The stock market is taking it on the chin Friday as AIG's gaping loss has put the financial sector back in a harsh spotlight. But beneath the gloomy surface some tech stocks are shining, most notably Priceline.com and Activision.

Priceline.com reported first-quarter earnings of 76 cents per share vs. the consensus estimate of 60 cents. The company said it expects full-year 2008 EPS of $5.25 to $5.65 per share vs. the analysts' consensus of $5.12.

Priceline shares are soaring Friday as the online travel firm continues its long comeback from the depths of the post-2000 tech bust.

Separately, Activision reported fiscal fourth-quarter earnings of 14 cents per share vs. the consensus forecast of just 5 cents as its "Guitar Hero" and "Call of Duty" franchises continued to perform well.

Cowen & Co. and Kaufman Brothers upgraded Activision in the wake of their results, and the shares were responding accordingly.

Take-Two shares, meanwhile, have barely budged this week despite huge first-week sales for Grand Theft Auto IV, suggesting Electronic Arts may not need to raise its bid after all.

From Silicon Alley Insider, May 6, 2008:

Summary: Revenue in line with reduced expectations: Up 10% year-over-year (below Cisco's long-term targets). This suggests that the business environment did not improve materially from a weak January. Pro forma EPS of $0.38 beats consensus by $0.02. The company's guidance for FQ4 was again weak -- 9%-10% -- due to ongoing economic problems in the US and Europe. That said, analysts have already reduced their estimates, and the guidance is slightly above the mid-point of the range.

Release out.
 

Key Stats

• Revenue: Consensus is $9.75 billion, up 10%. This is also the guidance figure.
• EPS: Consensus $0.36, 7% y/y
  
• Gross Margin: Guidance is 65%
• Operating Expenses: Guidance: 37%
• Tax Rate: Guidance: 24%
• Outlook:
  
  • July Quarter (FQ4): $10.3 billion of revenue, $0.39 EPS
  • FY09: $43.39 billion of revenue, $1.69 EPS
    

A funny thing is happening amid all the recession talk: Most big tech companies are reporting spectacular earnings and revenue growth, especially those with significant overseas business.

"There's no economic slowdown that's effecting most tech companies," says David Kirkpatrick, senior editor of Internet and technology at Fortune. "Tech stocks are down because the conventional wisdom is 'we're in a recession or heading into one' -- but that's clearly wrong for most tech companies [which] are powering ahead."

Kirkpatrick's comments come in the wake of stronger-than-expected results from IBM, Intel, Google, and EMC in recent weeks, and Amazon.com and Apple last night.

Recent signs of improving sentiment were upended after-the-bell Monday by some weak guidance from Texas Instruments, Novellus and Netflix, while DuPont offered a cautious outlook Tuesday morning.

This morning brought news of a massive write-down from Royal Bank of Scotland, another new record for oil prices and bleak existing home sales data.

The combined impact of the news sent major averages down sharply midday as traders rethink the wisdom of their recent flirtation with optimism.

It does seem as if the market has started to separate the wheat from the chaff in the past week, which is a hopeful sign. But the big-picture problems of a slowing consumer and overly optimistic earnings forecasts remain formidable obstacles to any rally.

The big trend is the broader market decoupled from financials, which suffered another one-two punch, today from Bank of America and National City. For tech investors, that's welcomed news from the past six months, when the sector (fairly or not) got dragged down with the credit crunch- ridden financials.

The bad news for tech investors is that Monday's action suggests expectations are high heading into this week's slate of earnings from Yahoo, Apple, Amazon.com, EMC, Microsoft and others.

Last week demonstrated how it's much tougher for companies with high expectations (see: eBay) to rally on earnings vs. those where expectations are low or falling ahead of the quarter (see: Google).

In a similar vein (to eBay), American Technology Research is recommending traders short Amazon.com into its results citing "little chance of an upside surprise on the bottom line."

After the close Monday came results from Texas Instruments, a company which had done Wall Street's work for it and lowered guidance on March 10.» More

Strong earnings and solid guidance from Intel, IBM, and eBay this week have encouraged tech investors. But hold the confetti, says James Altucher, managing director of Formula Capital, a fund of funds.

Altucher, also an author and columnist for The FT and TheStreet.com, notes each of those "better-than-expected" results came with some caveats:

• Intel only cleared a bar it had brought down with its weak margin guidance in early March;
• IBM's services division had paltry year-over-year growth and its long-term bookings were down, and;
• eBay's guidance wasn't spectacular and its active user growth has come to a near standstill.

Knight's primary rationale for owning tech is that while the sector has been out of favor, its earnings growth is second only to energy in the S&P 500. Big-cap tech names are also leveraged to the global economy, as reflected in this week's earnings from Intel and IBM, most notably. (I spoke with Jeff in New York's Central Park Wednesday afternoon following his presentation at a SunStar press briefing and ahead of IBM's post-close report, which topped expectations.)

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From Silicon Alley Insider, April 15, 2008:

Intel (INTC) slightly beat consensus: Q1 revenue was slightly ahead ($9.67 billion vs. $9.63 billion consensus). EPS was $0.25, but asset impairment, restructuring charges, and tax rate were higher than expected, so operating EPS was stronger than consensus. June revenue outlook in-line, full-year margin outlook slightly better than expected. Stock up strong in aftermarket.

Key points

• Microprocessor and chipset businesses as expected. Microprocessor units lower sequentially, with ASP flat.
• NAND revenue flat as significant price declines offset unit growth.
• Gross margin: 53.8%, slightly below consensus of 54%.
• Tax rate slightly higher than expected: 33.5% vs. 31%, and restructuring and asset-impairment charges $329 million vs. $100 million estimate. Operating income stronger than appears.
• $2.5 billion share repurchase reduced share count

June revenue guidance: In line with consensus.

Full-Year guidance: No FY revenue guidance, but gross margin guidance of 57% slightly better than expected. Intel maintains previous margin guidance despite drop in NAND pricing that whacked gross margin in Q1.

More importantly, Intel gave second-quarter guidance revenue guidance with a midpoint of $9.3 billion vs. the consensus of $9.24 billion, and sees gross margins rising back to 56% in the second quarter and the 57% range for the full year.

"Our first quarter results demonstrate a strengthening core business and a solid global market environment," Intel CEO Paul Otellini said in a prepared statement. "We saw healthy demand for our leading-edge processors and chipsets across all segments. Looking forward, we remain optimistic about our growth opportunities..."

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