Big tech was slammed Friday as investors took profits from the group, which some fear has become a massive market bubble.
The sell-off accelerated in afternoon trading, with the Nasdaq falling 2.4 percent, and names like Facebook and Apple, down 4 percent. The S&P tech sector was down 3.3 percent Friday but was still up 18 percent for the year.
Goldman Sachs on Friday released a report on the top five outperforming mega-cap names in tech with some warnings on valuations and concerns that their volatility has become extraordinarily low. In fact, the stocks had become closely correlated to safe haven plays, like bonds and utilities.
Goldman studied the valuations of the tech leaders, known as the FAAMG — for Facebook, Amazon.com, Apple, Microsoft and Alphabet (Google). (It left out Netflix from the original FANG, since its impact on the S&P 500 is still too small.)
What it found is that the current-day tech stocks have advantages in cash flow, valuation and cash balances over the top five tech names in the first quarter of 2000 — just before the bubble burst. But the current group is behind in profitability, as measured by gross profits and total assets. The tech bubble names Goldman studied included Lucent, Cisco, Oracle and Intel. Microsoft was the only stock to make both lists
The FAAMG names have added a total of $600 billion of market capitalization this year — the equivalent of the GDP of Hong Kong and South Africa combined, says Goldman. The group makes up about 13 percent of the S&P 500, but has accounted for almost 40 percent of its year-to-date performance. The stocks are among the top holdings of hedge funds. The analysts noted that mutual funds, aimed at core, growth and value, are overweight all but Apple, and the five companies combined are 11.8 percent of those mutual fund holdings.