hit a glitch Thursday following software and cloud-computing
) dour profit report.
Technology Select Sector SPDR (
), tracking technology firms in the S&P 500 index, tumbled
1.13% to 29.98.
Other ETFs with major stakes in Oracle --Vanguard Information
), iShares S&P North American Technology-Multimedia
Networking Index (
),First Trust ISE Cloud Computing Index (
) andPowerShares QQQ (QQQ), tracking the largest 100 nonfinancial
stocks on the Nasdaq -- fell 1% to 1.5%.
Oracle shares dove 10% after reporting fiscal third-quarter
earnings rose 5% -- the slowest rate in three years. Sales
slipped 1% year over year to $9 billion.
A flurry of analysts cut their price targets and downgraded
shares. But Credit Suisse rated the company outperform and
recommended buying on weakness, noting shares trade at 11.5 times
forward estimates, which is lower than its historical average and
"Wall Street underappreciates how disruptive a force Oracle's
engineered systems strategy could be in the network and storage
hardware markets," Credit Suisse analysts wrote. They also noted
Oracle is adding new services and products and is benefiting from
healthy corporate spending to upgrade its systems.
"Something more secular is occurring as cloud computing
increasingly entices CIOs to refresh their legacy IT systems with
cloud services rather than infrastructure," Brian Schwartz, an
analyst with Oppenheimer wrote. He also rated Oracle
XLK, the most widely traded tech ETF, returned 4.09% year to
date vs. 8.64% for the SPDR S&P 500 (SPY). XLK is flat on a
one-year basis while SPY returned 10.38%.
Although XLK surpassed its 2007 high a year before the broader
market, it's been lagging ever since. It failed to reach a new
52-week high while the SPY hit a six-year peak. This suggests XLK
could be a "reversion to the mean" or "catch up" play, in which
institutional investors buy lagging sectors to take advantage of
low prices and sell winning sectors on the belief they're
The S&P 500's tech sector currently trades at 12.7 times
2013 earnings estimates with a 1.0 price-to-growth ratio -- a
discount compared to the S&P. The broader index trades at 14
times forward earnings with a 1.3 PEG ratio. However, tech
companies are forecast to grow earnings 6.5% year over year in
2013, while the S&P 500 lifts earnings 7.5%.
Growth A Challenge
"A lot of companies are quite mature at this point and so
growth has become more of a challenge and the economic backdrop
is not stimulating demand at this point," said Scott Kessler,
head of tech sector equity research at S&P Capital IQ.
Tech firms make most of their money overseas and have been
hurt by weak demand in Europe and a depreciating euro, he
Once the market regains its footing, the tech sector will lead
the next growth cycle and the market higher, says Ronald Lang,
principal at Philadelphia-based Atlas Wealth Management.
Companies have been slow to replace older technology and will
increase capital spending to upgrade their systems, he added.