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Why Net stocks went crazy

The mixed bag of earnings reports in the technology sector fueled Internet stocks this week, analysts say.

It was a week to remember.

As Internet stocks finally began to cool down today, financial and high-tech analysts on both coasts found themselves trying to figure out exactly what happened in the last 72 hours.

Although there are never any easy answers on Wall Street, many say the market's gyrations were largely touched off by a split in earnings reports between technology manufacturers and companies that offer information and other services on the Internet. Disappointments for industry stalwarts Intel and Compaq Computer combined with better-than-expected profits for Yahoo fueled investor interest in the Internet stocks, analysts say.

That level of interest turned into a gargantuan one, as a number of Internet companies saw their share prices double this week before giving back much of those gains today.

"It's never been like this," said Bruce Smith, an independent Internet analyst. "This has been unprecedented for search engine companies." (See related story)

Kicking off the run-up was Yahoo's earnings surprise April 8, in which it posted first-quarter profits that were twice as good as Wall Street was expecting. That was followed by weak earnings from chip giant Intel Tuesday and then Compaq Wednesday. Individual investors in the two hardware giants basically took their money and turned to the hot Internet market to jump on the ride.

"After Intel and Compaq blew up, the money flowed to Internet stocks because they're not sensitive to the economy or to [the turmoil] in Asia," Smith said. "This is what drove up the stocks."

Infoseek shares doubled between April 7 to 16; Excite's nearly doubled; Lycos rose 46 percent; and Yahoo jumped 38 percent during the same time frame.

Institutional investors, such as pension funds and portfolio managers, have not been in the buying pack in the past two weeks, analysts say--it's mainly been individuals. "A lot of people have described these last couple of weeks as panic buying," Smith said.

However, many of these same stocks cooled today. "It just got to a point where profits had to be taken," Smith added. "Look at their performance for the past ten days."

Although he has never seen such enormous gains in Internet stocks that were given back so quickly, Smith did not rule out a repeat performance. "It wouldn't surprise me to see these stocks retrace 50 percent of their rise," he said.

He and other analysts say a buyback of the stocks may begin to look attractive at a 50 percent reduction from their recent gains, depending on market conditions and whether share prices continue heading south.