This week is one of the biggest for tech-sector earnings, with $2 trillion in market cap across Facebook, Amazon and Alphabet, but experienced investors who actively trade accounts worth $1 million or more are focused less on FANG and more on the overall view of the tech sector.
And they don't like tech right now nearly as much as they have in the recent past.
While the big-name FANG (or FAANG if you include Apple) stocks drive much of stock investor interest in tech — and a significant portion of market return — wealthy investors are taking the broader view that it is a good time to look for other sectors in the market that may offer more short-term potential.
The percentage of millionaire investors who say the tech sector offers the most potential this quarter dropped from 48 percent to 35 percent, according to a survey conducted by E-Trade Financial among investors with $1 million or more in a brokerage account and provided exclusively to CNBC. There also was a significant difference between the wealthy investors rebalancing tech and the broader brokerage accounts (those with at least $10,000) surveyed by E-Trade. Among all investors, the percentage of those who think the tech sector offers the most potential ticked up, not down, from 44 percent to 45 percent.
"Many of these investors remember the dot-com boom and bust. ... Valuations are high," said Mike Loewengart, vice president of investment strategy at E-Trade. "The FANG stocks have led the charge for the sector for the last few years. But it comes down to the fact that the tech sector is not immune to the business cycle. We are seeing investors being mindful of this ... and interest and expectations have moderated for the quarter."
The first big tech earnings issues mixed signals. Netflix didn’t fare well as subscriber growth stalled, while Microsoft gained on the strength of solid results and its cloud business performance.
Since President Donald Trump's election, the Nasdaq has gained 51 percent. The Dow has gained 37 percent, while the S&P has gained 31 percent.
The major beneficiary of the tech-sector downgrade was energy: 49 percent of millionaire investors said the energy sector offers the most potential in the third quarter, up from 30 percent in the second-quarter survey. "Energy stocks outperform amid geopolitical tensions, " Loewengart said.
These investors are not alone in being more cautious on tech. The head of BlackRock, the world's largest asset management company, said last week he was concerned about the percentage of market return coming from mega-cap tech stocks.
Year-to-date, the tech sector has contributed roughly 67 percent of the S&P 500 return, led by Amazon, Microsoft, Apple, Netflix and Facebook, according to S&P Global data. Google is also in the top 10 among S&P 500 stocks providing the biggest contribution to the S&P 500 return. (The only non-tech stocks are MasterCard and Visa.)
Still, a detailed look at the S&P 500 return profile revealed that plenty of stocks are doing well. A common measure used as proof of tech's dominance is lack of what it called "market breadth" — how many stocks in the index are contributing to a positive return. By that measure, nothing really changed to the negative coming into earnings. Year-to-date the number of stocks in the S&P 500 that were up as of July 13 is 268 versus 237 being down. S&P Global senior index analyst Howard Silverblatt noted that even with the outsize contribution year-to-date from tech, that has actually come down a little bit for tech in July. "Recent breadth has been strong, not a return to rising tide, but better overall breadth," Silverblatt wrote in an email to CNBC.
Investors who trade sector ETFs have invested more heavily in tech than any other part of the market throughout 2018. The First Trust Dow Jones Internet Index ETF (FDN) and Vanguard Information Technology ETF (VGT) have taken in $2 billion and $1.4 billion, respectively. The Invesco QQQ ETF (QQQ) tracking the Nasdaq 100 has inflows of roughly $3 billion this year, though it has swung recently from an outflow of over $800 million in June to more than $800 million of inflows so far in July, according to XTF.com.
Investors are not abandoning tech, even if some of the more seasoned ones are more wary of riding the sector's returns. Overall, bullish sentiment on the market rebounded in the third-quarter E-Trade survey. Second-quarter bullishness hit a two-year low but rebounded in the early July survey, with 49 percent of millionaire investors expecting the market to rise this quarter by at least 5 percent, up from 40 percent in Q2. Only 25 percent expect the market to experience a drop, down from 38 percent last quarter. Overall economic bullishness among these investors also increased, to 66 percent, up from 59 percent in Q2.
"The millionaire set — they've seen through the volatility in late January and February. It was a wake-up call for everyone, but when we see the results to the bullishness question, it becomes clear that these investors see strength in the economy and it is giving them strength to pursue their investment objectives in the face of volatility," Loewengart said. "Issues still remain — there are no shortage of concerns with an actual trade war going on — but the strength of the economy is giving investors confidence."
Loewengart said investors are thinking about their overall weighting to tech, and more of them are in a wait-and-see mode before earnings reports worried about the growth metrics holding.
Mitch Goldberg, president of Melville, New York-based investment advisory firm ClientFirst Strategy, said the FANG stocks have cleared hurdle after hurdle, but that doesn’t mean investors shouldn't cut back and rebalance according to their risk tolerance. "Better for you to do it before the tech sector does it for you," he said.
Goldberg has been been scaling back on tech and adding to individual stocks in staples, big pharma, industrials and financials, which was the most popular sector in the E-Trade survey, with 56 percent of millionaires saying it offered the most potential. "Nothing in this market is actually cheap. Low valuations only exist relative to other sectors when you’re far into a bull market," he said.
Goldberg said any millionaire investor is also an “experienced” investor, but what they are able to see in the market is available to all. "FAANG, fintech and cloud stocks are up huge this year. They’ve been carrying water for the whole stock market for a long time now. Yes, energy is having a good year, but that sector is only a small part of the overall S&P 500. What makes the FANG stocks worth so much more in just the last few months is a question worth asking."
Note: The E-Trade quarterly survey was conducted from July 1 to July 11 among an online U.S. sample of 940 self-directed active investors who manage at least $10,000 in an online brokerage account. The results from the subset of investors with $1 million or more in a brokerage account is provided exclusively to CNBC.