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Updated from 10:56 a.m. EST to provide additional analysts comments about risk in the eighth and fifteenth paragraphs.



) - Now that


(AAPL) - Get Apple Inc. Report


crossed $500 per share,


(MSFT) - Get Microsoft Corporation Report

has crossed $30 per share again, and seemingly

every story has an "iAngle"

to it, there has already been some chatter about another tech bubble.

Morgan Stanley

(MS) - Get Morgan Stanley Report

, in a recent report, highlighted the run-up in mega-cap tech valuations, asking whether this is the precursor to a bubble.

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Morgan notes that 20% of the market cap of the

S&P 500

is in technology, but says that mega-cap technology stocks are more attractive than other mega-cap stocks in other sectors.

The report goes on to say that tech valuations are not stretched, and sectors like "software, hardware, and Internet stocks are more relatively attractive then semiconductors or IT services..."

Here are three reasons why technology stocks are not in a bubble.

Low Risk

Broken down into subgroups such as communications equipment, software, semiconductors, Internet software, and IT services, only IT services has a beta lower than than its historical norm, and none are more than 9% away from a beta of 1. A beta below 1 indicates the sector is less risky than the overall market.

Some might believe that the recent run up in the


and technology-related stocks might lead to an expansion of the sector's "beta," or riskiness. Morgan Stanley notes that large-cap technology stocks have had a beta lower than 1 (0.97) since 2004.

Morgan Stanley makes the case that industrial companies, such as


(GE) - Get General Electric Company Report



(CAT) - Get Caterpillar Inc. Report

have a higher beta than technology itself. Morgan Stanley refers to the technology sector as "basically defensive."

Of particular note is the run in shares of Apple, which has a market cap of approximately $480 billion. About a month ago,

Apple crossed the $400 billion mark


Adding $80 billion in one month is incredible. To put that in perspective, Apple has added nearly the

entire valuation of Facebook during that period


Morgan Stanley continues to recommend buying Apple, as well as Microsoft, despite the recent run-up in the companies' shares. Apple is up 27.1% year-to-date, and Microsoft is up 21.1%, compared to a 13.2% return for the


The investment bank notes that while Apple has added over $450 billion in market cap in the past ten years, companies like Microsoft,


(INTC) - Get Intel Corporation Report



(CSCO) - Get Cisco Systems, Inc. Report

, and


(DELL) - Get Dell Technologies Inc Class C Report

have seen their market caps shrink significantly.


When stocks tend to run up sharply, their valuations start to get stretched. They become "expensive," on a forward-looking earnings basis, and this can cause a sell-off. Morgan Stanley, however, believes mega-cap technology stocks are still cheap on a forward-earnings basis, especially when compared to other mega-caps in other sectors.

"If mega-cap stocks outperform again in 2012 as they did in 2011, we think technology stocks will participate disproportionately," analyst Adam S. Parker wrote in the research note.

Growth stocks are cheap versus their longer term average, although slightly more expensive than they have been versus the last few years. Morgan Stanley says that the growth expectations for the industrial sector is above those in the tech sector, cotnrary to the past 30 years.

That isn't to say that all technology stocks are "attractively valued." IT Services and semiconductors, for example, are not as attractive as the other sectors. The largest names in IT Services are infrastructure-heavy


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, according to Morgan Stanley, while semiconductors house Intel,

Texas Instruments

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Intel shares have risen 12% since the start of 2012, while Texas Instruments is up 14.32%, and Broadcom is up 29.3%.


Much has been made of the large cash hoards in the technology sector, prompting speculation that this could lead to a

boon in technology acquisitions this year

. Nearly 30% of the $1.5 trillion in cash on corporate balance sheets is in the technology sector.

Morgan Stanley notes that the free-cash-flow yields of slightly riskier stocks are nearly identical to less risky stocks, so valuations are being supported by cash, and not hope and optimism.

Apple recently said that it has

more cash than it needs

, while more than

50% of Dell's market cap is in cash,

and other companies such as Microsoft and


(GOOG) - Get Alphabet Inc. Class C Report

also have significant cash hoards.

As cash balances increase, companies will eventually look to use this cash, either by increasing their dividends, or through share buybacks or cash-based acquisitions. Morgan Stanley notes that companies which have done cash based-deals since 2006 have outperformed companies doing stock-based acquisitions. "We believe dividend yield and cash-based M&A will be rewarded, which means a balance of quality yielders and companies that should look attractive to acquirers is a prudent barbell within the technology sector," the note said.

Even with the recent run-up in tech stocks that kicked off 2012, tech may not be in a bubble. According to some, it still has quite a ways to go.

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Written by Chris Ciaccia in New York

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