In its infinite wisdom, the stock market has recently arrived at a possibly prescient conclusion: Two of the nation's premier investment banks,

Goldman Sachs

(GS) - Get Report

and

Morgan Stanley Dean Witter

(MWD)

, are actually tech stocks.

Since October, shares in the New York-based securities giants have moved in lock step with the

Nasdaq

composite as the tech-sodden index has zoomed higher. Goldman's stock is up 49% in that period, and Morgan's ahead 51%, even with the Nasdaq's 51% jump. At the same time, firms that are perceived as less tech-savvy, such as

Merrill Lynch

(MER)

and

Lehman Brothers

(LEH)

, are lagging behind, up just 24% and 35%, respectively.

The stocks' gains suggest that investors are starting to notice that Goldman and Morgan dominate tech investment banking -- and, more important, that the firms have begun to steep their own businesses in New Economy technology ideals. But the steep runup also puts the stocks at risk should tech shares begin to slide from their current dizzying heights.

Sonic Boom

"I've never seen anything like this, where two leading bulge-bracket firms trade this closely in line with an index," says Mike Holland, president of the

Holland

(HOLBX) - Get Report

Balanced fund, which doesn't hold Goldman or Morgan Stanley stock.

Banking boom times notwithstanding, that Goldman and Morgan are trying to morph into tech-focused firms may be a longer-lasting dynamic as they rapidly embrace technology to change the way they do business.

However, just as plenty of skeptics think the soar-away Nasdaq is destined for a steep fall, some think Goldman and Morgan, with their feet deeper in the New Economy, are just as vulnerable to a tech selloff. "Tech IPOs are not a recurring business," says Jonathan Iseson, a manager on the Long Island-based

Bluewater Partners

financial services hedge fund that has no position in either Goldman or Morgan. "A firm like Goldman may be an incredible company. But there's a lot of excess going on here."

Milk and Honey

It may be excess, but Goldman and Morgan have milked it better than anyone.

In 1999, Morgan underwrote $6.8 billion of tech equity offerings, more than any other bank, closely followed by Goldman with $6.3 billion, according to

Thomson Financial Securities Data

. Including deals in all industry sectors, Goldman came first, with $14.5 billion raised, and Morgan second, with $14 billion. Together they accounted for 40% of all money raised last year.

In its fiscal year ended Nov. 30, 1999, Morgan's investment banking revenue charged ahead 35% to $4.52 billion, while Goldman's ballooned 29% to $4.36 billion over the same period.

"In this market, buying Goldman and Morgan is a bit like buying ice-cream vendors in hot weather, a sector bet," says Lanny Thorndike, a manager of the

(CENSX)

Century Shares Trust. "But this has a secular feel to it; it's not more than just a cycle." (Century Shares Trust has no position in either firm's shares.)

Dotting the I's

Thorndike also illustrates how Goldman is itself becoming like a dot-com. It has stakes not only in online brokerage and investment bank

Wit Capital

(WITC)

, but also in

Brut

and

Archipelago

, two electronic order-matching systems, or ECNs, he says.

Goldman and Morgan declined to comment for this story.

Amy Butte, brokerage analyst at

Bear Stearns

, says Goldman is going beyond using technology chiefly as an expense-reducing tool and aims to deploy it to bring in revenue. "Each business unit

at Goldman has to devise an Internet strategy," she says. A theoretical example would be Goldman's bond desk using the Net to improve communications with clients, Butte explains. (Bear hasn't done recent underwriting for Goldman.)

Morgan's trek into cyberspace is perhaps more headstrong. Earlier this month, Morgan

said it was going to offer all the initial public offerings underwritten by its investment banking unit to clients of its revamped online brokerage.

So should this tech love-in unnerve investors? Not necessarily. Michael Freudenstein, brokerage analyst at

J.P. Morgan

, says tech is not the only game for Goldman and Morgan Stanley. He sees economic recoveries in Europe and Asia benefiting U.S. investment banks, and he points out that there's a good amount of business to be had from bringing Old Economy companies into mergers with New Economy ones, a transaction heralded by

AOL's

(AOL)

pending acquisition of

Time Warner

(TWX)

. (J.P. Morgan helped manage Goldman's 1999 IPO, but has done no recent underwriting for Morgan Stanley.)

Nonetheless, Bluewater's Iseson is sticking to his belief that earnings at Goldman and Morgan are going to get creamed when the Nasdaq gravy train derails. "If the tech market ever sells off, what are they going to do? Make it up on bond trading? I don't think so."