Once the darling of the markets, FANG stocks are suddenly falling fast. Their fate is more or less identical to those of other tech stocks which have suffered a rout since last Friday. This was a consequence of weak earnings guidance offered by LinkedIn Corporation (LNKD – Analyst Report) for the rest of the year.

At this point, it seems that the market is looking very carefully at the valuation of most stocks. Despite their undeniable long-term potential, it may be a good idea to pick undervalued tech stocks in this environment which are likely to mop up gains following a market rebound.

Fate of the FANG

During 2015, these four tech powerhouses provided an average return of around 83%. Given that the S&P 500 closed the year nearly 1% lower, this is a spectacular performance. However, they have suffered grievously this year just like most of the index's other constituents.

And yet their recent performance on the earnings side has been widely different. Facebook, Inc.'s (FB – Analyst Report) stock spiked to its highest level ever after it exceeded both revenue and earnings estimates. Amazon.com, Inc. (AMZN –Analyst Report) posted disappointing results while Netflix, Inc.'s (NFLX – Analyst Report) u.s. subscriber additions came in below projections. Meanwhile Alphabet Inc. (GOOGL – Analyst Report) became the world's most valuable company in terms of market capitalization following a short-lived rally.

Yet, all of them are in the red on a year-to-date basis. Amazon, Netflix and Alphabet are down 27.8%, 27.2% and 9.5% year to date. Facebook is relatively better off, having lost only 4.7% so far this year. The tech-heavy Nasdaq has been badly hit as a consequence and has lost 14.5% till now in 2015.  

Valuations Above All?

Several market watchers believe that the FANG decline is part of a phenomenon affecting the broader markets as a whole. The market is going through a process of reevaluating the true value of stocks, viewing those which seem overvalued with great skepticism.