RealTime IT News

Net's Huge Growth Feeds Stock Frenzy

The Internet stock frenzy is a path to insanity.

Look at what it has done to Ray Ploeger, 67, of Horseshoe Bay, Texas. He has thought about buying Internet stocks. But he and his wife "haven't had enough nerve to take the plunge," he says. "I keep thinking they've run up too much, but then they run up some more. So you think they've really run up way too much, and then they run up some more. It drives you nuts."

And then they fall. Monday, Yahoo went up an astounding 26 3/8 to $199 1/4. Tuesday it fell 8 1/4. Amazon.com was up 15 1/2 to $139 1/2 Monday, then down 17 3/8 Tuesday. Overall, the trend is up, up, up. Yahoo is up 679% from one year ago. Amazon.com has risen 1,063%.

As heads spin, people are increasingly wondering what's real. Are the values wild speculation? If true, a nasty crash is coming. Or do the stocks accurately reflect a profound shift in the economy that will pour billions of dollars into what are now wisps of companies peppered around bland office parks in Silicon Valley, Seattle and a few other areas? If so, buy 'em.

Reality, though, is slippery.

Some of the stock run-up is surely speculation, but under that is a conviction that the leading Internet companies are the next Microsofts, NBCs and Intels.

The companies getting the most attention--the "portals" that are the starting gates for searching the Web--get relatively little income from advertising or transactions now and for the foreseeable future. That could change. In August, Procter & Gamble--the biggest consumer advertiser--is hosting a summit that will be attended by advertising giants Coca-Cola, McDonald's and AT&T. They will discuss whether, and how, to advertise on the Net, a potential earth-moving event. And while the image of Internet companies is sometimes of young nerds making easy money and buying Ferraris for kicks, that's usually not fair. The industry is so competitive and the stakes--thanks to the stock prices--so high, no one at those companies can pause for a second.

At Inktomi, which builds Internet search technology and is another soaring stock, a founder and a group of engineers worked through the July 4 weekend to launch service on Yahoo. Over at Yahoo, which is considered the drum major of the Net parade, Chief Operating Officer Jeff Mallett says: "We may have, at best, a 90-day lead on our competitors."

So that competitiveness only pumps up the risk and difficulty in playing in Internet stocks. Even if Net companies as a whole are worth every penny invested in the industry, the winners and losers are still far from being defined. Today's big gain on a single company could slip away in an Internet instant.

It's a danger that concerns Robert Stovall, president of Wall Street firm Stovall/21st Advisers. Every time he stops by his neighborhood store, the men who work there clamor around asking his opinion about the likes of Lycos and Excite. "It's on the unbelievable side," Stovall says. "I hope it's individuals having fun and not serious investors."

Story Continued