The big tech rout may just be getting started

After a bitter end to the week for big tech stocks, a big question remains: Was the Friday drop a one-day aberration, or the start of a significant reversal for the high-flying group?

After hitting a record high in early trade — its 10th in the past 12 sessions — the Nasdaq 100 fell powerfully on Friday, closing the day with a loss of 2.4 percent. Apple, the biggest component in both that index and the S&P 500, fared even worse, closing down 3.9 percent.

The sector is not exactly bouncing back in Monday's session. With two hours left in trade, the information technology sector is down 1.3 percent, making it the S&P 500's worst-performing sector by far. In the S&P, the three worst-performing stocks are Netflix, Skyworks and Apple, with the latter sliding by about 4 percent.

Concerns that the biggest tech names may have gotten overvalued appear to be driving the two-day move.

On Friday morning, a widely read piece of research from Goldman Sachs showed that five stocks — Facebook, Amazon, Apple, Microsoft and Alphabet — have been "key drivers" of both the S&P 500 and the Nasdaq 100. Goldman argued that this outperformance "has created positioning extremes, factor crowding and difficult-to-decipher risk narratives," going on to note that thanks to these stocks, the "momentum" investing factor "has built a valuation air pocket underneath it creating cause for pause."

To make things worse, the team led by Robert Boroujerdi wrote that the tech run "has evoked memories (nightmares?) for some investors of the last euphoric Nasdaq run including yours truly," and made the point that tech stocks were actually more profitable back in the tech bubble, though on the other hand they were trading at much higher valuations.

A few stock-specific stories hurt as well. Andrew Left of Citron Research put out a Friday report that he summed up in the following tweet: "$NVDA become a casino stock. Will trade back to $130 before $180 If you think no comp READ Google whitepaper."

As the syntax suggests, this might not be the most carefully honed piece of investment research, but the fact that the stock nonetheless fell as a result essentially proves his point about the speculatory nature of Nvidia shares.

Meanwhile, a Bloomberg report about the lagging data speed of Apple's upcoming products appeared to seriously hurt the tech giant.

The confluence of factors led to a move that some see as the start of a potential sea change.

"This really looks like a rotation out of the momentum stocks and into more of your value stocks, and we've been waiting for that for a while," Erin Gibbs of S&P Capital said Friday on CNBC's "Power Lunch."

"To me, this is a regime change, and people are finally looking to move away from a momentum play," Gibbs added. "I think we could see this trend continue over the next few months."

Stacey Gilbert, head of derivative strategy at Susquehanna, forecasts that "it's the beginning of a lot more volatility in the sector."

"I think investors are re-evaluating valuations right here," Gilbert said on "Power Lunch." "There's just a sanity check, as more and more people are talking about how expensive these stocks are and how much they have gotten ahead of themselves."

In the options market, "some people think we may be starting this trend where tech is now going to become less of a darling."


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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