Now, with the tech-heavy Nasdaq up 65 percent since its low for 2009 on March 9, it's worth considering if the current tech rally is also coming to an end.
The difference between today and a decade ago is that investors are now far more sensitive to company performance. Even the slightest hint of a problem can send shares tumbling. That's why shares of Research in Motion (RIMM) fell 14 percent Friday after the company's earnings fell short of some analyst estimates. The shares, which had more than doubled this year prior to last week's earnings report, were priced for perfect results. But they didn't come.
But Research in Motion's results weren't that bad. When RIM announced its results, they were marginally disappointing. Even so, Brian Modoff, an analyst at Deutsche Bank, says that Research in Motion faces tougher times and dropped his price target to $60 in a note to clients last Friday. He had previously rated the stock a hold with a $67 price target.
Charles Wolf, an analyst at Needham and Co., isn't quite as worried about RIM's business. "There is fundamentally nothing wrong" with Research in Motion, says Wolf. "To me the fault lies with investors. The stock had been moving up, up, up over the last two or three weeks," he pointed out. Wolf argues that RIM's revenue forecast and earnings results were in line with what he expected. "I don't know what investors were thinking, but they were foolish," Wolf says.
The question now, is if such foolishness will spread among other tech names in coming months. "We're approaching earnings season and a lot is going to be unveiled," Wolf says. "From what I see, investors have priced those shares for perfection."
The message to investors: Anything less than perfect could send shares of other tech companies tumbling. Among the smartphone manufacturers, shares of Apple (AAPL) are up 101 percent, shares of Google (GOOG) are up 190 percent, and even shares of Palm (PALM) have rallied 175 percent since tech stocks hit their low on March 9.
There is ample reason to believe that when these companies report their quarterly results, they won't be quite what investors had hoped for. Consider this: Apple and Palm have cut prices on so-called smartphones already this year, even as their shares rallied. It's also not clear that people will continue to upgrade to more complex phones during difficult economic times. "The shipment growth rate in the smartphone market is not as strong as it was a couple of years ago," says Wolf, who has a neutral rating on Research in Motion shares.
What all this means is that for tech companies to support their lofty share prices, they must meet heightened expectations. My advice: Lock in your gains now, before the sputtering rally forces you to sell or wish you had sold sooner.
Anthony Massucci is a senior writer and columnist for DailyFinance. You may follow him on Twitter at hianthony.