Tech investors are suffering the second stocks rout of the COVID pandemic—and Wall Street thinks it could get far worse | Fortune

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Towards the end of 2020, once we learned a COVID-19 vaccine was ready for the masses, Wall Street began to warn investors of a new markets dynamic. High-growth tech stocks would fall out of favor with investors, the message went. In its place, overlooked value stocks—think energy and consumer staples—would make a comeback.

Wall Street nailed the forecast.

So far in 2022, once high-flying tech stocks are taking it on the chin, with the Nasdaq down 14.4% year-to-date, and down 16.4% since hitting an all-time high in mid-November, just before the Omicron wave arrived to batter the developed world.

To be sure, very few stock-picking pros are calling this the bottom.

"While there are plenty of reasonably valued and profitable companies in the market, there are many more dangerously overvalued and unprofitable companies whose stocks could fall much further, and some even to zero," David Trainer, CEO of Nashville-based investment research firm, New Constructs, tells Fortune.

Even before Omicron, investors were treating a large basket of growth stocks—names like Zoom, PayPal and the companies you'd find in Cathie Wood's Ark Innovation ETF, all of which soared during the latter half of 2020—as if it were the plague.

Once investors got a whiff that top-line growth for these companies was slowing, they started to cash out. In many cases, the latest rout in tech stocks has been far more damaging to investor portfolios than what we saw during the the stock market collapse of February and March 2020, just after the World Health Organization declared COVID to be a pandemic.

PayPal, Netflix and Meta in freefall

PayPal is one such company that's getting punished by investors. The stock closed on Friday at $103.65, 15% below its 2020 pre-pandemic high. The collapse in PayPal shares has been nothing short of breathtaking. From its March, 2020 low, shares more than tripled over the next 15 months as usage and revenues soared. And then, just as quickly, the shares collapsed, shedding billions in value as growth started flatlining.

The digital payments specialist has now lost two-thirds of its value since its mid-summer 2021 all-time high. The gutting loss has been particularly painful for PayPal bulls. The share-price collapse over the past seven months has been twice as dramatic as what investors saw in those dark days of February and March 2020.

As the chart below shows, PayPal is hardly alone.

Netflix, Facebook parent Meta, and Twitter have also seen bigger hits to their share prices in this latest round of sell-offs than what occurred in the early days of COVID. The light-colored red line in the chart measures the share sell-off during the epic February-March 2020 sell-off. Let's call that Round One. The darker red line above measures the Round Two carnage, calculated as the share-price performance of these stocks since their most recent all-time high and Friday's closing price.