Shares of Internet darling Google dropped below US$700 for the first time in seven trading days Thursday, in part due to fears the U.S. housing loan mess will spill over into the wider economy.
A number of high-flying technology stocks took a hit after Federal Reserve Chairman Ben Bernanke told lawmakers that economic growth in the U.S. could slow "noticeably" in the fourth quarter and into 2008 as housing troubles take a toll.
There are other reasons Google in particular fell, analysts say, including profit-taking after a nearly 32 percent gain in a month, the end of some momentum trading, and because details about the Gphone are now out.
Google's stock fell US$39.10, or 5.3 percent, to end trading at US$693.84 on Thursday.
To be sure, the problem wasn't just with Google. Traders sold-off technology shares in general, with the Nasdaq Composite Index dropping 1.9 percent on the day.
The Internet search giant's downfall came partly from profit-taking. The company's stock hit a high of US$747.24 Wednesday, a gain of nearly 32 percent since the beginning of October. Such momentum in a major company often attracts short-term traders looking for a quick profit, and there's been plenty of profiting on Google's stock in recent weeks. The shares started last month at US$567.27, then broke US$600 for the first time on October 8 before heading on up to its first over-$700 close ever, at US$707 on October 31.
Much of the momentum behind the stock came from glowing analyst reports and rumors about the purported gPhone. Investment banking firm Merrill Lynch issued a report on Google in early October upgrading its share price target to US$740 from US$590 on expectations of a strong third quarter. Not long after, American Technology Research put out its own report predicting Google shares could hit US$815, in part due to the company's wireless plans.
Some traders likely decided the momentum had shifted, and ended their plays, analysts say. Google is just one of several stocks so popular these days that people seem to snap them up no matter what the cost. The company's 32 percent share gain to its Wednesday peak is matched by only a few other fellow technology shares, which are also benefitting from popularity.
Shares in Apple, for example, gained nearly 26 percent from the start of October to their high of US$192.68 on Wednesday due to continued iPhone buzz, but they fell US$10.83, or 5.8 percent, to US$175.47 on Thursday. Research In Motion and its popular BlackBerry devices have had a similar run, rising 39 percent over the same time to its most recent high of US$137.01 Wednesday. Its shares dropped US$8.55 each, or 6.4 percent to end trading at US$124.48 on Thursday.
Google shares may also be lower because one of the major drivers of its recent surge is now known. When the stock broke the US$700 barrier for the first time, analysts credited reports surrounding a deal with Verizon Wireless, as well as overall Gphone-hype for its performance. Now that traders know more about what Google is up to, they can not only reassess the potential value of the business move, but stocks often fall in the wake of such announcements because reality rarely matches hype. That's the reason for an old adage among stock traders to, "buy on mystery, sell on history," when it comes to news.
The only good news traders saw Thursday was in after-market trading. Google shares were up $0.06 in after-market trading. Apple shares had regained US$1.53 each, and Research In Motion had rebounded $0.37 per share.