Apple Soars

But Chervitz is also leery of the high expectations that investors use to justify Apple's valuation. These expectations for sales and profit growth have come under pressure as the continuing credit crisis casts a pall of uncertainty over consumer spending.

"There's no doubt that iPods and Macs are discretionary items that consumers will put off buying if they go into retreat mode," says Chervitz.

Google shares are similarly volatile because of investors' outsized growth expectations, says Chervitz. Google shares have fallen 12% since the tech stock meltdown began last week, but are still trading at roughly 35 times next year's annual estimated earnings per share.

The Jacob fund has added moderately to its Google holdings this year, increasing the number of shares it own from 11,000 in February to 12,000 by mid-August, according to filings with the Securities and Exchange Commission.

Chervitz says that eBay (EBAY) may be less volatile because it has a more reasonable valuation. Its shares are trading at 24 times the consensus estimate for 2008 full-year earnings per share. The Jacob fund has acquired about 35,000 eBay shares this year, but has not changed this position since May, according to SEC filings.

Both Apple and Google, however, will remain attractive investments relative to their competitors if they continue to gain market share in a slower growth or even recessionary environment. Thus, while companies may spend less on Internet advertising, Google may still increase its lead over rivals like Yahoo (YHOO) or IAC's (IAC) Ask.com.

Chervitz says he expects the current bout of market volatility to continue until investors are assured that the problems plaguing the financial services and real estate market are not going to lead to a recession.

"This is somewhat of guessing game," says Chervitz. "But I tend to believe that the ramifications [of the credit and housing market problems] will be worse than commonly expected."

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