Days of technology madness are over


There is life in the old dogs yet.

Just when we thought that technology stocks had breathed their last, it turns out that they have merely been resting and it looks as if we are at the start of a major rally.

Four of the best five performing shares in the FTSE 100 last week have been tech stocks. The pick of the pops has been CMG, which has put on an impressive 21 per cent, and the shares are back above 900p. Honorary mentions also go to Autonomy, Dimension Data and Logica, which posted weekly gains of between 14 and 20 per cent.

The stimulus behind this has been the US Nasdaq index. After six months in a steady and depressing downward trend, hopes are rife that we have hit rock bottom. Since its nadir of 2291 on January 2, the index has climbed by 400 or so points and looks set for a move back up to 3000.

There have been two drivers behind this. In the first instance, the outlook for the technology industry is not as gloomy as some commentators had indicated. The advances in hardware and software are still happening, driven by the changes in telephony and the internet. This is not going to go away and last week's good figures from IBM are a timely reminder of this. Second, share prices are beginning to discount too much bad news.

For example, the latest earnings release from Apple was gruesome, but actually not as bad as the market had feared, so the shares rose as a result. This may be similar to the branch brought back by Noah's dove, but it does mean that land is just over the horizon despite there being floods all around.

However, lest anyone get carried away here, we must remember that there will not be a repeat in any shape or form of last year's technology madness. This is just a return to normality, when tech stocks will be treated by the market the same as any other. The bubble has burst, for ever, and these companies should be treated as high growth investments, with risks, rather than a passport to an early retirement.