TechWeek: The Return of Multiple Concerns

Valuation-wary investors rained on AMD's(AMD) parade this week, despite an estimate-busting fourth-quarter earnings report. By Friday's close, the chipmaker's shares slid another 44 cents to $21.19, taking the loss since Tuesday's announcement to nearly 12%.

Simply put, it isn't clear that AMD's fundamentals can support a forward-earnings multiple of 58 times 2005 estimates and 30 times next year's estimates. There was also some feeling that at least part of the No.2 microprocessor maker's success was due to missteps by Intel(INTC). The world's largest chipmaker, which is due to report its quarter after the close on Tuesday, is trading at the other extreme -- 16 times '05 EPS and 15 times '06 EPS, according to First Call.

All in all, it was a somewhat confusing week for semiconductors. Prudential Securities downgraded the sector as a whole and Intel in particular. "We don't expect the company's momentum to turn until late 2006, and expect the stock to underperform for the next six to 12 months," Prudential wrote.

But Merrill Lynch upgraded the stock the next day (its shares dropped anyway) and our own Jim Cramer blasted Pru's call on chips, saying "you don't downgrade the group with Intel down at $22 and AMD selling off hard. You don't downgrade the group when Texas Instruments(symbol) and National Semi(NSM) are doing really, really well."

Cramer's logic didn't impress Bear Stearns, which downgraded TI on Friday, citing concerns over increasing competition in the market for chips that will power a new generation of mobile phones. As we said, confusing.

It could be there was a bit of bear flu cycling through Prudential this week. Software analyst Brent Thill published results of the company's software spending survey and said, "Respondents were more pessimistic on their outlook for software spending over the next 12 months than in previous surveys over the last year and a half." The survey included 75 CIOs from the U.S. and Europe, representing companies with an average revenue size of $15 billion.