Buoyed by better-than-expected earnings and some cautious signs of optimism, tech stocks have far outpaced the broader stock market in the first half of the year, hinting that the high-tech sector will help lead the nation out of the Great Recession.
The tech-heavy Nasdaq composite index is up 17 percent since Jan. 1, and 153 Silicon Valley tech companies have scored double-digit gains in their share prices.
Technology stocks “have been showing leadership since November,” said Mary Ann Bartels, head of U.S. technical analysis for Banc America-Merrill Lynch. The story of the markets as the second quarter of 2009 ends today “is not who lagged but who led,” she said.
The relatively strong performance comes after many tech companies beat Wall Street expectations about profits and then gained additional momentum from signs of an improving economy.
Meanwhile, the Dow Jones industrial average, which covers a broad range of sectors, is down 2.8 percent for the year, and the Standard & Poor’s 500, which reflects the broader stock market, is up a relatively slight 2.7 percent. These two indexes have been held down by lingering and severe problems in the financial and automotive sectors, the collapse of home construction and declines in the commercial building industry, among other problems.
The stocks of tech companies have been one of the few bright spots this year. Cypress Semiconductor shares have more than doubled; Apple’s shares have gained nearly two-thirds in value; Internet giants Google and Yahoo have scored gains of 38 percent and 30 percent, respectively, and business software maker Oracle is up 21 percent.
So far in 2009, 174 valley stocks are up and 69 are down, with one unchanged. The average increase is almost 38 percent, led by smart-phone maker Palm with a remarkable 415 percent gain.
While all the indexes have recovered from this year’s March 9 market bottom, only the tech-dominated Nasdaq has broken away from the waffling performance of the overall economy.
Sandeep Aggarwal, who covers Internet companies for Collins Stewart in San Francisco, said his sector gained momentum after quarterly reports in March turned out to be better than expected. “That is why the Internet sector is up 25 percent now,” he said.
And while most companies are still struggling with the recession, credit crunch and vanishing consumer, “the tech sector is not as underperforming as other parts of the economy,” Aggarwal said.
The semiconductor industry, which had been flattened by the credit crunch, has also been making headway this year. The share prices of several valley chip companies are up for the year — Intel, the giant in the industry, nearly 12 percent, AMD 72 percent and Nvidia 43 percent.
“There’s a pulse,” said Alex Guana, an analyst with JMP Securities in San Francisco. “I get the sense that things are not all doom and gloom. There’s some real product cycles getting under way.”
Smart-phone companies like Apple and Research In Motion, which makes the BlackBerry, are introducing new models, increasing the demand for the chips that drive them, he noted. Companies that make servers are also increasing orders.
There have also been words of cautious optimism from tech executives. Cisco CEO John Chambers said last month that business was steadying around the world.
“No one knows how long this will last, ” he cautioned, while reporting quarterly results that were better than analysts had expected. Chambers added that sales may need to level out for a longer period “before an upturn can occur.”
Oracle’s co-president Charles Phillips said during an earnings call that he’d met with chief information officers at several companies recently, and “most of them sounded like they wanted to start spending. We’ll see what they do.”
Software industry analyst Brendan Barnicle at Pacific Crest Securities said in an interview that he thought those remarks were notable. “To hear them talk about continuing to see a growing pipeline, and companies maybe willing to spend in the back half of the year, those are really encouraging data points.”
But the Dow and S&P, reflecting the larger economy, remain “rangebound,” or trading in a narrow band with no sharp movements up or down, according to Bartels of Banc America-Merrill Lynch. “They are trendless right now, and that’s what’s so frustrating. You want a trend to emerge.”
Mercury News staff writer Brandon Bailey and data manager Jack Davis contributed to this story. Contact Pete Carey at pcarey@mercurynews.com.
