Shares in Facebook owner Meta fell 20% in U.S. premarket trade on Thursday after the social media giant issued a dismal forecast blaming Apple's privacy changes and increased competition.
The shock drop, which comes before Amazon earnings later in the day, spilled over to Europe where technology led sectoral fallers with a decline of 2% and soured the mood across global financial markets in another busy day of central bank meetings.
Big U.S. tech has come under mounting pressure in 2022 as investors expect policy tightening at the U.S. Federal Reserve to erode the industry's rich valuations following years of ultra-low interest rates. Nasdaq fell more than 8% in January, its worst monthly drop since end-2019.
"The downgrade in the earnings outlook by Meta and other companies took markets by surprise," said Kenneth Broux, a strategist at Societe Generale in London.
"The tech sell off spilled over to broader equity markets this morning and with the Fed preparing to raise interest rates, we could see more volatility going forward."
European technology heavy weights ASML, Infineon and SAP were among the shares weighing the most on the region's STOXX 600 equity benchmark, falling more than 1.5% in what traders viewed a kneejerk reaction given the limited direct read across from Facebook. Infineon was also penalized by a conservative outlook.
Meta reported a decline in daily active users from the previous quarter for the first time as a race with rivals like TikTok, the video sharing platform owned by China's ByteDance, for users heats up.
The disappointment over Meta raised memories of the tech bubble burst in 2000 and highlights that after the sector's record-breaking run, investors have become highly selective.
According to research firm Vanda, purchases from retail investors in late 2020 and early 2021 were focused on expensive tech, EVs and so-called "meme" stocks. In the past wee kpurchases of large-cap tech have skyrocketed while speculative assets have seen very little demand.
The so-called FAANG group of Facebook, Amazon, Apple, Netflix and Google's Alphabet, has seen around $4 trillion in market capitalization wiped off in the opening weeks of 2022 as cheaper segments of the markets become more attractive while central banks taper stimulus.
Other social media stocks were also hit hard in pre-market trading on Thursday, including Twitter, Pinterest and Spotify, which has been beset by a row over COVID vaccination misinformation, also released disappointing results.
Stocks futures for the tech-dominated Nasdaq fell as much as 2.4% on Thursday.
