Tech Shows Its Mettle

The last two days have shown that Google's ( GOOG) leadership of the tech sector, and to a degree the broader market, has the potential to be a very good thing or, just as easily, a very bad one.

A Google executive's candid and surprise statements on decelerating growth caught Wall Street off guard Tuesday, perhaps because this was supposed to be a week for promoting the positives of tech stocks.

Several powerhouse banking firms are holding conferences throughout the week, including Merrill Lynch, at whose gathering Google CFO George Reyes' said that "clearly our growth rates are slowing." That triggered a 7% plunge for the stock and a 1.2% slide for the Nasdaq Composite.

Fast forward to Wednesday, and it was as if the previous day's selloff never even happened. Hours after Reyes' comments, the company issued a clarifying statement expressing optimism about its efforts to continue monetizing Internet searches. The stock didn't recover all of the prior session's losses, but it did rise 0.6% to $364.80.

However, Google's seemingly successful damage-control efforts weren't the only factor helping the market rebound. Cisco ( CSCO), whose chief operating officer also gave a presentation at the Merrill conference, saw its stock among the day's best large-cap performers, rising 4% to $21.06.

For other Internet-related stocks, the session was mixed. Yahoo! ( YHOO) rose 0.6%, but Amazon.com ( AMZN) dropped 0.9%, while eBay ( EBAY) fell 0.4%.

Aside from the Merrill conference, Credit Suisse First Boston, RBC Capital, Lehman Brothers and Goldman Sachs were also holding tech forums Wednesday.

"There's nothing really company-specific coming out, but after the Google story yesterday we're hearing pretty positive comments about online advertising trends, and there's real interest in wireless and broadband stories," says Art Hogan, market strategist at Jefferies & Co, which, you guessed it, was also hosting a technology get-together Wednesday.

At the end of the day, the Nasdaq had risen 1.46%, more than offsetting Tuesday's drop. The tech-heavy index was also helped by a 10% climb in Autodesk ( ADSK), the software maker that posted better-than-expected fourth-quarter results.

The S&P 500 index rose 0.8% to 1291 and the Dow Jones Industrial Average climbed back above the psychologically key 11,000 mark, gaining 60 points, or 0.6%, to 11,053.

Semiconductor stocks, which had been trailing the Nasdaq since January, also made a big comeback Wednesday. The Philadelphia Stock Exchange Semiconductor Sector index jumped 4.3%.

Bear Stearns upgraded Altera ( ALTR), lifting the chipmaker's shares 5.7%, saying it expects the company to raise its guidance during a midquarter update on Monday. Texas Instruments ( TXN) soared 7.8% ahead of its own update the same day. Intel ( INTC) rose, but by a less-impressive 1.6%.

Meanwhile, according to a Bernstein Research analysis of venture-capital investments, money is pouring into wireless technologies, including services, software and hardware. If these investments lead to new innovative products, this should be "an incremental positive" to handset makers, which need to come up with next-generation phones in Western markets, according to Vadim Zlotnikov, Bernstein's market strategist.

Big venture investments are also being made in Internet video. The beneficiaries should be the traditional telecom carriers and the makers of routers, such as Cisco and Juniper ( JNPR), Zlotnikov wrote in a research note.

The Nasdaq has been up big twice this week, including a gain of 0.9% on Monday. To Barry Hyman, market strategist at Ehrenkrantz King Nussbaum, it's all about sector rotation away from the energy names. "It's a fairly simple story, really," he says.

On Wednesday, oil rose 56 cents to $61.97, but crude has dropped from near $70 since January as geopolitical tensions eased a bit and inventories rose amid warm U.S. weather. The S&P's energy subgroup, which led the market for all of last year and for a good part of January, dropped 8.1% in February as oil pulled back.

Money is looking for another home, and tech, especially "all the wireless, video and other gizmos that are linked to the consumer, is where all the excitement is," Hyman says.

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