Four gigantic, iconic and disruptive (there's that buzzword again) internet companies. And four of the ten best-performing stocks on the US S&P 500 last year, as measured by index points.

So popular were these stocks in 2015 that there was even an acronym for investing in them (the FANG trade).

Shares of Netflix rose by 134 per cent. Amazon gained 117 per cent. Google rose 44 per cent and Facebook was up 34 per cent. Wipe out their gains and the US market, which went backwards by 0.7 per cent, would have fared a lot worse.

The question is whether these four giants of the internet can achieve returns that are anywhere near these levels again in 2016 - or whether sentiment toward the internet sector more broadly has already turned. In the carnage that has dominated trading so far this year, all except for Alphabet have underperformed

There is no doubt the so-called FANGs all need to confront critical business challenges in 2016. 

Talk about pressure

Take Netflix. The video streaming company has said it plans to complete its global rollout this year – it is now live in 190 countries, but not yet (and possibly never) in China. It is also planning to double its production of original shows - a much riskier proposition than the mere licensing of content. On top of all of this, it has told the market it expects to break even this year, having lost money in the past.  

What next for Netflix? Robin Wright and Kevin Spacey as Carrie and Frank Underwood in Netflix's break-out program, House of Cards. Photo: supplied

Or how about Facebook? It started taking orders for its highly anticipated virtual reality devices last week, and expects to start shipping them before March. Mark Zuckerberg, the grey T-shirt and black hoodie-wearing co-founder and CEO of the gigantic social network, raised eyebrows in 2014 when he decided to spend $US2 billion ($2.86 billion) on Oculus Rift, a virtual reality headset maker with only a handful of employees and precisely zero revenue (let alone profit) at the time.

This year, we will begin to find out whether it was a visionary masterstroke or an expensive mistake. Expectations are leaning toward the former. Analysts from Credit Suisse said this week they think Facebook could sell 3.5 million Oculus headsets this year, pocketing $US2.1 billion in additional revenue in the process.

The company might also decide to stuff more ads into Instagram, its photo-sharing service, and more video into your Facebook timeline as it seeks to ramp up the amount of money it makes from its vast, 1-billion-plus user base. And we haven't touched on WhatsApp, its fast-growing messaging product.

Amazon, the e-commerce giant that has operated on practically a breakeven basis for nearly two decades, will no doubt face more investor calls to show them the money (i.e actual profits). Luckily, the company started breaking out the performance of its cloud computing business, Amazon Web Services, and it is booming. 

Stretched valuations

Finally Google (sorry, Alphabet) will have to continue to manage the transition of consumers away from searching for things on PCs to mobile searches, increase the revenue in generates from non-search offerings such as YouTube, and demonstrate progress with its moonshot investments in areas like self-driving cars, high-speed internet and life sciences. It's heady stuff.   

Google changed its name and corporate structure this year. Will it be able to deliver on its investments this year? Photo: AP

Whether each of these companies navigates their individual challenges adequately or not in 2016 remains to be seen. But it might be the moot point if the market is taking a fresh look at internet companies' share valuations, as predicted by Andrew Macken, who manages the Montaka Global Fund (part of the Montgomery Investments stable).

Macken argues that investors last year were engaged in a desperate search for something, anything, that was actually growing. The internet sector certainly fits that bill - all of the FANG companies are growing revenue at high double-digit rates. But last year's share price strength was "not a reflection of an improvement in the intrinsic value of these businesses" and "more a reflection of a lot of money crowding into a few stocks," he notes.

That's making valuations looked stretched. Netflix is valued at a multiple of 284 times estimated 2016 earnings, for example.

"They are all great businesses and they are growing rapidly, but the current valuation already implies all of that and often a whole not more," Macken says.

But wait a second! You could have said the same thing this time a year ago, and that didn't stop the momentum in FANG share prices in 2015. There is one big difference now though. The US Federal Reserve hiked interest rates for the first time in nearly a decade last month, and barring a complete meltdown of the world economy, it's expected to continue raising them this year.

"The period of cheap and easy money has arguably come to an end, and that could absolutely cause an unwind in these stocks," Macken warns.

Plenty of people have looked silly calling the top in fast-growing internet stocks before as the companies tend to benefit from incredible momentum and sometimes end up growing into their crazy looking valuations over time,

But in 2016, it would seem that the risk of being bitten back by a FANG is higher than it has been in a long time.