NEW YORK (CNNfn) - Shares of Internet-related stocks rallied Friday as bargain hunters descended on the battered technology sector, leading a recovery on the Nasdaq composite index that was mirrored in broader markets.
At one point in midday trading, the Nasdaq index, which is weighted heavily with technology stocks, had jumped nearly 2 percent to 1860, as the Dow rebounded just under 100 points, to 8677. By 2:30 p.m., however, the Nasdaq had shaved nearly half of the earlier gains to trade up 15.56 points, or 0.85 percent, on active Internet-related volume.
Among the biggest Nasdaq gainers, shares of search engine Inktomi Corp. (INKT) surged 7-3/4, or 16.23 percent, to 55-1/2, while Lycos (LCOS), a company that develops online guides to the World Wide Web, shot up 4-5/8 to 62-1/2, a nearly 8 percent rise.
Analysts said many of the cyber companies seemed to take their cue from their Internet kinsman, America Online Inc. (AOL), just two days after the company reported much better-than-expected fourth-quarter profits. Revenues at AOL, the nation's leading online serve provider, with 12.5 million subscribers, soared 67 percent to $792 million.
AOL stock climbed 3-1/2 to 108-7/8, while online book retailer Amazon.com (AMZN) gained 3-7/8, or 3.54 percent, to 113-3/8. Search engine and content provider Yahoo! (YHOO) edged up 1-1/4 points, or 1.43 percent, to 88-5/8.
The strong Internet performance comes amid a general explosion of interest in the sector, which stock buyers tend to view as a leading light of trends in the high-tech future. Companies such as Yahoo! and Egghead.com, which sells computer software online, have soared 300 to 400 percent since the beginning of 1998.
The upshot, say some analysts, is a tendency among many investors to view Internet companies through the same rose-colored glasses as biotech stocks in the early 90s.
The problem with equating the two, these analysts suggest, is that many Internet companies tend to trade at values above what their bottom lines seem to justify.
"One thing's clear, these are high beta, high risk stocks," said James Preissler, an Internet analyst at PaineWebber. "They seem to overreact to whichever direction the market is in."
Despite this herd mentality, Preissler readily points out, many Internet companies are emerging from highly profitable second quarters. Hence, a sector that already could have used a bit of crowd control finds itself even more mobbed.
"We've got a group with a tremendous amount of attention and a very small (cash) flow, so when people move into these stocks we see a wild swing."
That means, analysts say, when the market turns soft, Internet stocks are likely to be weaker as well.
"The Internet stocks are just responding to the rebound in the overall market. They're extremely volatile," said Christine Callies, the chief investment strategist at CS First Boston, which in recent days has begun advising clients to buy stock in chip-making companies.
"We think there's a lot of value in semiconductors," Callies said.