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Qualcomm leads NASDAQ to unprecedented heights

Does the biggest boom since 1928 foreshadow the biggest bust since 1929?

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The Nasdaq composite index closed above 4,000 points yesterday, only months after amazing analysts by breaking 3,000. This is the result of unprecedented investor optimism over technology stocks, many of which have risen by more than 500 percent this year alone.

By far the largest winner is Qualcomm, whose shares rose $97 to $756 in London this morning, after gaining $156 in New York yesterday. The company's shares are up a spectacular 2,400 percent this year.

Other technology stocks have gained monumentally this year too. Yahoo, Intuit, i2, CMGI and Broadvision have all doubled in the past two months, during the period when the NASDAQ rose from 3,000 to over 4,000. The NASDAQ has risen proportionally more this year than any American index in history.

This is especially surprising when one considers that the majority of issues driving the index have been expanding ahead of profits, and have seen their share values outstripping earnings by a hefty margin. Their high value is purely a function of earnings expectations; while the expectations are purely the product of widespread optimism regarding the Internet's potential to serve one day as some colossal engine of global wealth.

The party can go on indefinitely so long as everyone remains convinced that the Internet is all it's cracked up to be; but if the vast wealth it is supposed to create turns out a disappointment, there will eventually have to be a realistic assessment of the value of companies whose fortunes are tied to it. There is a limit to the faith one can place in a company that produces no real profits. In times of economic stress, one is far more likely to hold shares in a company that creates actual wealth rather than creating the mere expectation of wealth.

To us it all seems a bit mad, really; but since The Register's fortunes are as much tied to the Internet as anyone else's, we can't help wishing that the rest of the world would turn a blind eye to the pitfalls and risks, and join us in a toast to future earnings based on a whole lot of investors declining to ask any very difficult questions. Cheers! ®

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