The skyhigh share values of Internet companies reflect only their chance to capture markets, not their potential for lucrative financial returns.
This was the warning from a panel of Wall Street analysts, talking at Comdex in Las Vegas. Share prices of high profile companies such as Yahoo, America Online and Amazon.com are way above any reasonable valuations but have been forced artificially high, they agreed.
"There is an imbalance between the supply of Internet stocks and the demand. Tech stocks are no longer a foreign thing to individual investors - everybody understands it and they all want a piece of it," said Roger MacNamee, general partner at Integral Capital Partners.
Ron Elijah, portfolio manager at Robertson Stephens Funds, said his investments in Yahoo, America Online and others could not be explained in terms of current market value but were based on their market opportunity.
"The company that wins is the one that captures the largest market opportunity. For example, I always use Yahoo as my search engine now because it is there on my browser and I am lazy - it is the easy option," he said.
All warned that, with values so high now, there was a very great financial risk for those left in the stocks in the event of a major correction. But for now they continued to show the way for other companies.
"Amazon.com is a phenomenon. I believe it is the most important company in America today for what it represents. It is a proxy for ecommerce and dislocation, for new companies to push aside older ones," commented another panel member, Richard Karlgaard, publisher of personal finance magazine 'Forbes'.
All agreed the technology market is ideal over the next 18 months for canny investors to spot the next great investment. Elijah said that Texas Instruments, Applied Materials and Novellus are three companies that could rise in price off the back of the improvement in the semiconductor market.
"The most important Internet ideas have not yet been conceived, yet alone gone public," said MacNamee.
He nominated Rambus, Intuit and Inktomi as companies his firm had either invested in or backed with venture capital. He also said Platinum Software had recently acquired an ERP software package that had interesting potential.
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