And you thought the technology-stock bubble was a thing of the past. Could history be repeating itself?
It looks that way from the great enthusiasm for tech stocks right now. While most of Wall Street struggles to rebound, investors are bidding up tech shares with a ferocity not seen in years.
But the surge is coming without much backing from tech companies, which continue to warn of lackluster demand for their high-tech offerings.
Now the worry is whether investors will push tech stocks too high without good reason. If that happens, a big retreat could be on the way.
Again.
It was just three years ago that the tech-heavy Nasdaq composite index skyrocketed above 5,000 -- heights even then dismissed as unrealistic and unsustainable given the business fundamentals. Sure enough, the bubble burst, and the Nasdaq plummeted to a six-year low of 1,114 last October.
While the current rally isn't fueled by the same "irrational exuberance" there was back then, momentum is clearly building.
Tech shares have surged in recent months, especially those in the semiconductor and Internet services sectors, and their strength has helped push the Nasdaq up more than 30 percent from its October low. It remains about 70 percent below its record high reached in March 2000.
The recent jump in prices has already started raising questions over whether the tech sector has become too overvalued.
Semiconductor
downgrade
Smith Barney downgraded its entire semiconductor group of stocks last week, saying the valuations for most of its stocks "have become stretched toward the upper end of their historical ranges," excluding what they did during the late 1990s market surge.
"The question is can tech stocks sustain this pace and should they sustain it," said Richard A. Dickson, senior market strategist at Lowry's Research Reports in Palm Beach, Florida.
There is some positive news for investors to cheer.
Seventy-five percent of tech companies in the Standard & Poor's 500 stock index that have reported earnings so far this quarter have beat analysts' estimates by at least 10 percent. That's higher than an average of about 3 percent to 4 percent in the past, according to earnings tracker Thomson First Call.
Investors also believe there is pent-up demand for technology products, which could set off a spending boom if the economy soon starts to turn more positive. Companies have largely held back on major technology upgrades over the last three years.
But tech companies aren't yet talking about a rebound coming so soon.
Part of that could just be executives being cautious in their outlooks, given the lingering worries over where the economy is heading next. But they also have an inside view of their companies and customers that investors don't get to see.
"The investor clearly has a more optimistic view that the economy will accelerate this year, while the CEO thinks we might not have seen the worst," said Lynn Reaser, chief economist and senior market strategist at Banc of America Capital Management.
CIOs
spending less
An April poll by CIO magazine of 279 corporate executives, mostly chief information officers in the business of buying technology, found that about 70 percent expected their spending to stay the same or decline in the coming quarter. Most said the reason for that was weak profits and tight financial conditions.
So while earnings this quarter have topped expectations, those expectations were drastically reduced over the last few months.
And the earnings gains are largely a result of drastic cost-cutting, not significant increases in revenues. That shows companies have improved productivity, but haven't been able to grow their businesses through new customers or sales.
"Yes, many have been able to beat expectations, but the companies themselves haven't said that things have turned around yet," said Joe Cooper, a research analyst at Thomson First Call.
Look at Advanced Micro Devices, for example. Its stock has shot up nearly 50 percent over the last three months, and the computer-chip maker reported quarterly results that topped estimates.
But its loss for the quarter widened to 42 cents per share, compared with a loss of US$9.2 million, or 3 cents a share, in the same period last year. Sales were down nearly 21 percent from a year ago. And despite many cost reductions, AMD's executives backed off previous projections that the company would be able to break even by the end of the second quarter.
"What we see today ... is very difficult to call. The market is uncertain, stability is poor," AMD chief executive Hector Ruiz said in a conference call with analysts and investors to discuss earnings in mid-April.
So tech stocks surge, while the tech business struggles. Let's hope we aren't in for another bubble.
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