The slaughter of consumer internet stocks Facebook, Twitter and Netflix has led investors to run scared of technology stocks in software and semiconductors that have actually done well. But this may cost them.

On Monday investors pulled $1.3 billion out of the Invesco QQQ Trust, a broadly focused technology fund that follows the Nasdaq 100 index. And in the past one-week period through Monday, they yanked $2.4 billion from the ETF, three times greater than outflows from any other equity ETF in the past week, according to In semiconductors, the investor outlook is mixed, with almost $300 million of new investor money coming into Van Eck Market Vectors Semiconductor ETF (SMH) in the past week, but the only semiconductor ETF that was positive in the past week is one that shorts the sector. Of the 51 tech sector ETFs tracked by, only two had significant positive flows in the past week, SMH and the broad Technology Select Sector SPDR (XLK).

Now some Wall Street experts are making the prediction that this tech sell-off is the signal that the long reign of growth stocks over lower-priced, slower-growing value companies is ending. But the sell-off seemed to run out of steam on Tuesday, as the Nasdaq rebounded, up near 0.6 percent at the close, and Apple reported strong results for the fiscal third quarter. Apple stock was up 4 percent Wednesday morning and the Nasdaq continued higher in early trading.

The debate now is whether investors acted too quickly to unload what has been the dominant group of stocks in the market since the last recession.

As measured by the Invesco QQQ Trust, an ETF that tracks the Nasdaq 100, the drop in tech stocks since Facebook missed second-quarter earnings forecasts on July 25 is about 2.5 percent. But nearly half of the QQQ’s holdings are in Apple (11 percent), Amazon (10.5 percent), Microsoft (10 percent) and Google parent Alphabet (9 percent), the only four stocks that represent more than 5 percent of the fund. Facebook was next at just under 5 percent, as of July 30.

Some tech stock ETFs have been hit hard for the right reasons, such as the Global X Social Media ETF (SOCL), down more than 9 percent in the past week. With large-capitalization tech stocks central to market gains for the last year, the Netflix drop of nearly 9 percent, and Facebook decline of over 21 percent, are not surprising after each missed consensus forecasts.

The hottest tech ETF, the First Trust Dow Jones Internet Index ETF (FDN), was down more than 6 percent in the week through Monday. As of July 30, Facebook and Netflix were its third- and fourth-largest holdings, after Amazon and Alphabet. FDN has taken in more this year than any other tech ETF, over $2 billion in positive flows from investors.

But Amazon has dropped more than 4 percent, and Alphabet has lost nearly 5 percent, even though those companies met or exceeded analyst expectations for second-quarter profits.

Market history shows evidence of tech rebounds after big declines. Tech stocks declined by more than 5 percent over three consecutive sessions through Monday. According to hedge fund analytical tool Kensho, since the end of the financial crisis in March 2009, the NASDAQ Composite dropped by at least 1 percent in three straight sessions on five previous occasions to current tech sell-off. After these drops, the Nasdaq rebounded sharply over the next month, up over 5 percent and generating a positive return in all five instances.

Even amid the heavy tech selling in recent days, the NASDAQ remains on pace to end up for the fourth-consecutive month, with a 2.5 percent return in July.

Famed value investors such as Miller Value Partners chief Bill Miller and Ken Allen, manager of T. Rowe Price’s $5.3 billion Communications and Technology Fund (PRMTX), argue that technology and internet companies are still in the early- to middle stages of exploiting their opportunities.

Miller, for one, has no intention of giving up on Facebook.

“Facebook is quite attractive at these levels, trading at 17 times next year’s earnings, a lower multiple than many much slower-growing consumer-staple stocks,” said Miller in an email to CNBC. He bought heavily when Facebook slipped to about $150 earlier this year, from $193 on Feb. 1, and had made a paper profit of about 40 percent as shares surged to $217.50 last week before the post-earnings crash. “The current actions they are taking to spend more to strengthen security and safety should enhance their competitive position and extend their growth runway,” Miller wrote.

Microsoft is trading at 21.7 times next year’s profit, a relatively high number for the software giant as it pushes into cloud computing, a business that has long commanded high price-to-earnings ratios. Alphabet is trading at 30.5 times the average analyst estimate of 2018 profit and 25 times next year’s projected earnings, according to Thomson Reuters data. Netflix and Amazon, as has always been true, have much higher multiples.

“Tech stocks often get lumped together when they really shouldn’t,” said Lara Crigger, who covers tech ETFs for “If a social media company is reporting flat user growth [as both Facebook and Twitter did], they should fall. Alphabet and Apple aren’t affected as much by that.”

The technology sector as a whole trades at 17.5 times this year’s projected earnings, while the broader market’s price-to-earnings ratio is 15.9, according to CFRA Research stock strategist Sam Stovall.

“The P/E ratio on the S&P 500 tech sector is nowhere near where it was in 2000,” Stovall said, adding that betting on stocks and sectors with stronger gains over the past year, as technology has in the last 12 months, to keep beating the market has been a winning strategy for more than two decades now. “Despite an end-of-month social media meltdown, investors may still be willing to stick with a momentum strategy.”

T. Rowe Price’s Allen also argues that retail investors should ride out dips in tech companies that are still taking market share from competitors and reimagining how business is done in their industries.

“Great opportunities can surface when investors overreact to short-term setbacks for companies,” said Allen, whose fund has beaten the S&P by an average of five percentage points each year for the last decade. “That has happened with and Google (Alphabet) countless times just in the nine years I’ve been managing the portfolio.”

On the flip side is Morgan Stanley strategist Michael Wilson, who argues that growth-stock valuations, relative to the market, are at levels only seen in the run-up to the 2000 dot-com bust. “The bottom line for us is that we think the selling has just begun and this correction will be biggest since the one we experienced in February,” Wilson said, pointing to the 10 percent drop in the Standard & Poor’s 500-stock index between Jan. 23 and Feb. 8, which the market had nearly fully recouped by last week. Wilson says the more an investor has in tech, the worse their portfolio will suffer.

“It could very well have a greater negative impact on the average portfolio if it’s centered on tech, consumer discretionary and [smaller-capitalization stocks], as we expect.”

There was a greater move into U.S. value stocks in July. According to ETF data from compiled by DataTrek Research, U.S. equity ETF flows were very strong in July, at over $12 billion of fresh capital through last Friday, but flows into US equity growth funds slowed in July to $1.1 billion — its year-to-date average has been $1.3 billion/month. More than double that amount flowed to value funds in July, $2.5 billion, which also is notably higher than its 2018 YTD average of $750 million/month.

The Morgan Stanley strategy argues that the recent moves in tech may represent valuation concerns finally asserting themselves.

“We have been out on a limb the past month with our defensive rotation call, and truth be told, we haven’t had much interest from clients wanting to follow us down this path,” Wilson and colleagues wrote in a July 30 note to Morgan Stanley clients. “Nevertheless, since our upgrade of [the electric-utility sector] on June 18th, defensive sectors have meaningfully outperformed.”

With the market up about 1.8 percent since June 18, technology was down slightly, and overall returns are being driven by 5 percent-plus gains in consumer staples and utilities, Wilson said, using last Friday’s closing prices. Consumer discretionary, a category that includes Amazon and Netflix, is also in negative territory over the last six weeks.

The market ran out of good news to look forward to after Amazon’s strong earnings report, and the preliminary data Friday, saying the U.S. economy boosted gross domestic product at a 4.1 percent annual clip during the second quarter, Wilson says that with the GDP report out of the way, valuation concerns seem to have moved to the forefront.

Originally published at CNBC

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