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Tech is not dead

August 22, 2013: 1:36 PM ET
So much for tech companies struggling. Tech earnings are expected to grow much faster than the rest of the market.

So much for tech companies struggling. Tech earnings are expected to grow much faster than the rest of the market.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

In a twist on the famous quote by Antony in Shakespeare's Julius Caesar, I come to praise tech, not to bury it.

There's been a lot of talk lately about how big tech companies are doing so poorly even though the economy is improving. And while it's true that shares of Oracle (ORCL) and IBM (IBM) have lagged the market this year, Cisco (CSCO) is laying off 4,000 workers due to uncertainty about tech spending and Hewlett-Packard (HPQ) is still trying to find a way to diversify beyond the decay that is the PC market, this notion that tech is in a slump is sheer lunacy.

Many tech firms are still expected to post extremely strong results for this year and next. As the chart at the top of this column shows, earnings growth estimates for the 70 companies in the S&P Tech Sector are much higher than for the broader market.

In addition, the Nasdaq -- which is invariably described as being tech-heavy or tech-laden -- has outperformed the Dow and S&P 500 this year. Of course, it helps when the Nasdaq is actually, uh, trading.

Tech at large isn't in a funk. It's just that big, mature tech companies are struggling to adapt to the dynamic shifts in the sector during the past few years.

Look beyond the monolithic mega-cap tech stocks and you'll find plenty of smaller tech firms that are thriving this year.

3D printing has been a red hot industry. Shares of Stratasys (SSYS), the company buying start-up wunderkind Makerbot, are up 30% this year. Rival 3D Systems (DDD), has surged more than 35%.

And another 3D printing company, ExOne (XONE), is merely (#sarcasm) one of the best-performing IPOs in the U.S. this year. The stock is up more than 260% from its initial public offering price.

In the world of software, Marketo (MKTO) has also been a stellar IPO. The stock is up 55% since its public debut in May. Marketo develops cloud-based marketing software. That may not be the sexiest bit of tech in the world. It's not a consumer gadget you can get off the shelf at Best Buy or purchase online at Amazon (AMZN).

But Big Data is a big, lucrative business. Forget about content being king. Data is king. Heck, another data software company that went public this year, and has done extraordinarily well, even used DATA as its ticker symbol: Tableau Software (DATA).

Think about it. Why do you think Facebook (FB) has finally clawed its way back above its IPO price? Investors are betting that Facebook's 1 billion users and growing will turn out to be a true treasure trove of data for advertisers, especially now that Facebook seems to be having success on the mobile front.

Related: Mark Zuckerberg's big idea: 'the next 5 billion people'

Other social media stocks, ranging from LinkedIn (LNKD) to review sites Yelp (YELP) and Angie's List (ANGI), have also surged this year on hopes that they will be able to profit from the immense amount of user data they collect. Highly targeted advertising remains the proverbial holy grail.

And then there's video games. With new consoles from Sony (SNE) and Microsoft (MSFT) coming out in time for the holidays, investors are once again excited about the prospects for big game publishers. Electronic Arts (EA), Activision Blizzard (ATVI) and Take-Two Interactive (TTWO) are all surging.

Finally, you can't ignore Netflix (NFLX) either. This is a company that, to give credit where credit is due, learned from some pretty big mistakes and is once again on top of its game. It really is disrupting the media world. The stock is up almost 200% this year.

Now some of the stocks I've mentioned may be trading at unreasonable valuations. Actually, a lot of them are. But that's not the point. Even if we are in the beginning stages of inflating a new tech bubble, you have to remember that a bubble only forms when things are going well. Stocks just get ahead of themselves.

Tech is far from dead. You just have to realize that there's more to tech than IBM, Microsoft and HP ... and even Apple (AAPL) and Google (GOOG) for that matter.

Reader Comment of the Week! I am a sucker for puns. Always have been. Always will be. So it was easy for me to pick this week's top reader comment. It was in response to my snarky tweet about the latest disastrous results from Barnes and Noble (BKS).

Ha! I have a "Nook" full of novel quips!

Posted in: , , , , , ,
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