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Sun, May 04, 2003 - Page 12 News List

It's back to the future: Investors are buying techs

Investors seem to be taking the dive once again into tech issues, looking perhaps to see a mid-term turnaround in the sector

By Rachel Beck  /  AP , NEW YORK

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.

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