Technology stocks tumbled on Thursday as a sell-off in shares of Chinese Internet firm Baidu.com Inc (
The tech-heavy NASDAQ index dropped 1.4 percent on the day, down 39.41 points, after a JPMorgan Chase & Co report spooked investors. Baidu slumped 10 percent to US$308.78 in NASDAQ trading, while other high-flying stocks including Apple Inc and BlackBerry maker Research In Motion also fell.
Baidu's American depositary receipts slid after JPMorgan cut its third-quarter revenue estimate, helping trigger a broader drop in US technology stocks.
A plan to shut down some of Baidu's Internet data centers will hurt sales and slow its growth rate this year, JPMorgan analyst Dick Wei wrote in a report. The Hong Kong-based analyst lowered his revenue estimate for the third quarter to US$65.7 million from US$67.9 million.
"We expect this issue to be temporary, and Internet data centers services will likely return to normal level in November/December," Wei wrote.
Baidu fell a further 2 percent in after-hours trade.
MSCI's index of IT stocks in the Asia-Pacific region (excluding Japan) was off 1.6 percent at 0420 GMT yesterday, in line with a broader drop in Asian stock markets.
"You are seeing the classic bubble being burst in the best-performing momentum names such as Baidu, Apple and RIM," said Tim Biggam, lead options strategist at online brokerage thinkorswim in Chicago. "Once these started falling, the selling begat selling as everyone headed for the exits at one time.
"This is a mini-version of what we saw at the height of the dotcom bubble in late 2000 and early 2001," Biggam said. "It will be interesting to see what happens on Friday."
Many technology stocks have rocketed this year, with Apple nearly doubling since January and Baidu trebling.
Valuations have steepened, with the NASDAQ 100 index trading at 25.2 times expected 2008 earnings on Wednesday versus 22.3 at the start of the year.
Baidu trades at 133 times 2007 earnings, according to Reuters data, compared with a multiple of 41 for Google and Yahoo's 66.
Peter Boockvar, equity strategist at Miller Tabak & Co, said JPMorgan's cutting of Baidu's revenue estimates was the catalyst for the sell-off.
"Even though Baidu is not a well-known, big-name stock, it's one of the poster boys for the speculation that's been going on in Chinese stocks and also big-cap, high-flying over-the-counter tech stocks," he said.
"The prospect of not seeing an upside surprise, considering the rally that many stocks have had going into the numbers, just shook the trade and woke people up to the reality of earnings ahead of us," he added, citing Apple and Google.
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