5 Tech Stocks to Watch if QE3 Happens (Update)

This story was updated from January 9th to include new economic data and additional analyst comments regarding monetary easing.

NEW YORK ( TheStreet) -- Tech stocks such as Apple ( AAPL), IBM ( IBM) and VMware ( VMW) may benefit from the next round of quantitative easing from the Federal Reserve, speculated to be sometime in 2012, analysts say.

Goldman Sachs chief U.S. economist Jan Hatzius predicts that the Federal Reserve will enact another round of quantitative easing at its next policy meeting, held June 19-20. "Our confidence that the FOMC will ease policy once more at the June 19-20 meeting has also grown," Hatzius wrote in a note released on Monday. "Moreover, both financial conditions and growth have been moving in the wrong direction, to a degree that we think warrants action."

The U.S. dollar has been strong compared to other foreign currencies, such as the Euro or the Japanese Yen, as U.S. economic data has weakened and the crisis in the Eurozone continues to take a turn for the worse. The likes of Apple, IBM, VMware, Microsoft ( MSFT) and Oracle ( ORCL) may benefit from an additional round of easing because of their heavy exposure to international markets, and converting their overseas earnings back into U.S. dollars would help earnings.

Technology as a sector, measured by the Technology SPDR ETF ( XLK), cumulatively outperformed the Dow Jones Industrial Average and the S&P 500 during the previous two periods of quantitative easing. From Nov. 25, 2008 to March 31, 2010 (the time period for the first round of quantitative easing), the Technology SPDR ETF gained 65.6%, the Dow Jones gained 27.7%, and the S&P 500 gained 32.8%.

From Nov. 6, 2010 to June 30, 2011 (the time period for the second round of quantitative easing), the Technology SPDR ETF gained 0.8%, the Dow Jones gained 7.33%, and the S&P 500 gained 10.5%.

Federal Reserve

Hatzius did not predict the size of another round of easing, but Bank of America economist Michelle Meyer sees around $800 billion in purchases, combined of mortgage-backed securities and U.S. Treasuries. During the first round of quantitative easing, the Fed purchased $1.75 trillion worth of mortgage-backed securities, government-sponsored entity (Fannie Mae and Freddie Mac) debt and U.S. Treasuries. In the second round, the Reserve purchased $600 billion worth of U.S. Treasuries.

Hatzius's comments come amid recent slowdown in economic growth, most notably the recent May employment report". The economy added just 69,000 jobs during the month of May, with the unemployment rate ticking up to 8.2%. The numbers of jobs created during March and April were revised significantly lower.

Read on for more details on which tech companies could benefit from QE3, if it happens:

Apple

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Apple ( AAPL) is likely to benefit thanks to its significant overseas revenue, especially as China becomes more important. Apple CEO Tim Cook noted iPhone sales in Greater China rose five times year-over-year in its most recent quarter. "Apple's international revenue was 61% in 2011, up from 56% in 2010," Evercore Partners analyst Ken Cihra said in an interview with TheStreet earlier this year.

"Clearly a weaker dollar would help Apple," Cihra said.

From Nov. 25, 2008, to March 31, 2010, Apple gained 146.3%, according to Google Finance. From Nov. 5, 2010 to June 30, 2011, shares gained 8.6%.

IBM

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Evercore Partners' Cihra also sees IBM ( IBM) as well positioned.

IBM's first-quarter revenue was $24.67 billion, up just 1% when adjusting for constant currency. This missed Wall Street's forecast of $24.77 billion. IBM's expenses are in dollars, so a weaker dollar helps IBM, Cihra noted.

IBM's Americas revenue was $10.5 billion during the quarter, an increase of 1% year over year, while EMEA sales fell 2% to $7.6 billion. Asia-Pacific revenue grew 4% year-over-year to $6.1 billion.

From Nov. 25, 2008 to March 31, 2010, IBM shares gained 59%, according to Google Finance. From November 5, 2010 to June 30, 2011, shares gained 22.1%.

VMware

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Rajesh Ghai of Think Equity said VMware ( VMW) may see some marginal improvement in demand if a third round of quantitative easing happens. If companies cannot invest because of economic constraints, and some of those constraints are eased, this would spell good news for VMWare, he noted earlier this year. The analyst has a buy rating and a $125 price target.

"About 40% of VMware's revenues are overseas, with 20% to 30% of that in Europe," explained Ghai, in an interview with TheStreet. "A weaker Euro will be a headwind for VMware in 2012, as it has declined 6%-7% over the year -- if there is a weaker dollar, it might help VMware's earnings."

VMware does partially hedge its currency risk, but not completely, Ghai noted. There has been some concern that Europe would cause headwinds for VMware and other cloud computing companies, but analysts have said that is not the case.

From Nov. 25, 2008 to March 31, 2010, VMware gained 182.6%, according to Google Finance. From Nov. 5, 2010 to June 30, 2011, VMware gained 31.1%.

Microsoft

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Microsoft may also see benefits from an additional round of quantitative easing, said Mark Moerdler of Sanford Bernstein earlier this year. U.S. dollar depreciation as a result of further monetary easing would benefit Microsoft since its overseas revenue outweigh its expenses, he said.

Not only would a weaker dollar help overseas revenue, the overseas cash would gain value as well, according to Moerdler. Microsoft had $59.5 billion in cash and short-term investments as of the end of the third-quarter of fiscal 2012. It might lose a little bit on the services and staff components, as costs and wages would rise, but "ultimately, additional easing is probably accretive to the company Microsoft," Moerdler noted.

Microsoft does not break out revenue by geographical region, but it's believed that the company generates a significant portion of its revenue from overseas, and as such, Microsoft would love to repatriate its massive overseas cash hoard, Moerdler said. He rates shares overweight with a $40 price target.

From Nov. 25, 2008 to March 31, 2010, Microsoft gained 50.7%, according to Google Finance. From Nov. 5, 2010 to June 30, 2011, the stock lost 3.1%.

Oracle

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Oracle is another company that may gain from an additional round of easing, Moerdler noted, for the same reasons that Microsoft might benefit: massive overseas operations with revenue that outweighs foreign expenses. He rates shares outperform with a $34 price target.

When Oracle reported third-quarter earnings last month, the company said that Europe was not a headwind. "We're off and running in Europe," President Mark Hurd said on the earnings call, when talking about Exalytics, Oracle's in-memory machine.

From Nov. 25, 2008 to March 31, 2010, Oracle gained 49.04%, according to Google Finance. From Nov. 5, 2010 to June 30, 2011, shares gained 12%.

Interested in more on Oracle? See TheStreet Ratings' report card for this stock.

>>To see these stocks in action, visit the 5 Tech Stocks to Watch if QE3 Happens portfolio on Stockpickr.

-- Written by Chris Ciaccia in New York

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