Addressing a luncheon, Merrill Lynch's Henry Blodget today remarked that "Approximately 75 percent of the companies out there will be acquired or fail.
"Not all trees will grow to the sky. There will be a shakeout," he said. Blodget's comments were reported by Bloomberg.
In the past, Blodget has championed the potential of the Internet sector. He gained notoriety for predicting that Amazon.com's stock would reach $400 in 12 months, a target the online bookseller promptly smashed.
"The companies we are worried about are those that are third, fourth, or fifth in their particular market segments," Blodget said today. "These stocks are catalyst-driven. We expect them to be volatile. If the trends slow down, we see a lot of downside from here," he said.
Blodget currently favors companies that provide services for businesses, rather than consumers, Bloomberg reported. Examples include Ariba, CyberSource, VerticalNet, and Internet Capital Group.
Addressing the trend of offering heavily subsidized or even "free" computers to users who sign up for a minimum term of Internet access service, Blodget said that "For content and commerce companies it's great news. For AOL, it creates questions. It could be positive or negative depending on how it plays out.
"If people who would have signed up at a higher rate sign up [for the free PCs], then it's a negative. It will be a year or two before we see the real impact."
Today on Wall Street, Net stocks were hit again as the Dow Jones fell 2.54 to 10,674.77 and the Nasdaq Composite dropped 47.99 to 2540.00. Amazon, Lycos, Infoseek, and CNET (the publisher of News.com) all fell more than 5 percent.
Bloomberg contributed to this report.