SAN FRAN­CIS­CO–The stock mar­ket's laws of grav­i­ty are rav­aging its high­est fliers. Just look at the list of tech­nol­o­gy trail­blaz­ers whose val­ues have plum­met­ed from record highs dur­ing the past few weeks. In­vestors have re-fo­cused on safer sec­tors such as util­i­ties, health care and con­sumer sta­ples in­stead of com­pa­nies that promise po­ten­tial growth from on­line ser­vices that are build­ing huge au­di­ences.

Stung by the abrupt change in sen­ti­ment, the stocks of re­cent stars such as Net­flix, Face­book, Twit­ter and LinkedIn are 20 per cent to 45 per cent be­low their re­cent peaks. The steep down­fall is rais­ing ques­tions about whether this is just a fleet­ing fit of fick­le­ness or the fore­shad­ow­ing of an­oth­er mar­ket bub­ble about to burst.

The tech-dri­ven Nas­daq com­pos­ite in­dex fell 1.3 per cent to 3,999 Fri­day to punc­tu­ate a pun­ish­ing week, and is down 8 per cent since ear­ly March, when it hit a 14-year clos­ing high of 4,358. Last year, the Nas­daq soared 38 per cent.Op­ti­mists ex­pect a re­bound. They point out that tech­nol­o­gy re­mains a bright spot in an oth­er­wise drea­ry econ­o­my as soft­ware, com­put­ers, mo­bile de­vices and the In­ter­net fill in­creas­ing­ly in­stru­men­tal roles in work, en­ter­tain­ment and com­mu­ni­ca­tions.

"Tech is where the ac­tion is," says long­time in­dus­try an­a­lyst Roger Kay.

Pes­simists view the tech sec­tor as Ground Ze­ro for a long-over­due reck­on­ing. They say the stock mar­ket that has been pumped up by the flood of mon­ey that the Fed­er­al Re­serve has fun­neled in­to the long-term bond mar­ket since the fi­nan­cial melt­down of 2008 dec­i­mat­ed the econ­o­my. Now, that those gov­ern­ment-backed bond pur­chas­es are ta­per­ing off, peo­ple are start­ing to re­alise "the on­ly thing hold­ing this bal­loon up is the Fed blow­ing air in it," said Fred Hick­ey, ed­i­tor of The High-Tech Strate­gist newslet­ter.

That's why he be­lieves in­vestors are para­chut­ing from stocks that had soared to dizzy­ing heights in a short pe­ri­od of time.

In­ter­net video sub­scrip­tion ser­vice Net­flix Inc., for in­stance, near­ly quadru­pled in val­ue last year to top the charts of the bell­wether Stan­dard & Poor's 500 in­dex. The com­pa­ny was worth US$27 bil­lion by the time its stock peaked at US$458 ear­ly last month. At that price, in­vestors were pay­ing the equiv­a­lent of US$117 for every US$1 of Net­flix's pro­ject­ed earn­ings.

In­vestors were bet­ting Net­flix will be­come in­creas­ing­ly pros­per­ous as the num­ber of US sub­scribers to its US$8-per-month video steam­ing ser­vices swells from 33 mil­lion at the end of last year to man­age­ment's long-term hopes for 90 mil­lion.

Even Net­flix CEO Reed Hast­ings cit­ed the "eu­pho­ria" sur­round­ing the stock as he dis­cussed the com­pa­ny's quar­ter­ly earn­ings last Oc­to­ber. "We have a sense of mo­men­tum, in­vestors dri­ving the stock price more than we might nor­mal­ly," Hast­ings said in a video pre­sen­ta­tion. "There's not a lot we can do about it."Net­flix's stock closed Fri­day at US$326.17, near­ly 30 per cent be­low its peak.

An­oth­er mind-bog­gling run-up oc­curred af­ter short mes­sag­ing ser­vice Twit­ter Inc. priced its ini­tial pub­lic of­fer­ing at US$26 per share in No­vem­ber. By late last year, Twit­ter's stock had more than dou­bled to a peak of US$74.73. At that lev­el, Twit­ter boast­ed a mar­ket val­ue of rough­ly US$50 bil­lion, even though the San Fran­cis­co com­pa­ny has nev­er turned a prof­it in its eight-year his­to­ry. The stock lost near­ly half its val­ue as it tum­bled down to about US$40. That still leaves Twit­ter with a mar­ket val­ue of about US$28 bil­lion.

"It's the most in­sane pric­ing I have seen since 2000," Hick­ey says of tech­nol­o­gy stock prices.In­vok­ing the year 2000 is touchy sub­ject in tech­nol­o­gy cir­cles be­cause it hear­kens back to the end of the dot-com boom. The Nas­daq com­pos­ite in­dex closed at an all-time high of 5,047 in March 2000 and then plunged 78 per cent be­fore bot­tom­ing out at 1,108 in Oc­to­ber 2002.

By one key mea­sure, tech stocks aren't near­ly as over­val­ued as they were in 2000 when the ac­cel­er­at­ing adop­tion of per­son­al com­put­ers and the ear­ly days of the World Wide Web drove an in­vest­ment fer­vor that last­ed through most of the 1990s.By March 2000, in­vestors were pay­ing US$68.72 for every US$1 in earn­ings gen­er­at­ed by com­pa­nies in the S&P 500 in­for­ma­tion tech­nol­o­gy in­dex, ac­cord­ing to S&P Cap­i­tal IQ. Last month, the ra­tio stood at US$18.26 for every US$1 in earn­ings in the same in­dex.

"This is like a lit­tle bub­ble that kind of popped up in the past year or so," said Daniel Mor­gan, a port­fo­lio man­ag­er at Syn­ovus Trust Com­pa­ny, who fo­cus­es most­ly on tech­nol­o­gy. He not­ed that most tech stocks be­sides iPhone mak­er Ap­ple Inc. have lagged oth­er sec­tors since the cur­rent bull mar­ket be­gan in March 2009.

While more spec­u­la­tive stocks such as Net­flix and Twit­ter have seen big in­creas­es in the past year or so, Mor­gan not­ed that long-es­tab­lished tech com­pa­nies are still hold­ing up rel­a­tive­ly well. Many com­pa­nies in this old­er crop, in­clud­ing Ya­hoo Inc, Mi­crosoft, Cis­co Sys­tems Inc, Hewlett-Packard Co and In­tel Corp, still haven't sur­passed their record highs from the 1990s and 2000.

"In­vestors are ro­tat­ing out of the risky or high-mo­men­tum stocks in­to safe­ty, but they al­ways do that," Hick­ey con­cedes. He thinks an even safer choice is to sell all stocks now and save the cash un­til the cur­rent tur­moil set­tles down.There are oth­er signs that the mar­ket may be over­heat­ing. One is the stam­pede of star­tups try­ing to go pub­lic. Last year, 222 ini­tial pub­lic of­fer­ings were priced in the US, the most since 2000, ac­cord­ing to the re­search firm Re­nais­sance Cap­i­tal.

The IPO pace so far this year has more than dou­bled from 2013. In a sign that in­vestors are be­com­ing less re­cep­tive to the mar­ket new­com­ers, the av­er­age re­turn on this year's batch of IPOs has been 13 per cent, down from last year's av­er­age gain of 41 per cent, ac­cord­ing to Re­nais­sance Cap­i­tal.

The bub­ble wor­ries al­so es­ca­lat­ed dur­ing the past two months af­ter Face­book Inc agreed to pay US$19 bil­lion for mo­bile mes­sag­ing ser­vice What­sApp and then US$2 bil­lion for vir­tu­al re­al­i­ty de­vice mak­er Ocu­lus. What­sApp has about 450 mil­lion users, but lit­tle rev­enue while Ocu­lus hasn't even re­leased its first prod­uct.Face­book fi­nanced most of those deals with its own stock, which had more than tripled in val­ue since last sum­mer. The stock has re­treat­ed by near­ly 20 per cent in the past month.

"That's one of the rea­sons peo­ple are cast­ing a ques­tion­ing eye on the tech sec­tor," Kay says. "I think there is a lot of val­ue be­ing gen­er­at­ed, but al­so a lot of crazy stuff go­ing on. We trust the mar­ket to sort it out for us."

AP