Tech stocks the apple of every trader’s eye

AS THE recovery gathers momentum, business spending on technology is creeping back. In the leaner, greener post-recession world, enhancing productivity through more efficient technology is one way that firms are able to keep costs down. Now that firms are more confident about their business prospects they can start to make investment decisions – analysts are already predicting a new cycle of hardware and software purchasing in the second half of 2010.

A recent Barclays Capital survey suggests that executives in charge of IT purchasing decisions are now expecting more than 2 per cent growth in technology spending this year compared to last. And it’s not just companies that are shelling out on new technology either. Consumers are also starting to loosen their belts and make those IT purchases that they had postponed during the recession.

This boost to tech spending should see an increase in revenues for both the providers and manufacturers, which in turn should be reflected in their earnings results over the coming quarters.

Chipmaker Intel, a bellwether for the technology industry, reported stellar second fiscal quarter results last week. Net income rose to $2.4bn in the first quarter of 2010 compared with net income of $629m in the same period of 2009 and revenue also increased to $10.3bn, surpassing Wall Street’s expectations of about $9.84bn. Intel expects this to continue, releasing sales and margin forecasts that trounced analysts’ expectations. It predicts a gross margin of 64 per cent for both the second quarter and the remainder of 2010.

Strong demand for computer chips spells good news for the rest of the industry because computer manufacturers have to order from Intel before they make the computers. This, in turn, is positive for software giant Microsoft, which reports its second quarter earnings on Thursday. Analysts are expecting the popularity of its new Windows 7 operating system to boost its sales and profits in what is historically a weak quarter for the company.

Microsoft is not the only big tech stock reporting this week – Apple is reporting later today after the US market closes.

Given its announcement last week that it could not make enough iPads to satisfy customer demand, analysts are expecting Apple to give a positive outlook and estimate that the company is still cheap, despite shares reaching an all-time high of $251.14 last week.

The median price target for Apple is currently $280, offering contracts for difference (CFDs) traders using leverage a lucrative long trade right now. Apple’s innovative culture makes it ripe for long-term success and profits.