Skittish Investors Toss Their Chips

First-quarter earnings have offered no shortage of sunny news to bolster tech stocks. Trouble is: nobody cared, judging from the sea of red last week.

The bloodbath has been worst in chip stocks: Last week, the Philadelphia Stock Exchange Semiconductor Index sank 9.2%, falling below its 200-day moving average. The bellwether chip index now resides more than 20% below its January peak of 560; technically speaking, that's bear market territory.

Above all, investors are seeking to avoid the losses of the last tech bust, when many held on too long as cyclical stocks entered a brutal downturn. Currently, investors in the most volatile segment of tech -- semiconductors -- are rushing to take profits at what many consider to be the peak of the industry's upcycle.

"The real money to be made in deep cyclicals like semis was when things looked bleak about a year ago. It's hard to at this point in the cycle," said Chris Casey, head of portfolio management at Boston Private Bank, an investment management firm with $1.95 billion in assets.

More proof that Wall Street has grown much harder to please emerged Friday, when the SOX sank 1.6% to 443 despite better-than- expected quarterly sales guidance from leading global foundry Taiwan Semiconductor(TSM Quote). Normally, chip investors would be cheered by news of unexpectedly strong demand.

In fact, a slew of companies recently bested Wall Street's sales expectations only to see their shares take a hit, including chipmakers Skyworks,(SWKS Quote), Texas Instruments(TXN Quote) and Xilinx,(XLNX Quote), as well as chip-equipment plays Novellus(NVLS Quote) and Lam Research(LRCX Quote).

The market's dismissal of sunny forecasts reflects what Bernard Diggins, a partner at the investment management firm of Gardner Lewis, described as "more rational analysis on multiples" amid concerns about interest rates and capacity utilization.

Higher interest rates make stocks relatively less attractive to Treasuries, where yields have risen sharply in anticipation of Federal Reserve tightening. Rate hikes would also hurt stocks by increasing the cost of capital, making it harder for companies to finance expansion. With relatively little debt, tech companies would be less directly affected than other sectors. But rising interest rates could dampen demand from potential technology customers if companies and consumers are forced to earmark more of their cash to service debt.