Professional investors love to hate easy-money Internet stocks, with their nerdy-hip appeal, thin-air valuations, flaky earnings, and nebulous outlooks.
But at a Wall Street technology conference last week, the big money managers couldn't keep away from those very companies -- with their near-unstoppable gains.
Over 2,000 investors who gathered for the 13th annual Goldman Sachs Technology Symposium in New York heard just about every company present its ".com" business plan to make its hardware, software, and computer services Internet-ready.
It was the pure-play Internet companies, however, that drew some of the biggest crowds and had men in banker-blue suits sitting cross-legged, captivated by the presentations at America Online (AOL) and eBay (EBAY).
"You couldn't get into some of the rooms," Ken Zolot, a private investor and Goldman Sachs client said of presentations by Internet companies like ETrade (EGRP).
Like most investors, Zolot recognized the thirst for knowledge on Internet companies in general, but he noted that the real success stories are still the enterprises that provide the tools for electronic commerce.
Zolot cited DoubleClick (XXX), Inktomi (INKT), and Exodus Communications ( (EXDS) as "powerful stories" of companies providing the plumbing for Internet-based business.
While conference guests snatched up financial filings and reports on Internet companies, piles of literature on many traditional software and hardware suppliers were hardly touched.
Roger McNamee, a general partner with investment company Integral Capital Partners, said big institutional investors could really learn about Internet stocks if they followed the lifestyle of the day-trader, the much-maligned enemy of these self-proclaimed long-term investors.
"Have CNBC on in the background and open up an ETrade account and then you live the full experience -- no joke," McNamee said of the many day traders who use TV and computers at home or in dingy offices to dart in and out of Web stocks.
This small army of private investors is credited with giving these stocks their incredible momentum and their speculative nature.
"The people in this room no longer control any of these stocks," said McNamee, referring to the wallop packed by independent day traders in contrast to the top-name money managers at the conference. He underscored that Internet stocks constantly need new investors to keep up their momentum, but that such new money may be in short supply.
Kim Solomon, of father-daughter hedge fund Solomon Capital Management, said she saw some Internet stocks as becoming safe for institutional investors to own.
"They all own AOL, it's like the IBM of the Internet world," Solomon said. AOL was invited to join the S&P 500 late in 1998, a key stepping stone to institutional support.
She was also impressed by companies like Storage Technology Corp. (STK) and EMC Corp. (EMC) that warehouse the burgeoning amount of information available on the Internet.
One unidentified money manager with a large New York-based investment house repeated the oft-quoted belief that supplying technology to the fickle consumer market is a risky business, while supplying it to companies is a steady earner. The real money being made in technology is by companies that focus on using the Internet to sell to other business customers, he said.
"There will be business-to-consumer companies that will work, but it's a crap shoot," he said of the difficulty in picking winners in the face of mercurial fashions and the tough competition from rival Web sites.
Copyright© 1999 Reuters Limited.
