The Tech Rebound: Hope and Caution
It isn't sizzling. It isn't galloping. It isn't soaring. It isn't any of those things. But the long-awaited tech recovery is here at last. Spending on technology is expected to rise about 2.3% this year, and while that's much lower than the industry's historic 10% annual growth rate, it's a lot better than the 6% declines of the past two years. It's also very good news for the U.S. economy, which has lost nearly 2 million jobs since 2001.
What's behind the turnaround? A combination of factors. Wi-Fi broadband technology is giving a boost to the sales of laptops as people untether themselves from cables to get onto the Net. Freeing employees from their desks appears to be a big productivity booster. Starbucks is putting in Wi-Fi to attract more people to its shops to belt down more high-priced double lattes. Companies are also beginning to replace some of their aging computers and servers while upgrading their software. Any kind of productivity-enhancing technology is attracting interest.
Tech company valuations are rising but many still remain reasonable. Cisco Systems is trading at a forward price-earnings ratio of about 25, while IBM has a p-e of about 20. But many Internet stocks are already bubbling up. EBay has a p-e of 66, Yahoo's p-e is 74, and Amazon.com's p-e is a lofty 80. Some investors apparently never learn.