SAN FRANCISCO (CNN/Money) -
As a Red Sox fan, whenever the Sox kick off a season with a win on opening day, I find myself wishing I could fast-forward to the playoffs in October. Tech investors might be doing the same this year, encouraged by the two weeks of gains some tech stocks have racked up since New Year's Day.
Look for yourself: Amazon (AMZN: Research, Estimates) is up 12 percent, Cisco (CSCO: Research, Estimates) and Oracle (ORCL: Research, Estimates) are up 16 percent, Sun Microsystems (SUNW: Research, Estimates) is up 21 percent, and Yahoo! (YHOO: Research, Estimates) is up 11 percent.
And this week is the first test for many of the stocks experiencing nice run-ups: Earnings reports are due for a slew of tech companies. So far they're off to a good start.
On Tuesday, Intel (INTC: Research, Estimates) reported a strong $1 billion profit on $7.2 billion of revenue. Revenue was up 10 percent from the previous quarter, and analysts had expected only $6.9 billion. Today, stalwarts such as Apple Computer (AAPL: Research, Estimates), Symantec (SYMC: Research, Estimates), and Yahoo! release earnings, and on Thursday, AMD (AMD: Research, Estimates), eBay (EBAY: Research, Estimates), Handspring, IBM (IBM: Research, Estimates), Microsoft (MSFT: Research, Estimates), and Sun unveil their numbers.
In short, this is sweeps week for tech investors. January always brings with it the spirit of renewal, and some stock-watchers attribute the early-year gains to investors wanting -- perhaps even praying for -- a renewal in corporate spending that might lift scores of technology firms with a rising tide of capital expenditures. Evidence is mounting that it's more than simple optimism pushing these and other stocks higher.
First, investors are starting to see earnings announcements or pre-announcements that actually beat companies' estimates. EMC (EMC: Research, Estimates), Foundry Networks, and SAP (SAP: Research, Estimates) have all issued statements increasing their estimated earnings per share for the quarter.
Second, tech earnings are poised to rise 13 percent in Q4 2002, compared with a 55 percent downturn in the same period the year before. Third, phrases such as "turning the corner" and "gaining visibility" are surfacing in corporate pre-earnings announcements and press releases.
More than just corporate jargon, these phrases mean companies are taking orders, and their customers, rather than saying something like "We have no idea when we'll be able to buy from you again," are saying things such as "Why, yes, I'd like to super-size that storage order."
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Of course, with the Nasdaq closing 2002 at its lowest level since 1996, investors are eager to hear anything that might get them to believe again. To that horde, I urge caution.
I suspect that 2003 will be a year of continuing increased sales and overall stock gains for the technology sector, but -- like many a Red Sox season -- it won't be a straight, steady climb to the end of the year. No, the tech sector is too much of a canary in the coal mine to be afforded such a luxury.
With the tech sector battered more brutally than any other market during these last three years, analysts are watching it closely, seeking guidance on capital expenditure in other areas.
Thus, any good news -- such as strong earnings announcements this week -- will be met with an overzealous reaction from investors, prognosticators, and day traders (remember them?). The result? Tiny bubbles throughout the year.
You'd think three years of drubbing would sober up tech investors, but I'm worried that they're still prone to some of the same wild speculation and overreaction. I'm bullish on the sector for the year, but I'm not looking for the current pace of gains to continue, and neither should investors.
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