Intel or Yahoo?

By James J. Cramer

In this corner the old tech champion, weighing in at $235 billion in market capitalization, built on decades of solid earnings: Intel. And in the other corner the new tech challenger, having briefly hit $50 billion in market cap last week, and with dynamite earnings potential: Yahoo. These two heavyweights, by coincidence, held overlapping conference calls last week to discuss their fourth-quarter earnings reports with investment professionals. Intel is a bellwether because of its ubiquity in personal computers, so it has always drawn the bigger group of acolytes--until this year. Yahoo muscled in with runaway revenue projections, and suddenly many investment pros, who would normally have stopped everything to get on an Intel call, instead stayed through till the end of Yahoo's presentation to get the skinny on this new, great growth story.

These two companies symbolize the struggle between investors who like their technology stocks to offer hard assets, proven earnings and a price roughly in line with market multiples, vs. those traders who are willing to pay a much higher price for rapid growth. The latest returns favor Intel. In a tough week that saw most stocks retreat, the market seemed eager to pay 30 times this year's earnings for Intel. Its stock held steady as Yahoo lost 8% of its value. Yet both stocks still managed to outshine the larger averages, as they've done for a while.

It took Intel 24 years to reach $50 billion in market cap, while it took Yahoo less than two years. For some, even Intel's price seems hard to swallow, given the relative maturity of its business and its growth prospects. But increasingly, even institutional investors are flocking to stocks like Yahoo as the performance of the Net stocks has put less aggressive investments to shame.

As an investor, I want a smattering of both old and new U.S. tech stocks, even if the prices of some Net stocks are overinflated to adolescent values. While it may seem counterintuitive to think of Intel as old tech, the market values hardware makers by a much more stringent standard than the newer Net businesses. Even though Intel and Seagate, the largest maker of personal-computer disk drives, signaled that sales are extremely robust, they are still in an industry that will be lucky to grow 20% in 1999. Yahoo, by contrast, is in a business that seems to double every six months. Its stock is up 14% in the first half of January, after rising 584% in 1998. If advertisers come to view the Net the way they view television, as a medium where it's worth spending billions to reach viewers, Yahoo investors could find themselves, if not on the ground floor, at least on the ninth or 10th floor of a giant skyscraper.

Investors buy prospects, and the prospects are for a year of record earnings at Intel and another year of monster growth at Yahoo. But the volatility in tech and the Net in particular has increased dramatically, to the point where only thrill seekers can bank solely on the latter. At one point last week, with Yahoo up 90 points, to 443, I let go some stock, and was happy to buy it back some 100 points lower a day later, when, despite reporting blowout earnings, it had fallen with the rest of the Net stocks.

If you can't handle that kind of volatility and prefer steadier performance, old tech may be your best bet. Neither old nor new tech, however, is for the squeamish. That's who they make bonds for.

Cramer runs a hedge fund and writes for thestreet.com He holds investments in Intel. Nothing in this column should be construed as advice to buy or sell stocks.