A comeback for tech stocks?

Markets: A comback for tech stocks - at Moneyweek.co.uk - the best of the week's international financial media.

Could the technology sector, which peaked five years ago, be on the verge of taking off again? This week saw the Nasdaq and FTSE Techmark indices hit record highs and confidence has returned, says Maija Pesola in the FT. A recent survey of small UK technology firms by Grant Thornton shows that almost two-thirds expect revenues to grow by more than 50% a year for the next three years, with organic growth expected to be the key driver.

Technology flotations have also made a comeback and corporate spending on technology and telephone networks seems to be rebounding, says David Budworth in The Sunday Times. US IT spending grew by 12% last year, the first double-digit increase since 2000. Moreover, hot new technologies - such as Wi-Fi, which permits wireless internet surfing, and internet television - are at, or close to, the point of being commercially exploited, according to Lindsay Whitelaw of Artemis, so the hype looks unlikely to "turn to dust". "Sound" tech firms are now also available at "sensible prices", says John Bearman of Halifax's fund management arm.

But beyond the UK, there are still signs of 1990s-style tech fever. As E Browning points out in The Wall Street Journal, US investors still tend to chase tech when the overall market is hot and dump it when Wall Street cools - "just as they did in the bubble". As oil prices have climbed again this year, fuelling jitters that companies won't have the cash to invest in technology equipment, the Nasdaq has struggled. Investors are still convinced that technology automatically means growth, says Philip Coburn, Global Technology Strategist at UBS, noting that, worldwide, large tech stocks are still generally 40% pricier on a 2005 p/e of 21 than large stocks. And while US tech valuations are at a seven-year low in p/e terms, according to Russ Koesterich of State Street Global markets, they're still not cheap.

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So which technology stocks might be worth a punt? Whitelaw recommends Amino Technologies (AMO, 288p), a developer of internet television software, and Innovision Research & Technology (INN, 141p), involved in the radio-frequency chips that are eclipsing barcodes. Alan Steel Asset management, a financial adviser, highlights the Artemis New Enterprises Fund, which sticks mostly to the UK; it tops its sector with a 31% gain over three years. US-orientated Framlington Nasdaq is also worth a look.