stocks will lead the descent.

But, I’m not so sure about that.

When you look at the FAANG stocks, they all look pretty good here. Valuations are reasonable. Growth is massive. Future growth potential is even bigger when you consider all the dollars flowing from traditional industries to digital industries.

Overall, despite the rising short interest, I think the FAANG stocks continue to head higher into the foreseeable future. With that in mind, here’s my breakdown of each FAANG stock, and where I think it will go over the next twelve months.

Facebook Is Severely Undervalued

When it comes to Facebook (NASDAQ:FB), this is the short trade that makes the least amount of sense to me.

The bear thesis is predicated on the fact that Facebook platform engagement is dropping, and that regulation will mitigate monetization ability. But, all of that is already priced into FB stock. This is a stock trading at less than 25X forward earnings, but which is growing revenues at a 40%-plus clip.

Moreover, while Facebook platform engagement is dropping, Instagram platform engagement is rising. Facebook owns Instagram, so engagement isn’t really leaving the Facebook ecosystem. Plus, it has been several months now since the Cambridge Analytica scandal, and regulation hasn’t really progressed in any meaningful way that restricts Facebook’s ability to monetize users.

Bigger picture, there are still a ton of ad dollars that have yet to make the transition to the digital sphere. As those dollars do migrate from traditional channels to digital channels, a healthy portion of them will be allocated towards Facebook.

This continued secular shift towards digital advertising will keep Facebook’s growth rates high for the next several years, and power FB stock, which is way undervalued right now, significantly higher.

Apple Is Transforming into a Better Business

Source: Shutterstock

The bear thesis on Apple (NASDAQ:AAPL) makes as little sense as the bear thesis on Facebook.

One could argue that Apple stock is trading above its historically normal valuation, and that a near-term pullback is overdue. I somewhat agree with this. But, beyond a near-term correction, I don’t realistically see AAPL stock heading lower in a medium to long term window.

Apple is transitioning from a hardware business with lumpy revenues and low margins, to a software business with consistent revenues and high margins. This transition is playing out right now, and with the services business still growing at 30%-plus rate, promises to play out at a healthy pace over the next several quarters and years, too.

Meanwhile, AAPL stock trades at a sub-20X forward multiple. That is expensive for AAPL stock. But, it is inexpensive for a hyper-growth software stock. Considering Apple is making that transition to software, and that software business is growing at a 30%-plus clip, there is reason to believe that Apple’s multiple has room to move even higher.

Throw in buybacks and Apple’s massive cash balance into the mix, and the short thesis on AAPL stock doesn’t make much sense.

Amazon Is (Still) Taking over the World

I understand the bear thesis on Amazon (NASDAQ:AMZN) to an extent. The valuation is huge. That scares some people. Profit margins are tiny. That also scares some people. In a period of economic or market weakness, the valuation of AMZN stock could fall by a bunch.

But, the economy is healthy right now, and with consumer confidence at essentially 20 year highs, the economy promises to remain vigorous into the foreseeable future. Meanwhile, after adjusting for this year’s super-charged earnings growth, the stock market isn’t all that expensive.

Thus, the macro-risks which could derail AMZN stock don’t have much legitimacy today.

With respect directly to Amazon, this company is still taking over the world. Ecommerce growth rates remain robust. Total retail growth rates are getting a big boost from Whole Foods.

The cloud business remains on fire and is still the dominant force in the public cloud market. Amazon is also flirting with a big push into logistics and pharmaceuticals, while ramping up an already sizable digital advertising business.

So long as this company continues to disrupt tangential high-growth industries and expand its reach, AMZN stock will head higher. There is no sign of this disruption strategy ending any time soon. Thus, AMZN stock should keep heading higher.

Netflix Is the Weak Link but Still Strong

For the record, I think all FAANG stocks will head higher. But, if you forced me to short one, I’d short Netflix (NASDAQ:NFLX).

Netflix has the biggest valuation in the FAANG stock group, but isn’t the biggest revenue grower. Granted, there is lots of margin expansion happening at Netflix, but it is tough to forecast out how long this robust margin expansion can last.

Plus, competitive headwinds are building, and the launch of Disney (NYSE:DIS) streaming in 2019 presents unprecedented risks to this growth narrative.

Having said all that, Netflix is the king of the over-the-top TV industry, which makes this company the future face of entertainment. This industry is so big that it will likely support multiple winners in the long run.

As such, Netflix will likely be able to succeed alongside Disney and others, much like Amazon succeeds alongside Wayfair (NYSE:W) and others in the digital commerce world.

Thus, despite the big valuation on NFLX stock, the company is supported by a very promising long-term growth narrative. That growth narrative isn’t showing any sings of slowing yet. As long as this company successfully navigates competitive risks, the stock should head higher.

Google May Be the Most Promising Tech Stock in the World

Last, but certainly not least, there is digital search giant Google (NASDAQ:GOOG).

Google may very well be the best FAANG stock to own at this point in time. The valuation is reasonable at roughly 25X forward earnings. Revenue growth is healthy and consistent in the 20%-plus range. Margins, which have been this company’s Achilles heel for the past few quarters, are normalizing thanks to moderated TAC growth in the digital ad business.

Plus, the company is built into the fabric of the internet (digital search is the backbone of the internet, and Google is digital search). And, the company has an immensely valuable consumer database, which Google is using to create next-gen businesses in AI, cloud, and autonomous driving.

In totality, this is a big growth stock with diversified growth drivers that is trading at an exceedingly reasonable valuation. That is the sort of set up that leads to healthy share price appreciation in the near, medium, and long terms.

Bottom Line on FAANG Stocks

Short positions against FAANG stocks rose 42% over the past year. So what?

The fundamentals on these stocks remain very strong. The valuations aren’t unreasonable. And, the economy is healthy, the market looks solid, technology growth potential remains immense, and the narratives are still largely positive.

Thus, until something changes about the fundamentals regarding the market or these stocks, FAANG stocks will remain big winners.

As of this writing, Luke Lango was long FB, AAPL, AMZN, DIS, and GOOG.