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Alphabet, the parent company of Google, added close to $10 billion to its $73 billion cash pile in the last three months of 2015. Its shares are down 11 percent this year, just a little more than the S.&P. 500.
SAN FRANCISCO — As the United States economy muddled along over the last few years, investors paid handsome sums to get in on high-flying technology companies that were among the few pockets of steady growth. Now comes the payback.
The Standard & Poor’s 500-stock index is down 9.4 percent this year. The index’s technology components are down about 12 percent, and the closely watched so-called FANG stocks — Facebook, Amazon, Netflix and Google — are down even further, falling 17 percent on average this year after an 83 percent rise in 2015.
“They go faster on the way up, they go faster on the way down. That’s about as simple as I can make it,” said Colin Gillis, an analyst at BGC Partners.
Shares of Twitter, the popular social media service, for example, are down about 40 percent so far this year. And some analysts worry it could tumble even more after the company announces quarterly results Wednesday afternoon.
The overall market has been hit by a slowdown in China and a collapse in the price of oil prices and other commodities.
Many technology companies continue to produce strong profits, and for the most part they have strong balance sheets with lots of cash to fund future growth. Alphabet, the parent company of Google, for example, added close to $10 billion to its $73 billion cash reserve over the last year.
But since these companies’ shares are priced high relative to their profits — that is, because investors are willing to pay more now in hopes of getting in on future growth — they become more vulnerable when there is a broader market downturn.
“The market is doing a general sell-off, everybody is looking at things,” said Skip Aylesworth, portfolio manager of the Hennessy Technology Fund. “Tech stocks are pretty expensive, so they are more prone to correction.”
How F.A.N.G. Stocks Are Performing
Take, for instance, the price-to-earnings ratio of Amazon and Facebook. P/E, as stock analysts call it, is a measurement of a company’s stock price divided by earnings a share. For Amazon, that number is 388. Facebook? It’s 78. But for the whole S.&P. 500, it is a more modest 17.
Wage growth has been slow for years, but consumers always seemed to have enough for a new iPhone or to try out new gadgets like a FitBit, all while shifting more of their spending to online outlets like Amazon and Netflix. Businesses embraced cloud computing and bought ever more ads on Google and Facebook.
No doubt, technology stocks were to some extent being lifted by the same low interest rates that had propelled the broader stock market, but they also had good stories to tell their investors, as well as the numbers to back it up.
Now some investors are wondering how long they can keep it up in the face of slower growth. The economy ended last year on a whimper, expanding less than 1 percent for a number of reasons including weaker trade and falling business investment.
Worried about a broader slowdown, investors have become quick to punish any company that looks as if its upward trajectory is flattening out, particularly if that company looks susceptible to the decline in businesses spending.
That thinking helps explain big drops for LinkedIn, the business-focused social network, and Tableau Software, a maker of business software. Both companies have lost more than half their market value after weaker-than-expected revenue forecasts.
Shares of Salesforce, the cloud software company, have been caught in the undertow and are down close to 30 percent this year.
“People are starting to anticipate a slowdown in the U.S. economy, and a slowdown in related technology spending,” said Scott Kessler, an industry analyst with S&P Global Market Intelligence.
Still, with consumer spending and job growth remaining healthy, the market continues to give special consideration to consumer-focused companies that are making their numbers.
Facebook shares are down 5 percent this year, much better than the overall market, while Alphabet shares are down 11 percent, just a little more than the S&P 500.
Then there is Amazon, which has suffered from outsize expectations: The company had a strong holiday season and fourth-quarter revenue was up 22 percent, but that was less than Wall Street had expected, and the stock fell from levels that had been a record high.
Netflix also disappointed Wall Street with American subscriber growth that was lower than investors had hoped. The stock is down about 25 percent this year.
What is not yet clear is how the decline in public company shares will affect the herd of tech “unicorns,” or private companies worth more than $1 billion, like the ride-hailing service Uber. Whatever the result, it is unlikely to be good.
“That whole thing that you’re going to hide out from the volatility in the public market — this is where they are going to find out that’s not true,” said Roger McNamee, co-founder of Elevation Partners, a technology investment firm in Menlo Park, Calif.
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