Why Tech Stocks Are Holding Back the Dow

After the close of trading yesterday, two of the largest, most well-known tech companies released some surprising earnings. Intel (Nasdaq: INTC  ) said sales fell 5.5% to $13.5 billion, while earnings per share were 11% lower to $0.58. Both numbers beat estimates, but the fourth-quarter margin forecast was lower than expected, and the stock is down 2.7% as of 3:30 p.m. EDT.

Over at IBM (NYSE: IBM  ) , revenue fell 5% to $24.7 billion, which was below estimates, and an earnings beat by just a penny failed to inspire investors. IT customers are reining in spending on worries about the global economy, and both Intel and IBM are being hit as a result. IBM's stock is down 5.2% near the end of trading.

Cisco (Nasdaq: CSCO  ) is also holding back markets after being downgraded to "hold" by Cantor Fitzgerald. The stock is down 0.94% today.

These stocks have offset a relatively strong day for other Dow Jones Industrial Average (INDEX: ^DJI  ) components. As I am writing, 21 of 30 component stocks are up, and 10 of those are up 1% or more. But IBM's big impact on the price-weighted index has offset these broad gains, and the Dow is down 0.02% as a result. The more balanced S&P 500 (INDEX: ^GSPC  ) is showing a 0.42% gain today.

The earnings reports from Intel and IBM are worrisome, especially given the strong reports we've seen in the first week of earnings season. Tech stocks are clearly having some growing pains as consumers move to tablets and corporate customers pinch IT spending after decades of growth.

In the long term, I think tech still provides a lot of opportunities for investors, but market upheavals -- e.g., the tablet's ouster of the PC -- make for a difficult transition.

Intel in particular now finds itself in a precarious long-term situation if it doesn't find new avenues for growth. In this premium research report on Intel, our analyst runs through all of the key topics investors should understand about the chip giant and discusses when it's time to buy the stock. Click here now to learn more.


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