The Top Internet Stocks of 2010

It's been a pretty kind year to stock investors, with the S&P showing a 12.8% gain in 2010. Of course, kindness might still feel relative after a lost decade of negative returns that included the nauseating depths and panic of the financial crisis.

However, while the general market might have edged up at a low double-digit pace last year, quite a few stocks poured in monster performances either by riding new trends or by rebounding much stronger than investors expected.

Here's a list of nine of the year's top 10 performers in the Internet software and services industry.

Source: Capital IQ, a division of Standard & Poor's. Prices valid through Dec. 23. Only includes companies listed on U.S. exchanges that contain a market capitalization greater than $500 million.

Is it any surprise to see a list of such strong outperformers from the Internet software and services industry? After all, this is an industry ripe with disruption of old technologies and game-changing innovations.

Take OpenTable, for example. The company took a field like dinner reservations that hadn't changed much since, well, the advent of restaurants. By allowing diners to reserve spots and giving restaurants a more automated reservation system, both the restaurants and shareholders of OpenTable benefit.

Or look at how Akamai Technologies is empowering change. As the amount of data being transferred over the web continues to explode, more companies are looking to Akamai's powerful clusters of servers to help increase bandwidth. With the explosion of data-heavy media like high-definition video streams proliferating across the Internet, Akamai stands at the center of a powerful trend.

Of course, the sector has its fair amount of detractors. OpenTable has been the subject of several presentations from prominent short sellers who believe the stock is valued beyond its potential even if it operates to perfection. Despite continuing share gains in China, Baidu's P/E of 83 still looks rich when considering that big Goog could still pose a strong threat within the Chinese market.

As next year dawns on Internet services, many of the trends propelling this year's winners forward remain. Cloud computing continues to a dominant theme whether it involves a company providing hosting services, cloud based platforms, or services like Akamai that enhance the Internet infrastructure. Then there will always be the innovators -- companies like OpenTable that create entirely new markets by using technology to better solve problems.

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