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Bubbles Bursting For Technology ETFs?

Technology ETFs are badly hit, having lost in the range of 8% to 23% so far this year (as of February 8, 2016). While the broader market selloff since the start of the year kept this high-beta segment subdued, the tension flared up when LinkedIn Corporation (NYSE: LNKD ) issued a lackluster guidance for the first quarter of 2016 in early February. LinkedIn set the alarm bells ringing for the entire social networking space and plunged 44% in just one day on February 5 – the day after it reported earnings. Though LinkedIn beat on both lines, it guided revenues in the range of $3.6−$3.65 billion for fiscal 2016, below the Zacks Consensus Estimate of $3.920 billion. Pressure is also building up in LinkedIn’s Talent Solutions business which closed out 2015 with 30% year-over-year growth and is now expected to moderate to the mid-20% level this year. Management held the ongoing global market turmoil, especially in EMEA and APAC regions , responsible for this slowdown. Investors took this performance as a cue to the upcoming disaster in the entire social media space. Is LinkedIn the Sole Spoiler? The technology sector is cyclical in nature and performs well in a recovering economy, especially in the early and mid-cycle phases, per Fidelity . In these cycles, economic activities bounce back, credit growth speeds up, and economic policies are still accommodative to neutral. However, since recessionary threats are grabbing hold of the global market presently, all this economic cycle related optimism appears to fade away. Several developed economies are getting recessionary warnings, emerging economies are slowing down and the U.S. economy – the star of last year – hit the brakes in the final quarter of 2015. Yes, the U.S. economy is still far away from anything that looks like a recession, but corporate recession in the U.S. has already taken hold. Investors should note that the earnings of the S&P 500 index is likely to decrease 4.6% in the first quarter of 2016 while revenues are expected to fall 1.7% as per the Zacks Earnings Trends issued on February 3, 2016. The earnings and revenue expectations are projected to fall 1.9% and 2.1%, respectively, in the second quarter of 2016. In such a situation, investors seem to have lost faith in the broad-based emergence and adoption of high-growth tech areas like Internet, social networking and clouds, per the analysts . And the tech bubble that formed last year surprisingly has burst now. Notably, the PowerShares QQQ Trust ETF (NASDAQ: QQQ ) – an ETF built on the tech-laden Nasdaq-100 index – added 8.7% in 2015 despite declines in the other two key indices the S&P 500 and Dow Jones Industrial Average. ETFs that Got Crushed Almost all ETFs catering to cyber security, broader Internet, cloud computing and software were the hardest hit in the recent technology meltdown. The PowerShares DWA Technology Momentum Portfolio ETF (NYSEARCA: PTF ), the First Trust DJ Internet Index ETF (NYSEARCA: FDN ), the PureFunds ISE Cyber Security ETF (NYSEARCA: HACK ), the iShares North American Tech-Software ETF (NYSEARCA: IGV ) and the PowerShares NASDAQ Internet Portfolio ETF (NASDAQ: PNQI ) were among the top five losers in the last five days, having lost in the range of 11.4-13.6%. Investors should note that overvaluation concerns also dragged down these tech ETFs. As of now, PNQI, FDN, PTF and IGV have P/E (36 months) of 41.82, 41.41, 35.84 and 34.56 times, respectively. These four ETFs topped the list of the highest P/Es in the Zacks Screener . The P/Es were against the SPY’s P/E of 16.14 times and QQQ’s P/E of 20.44. So, from this trend it is clear that investors are mainly dumping ETFs with outsized P/E ratios from the online segment of the tech space. Bets for Now Still, investors may hope for a market revival and keenly desire some tech picks as the sector is among the few that are likely to report positive earnings and revenue growth in Q1 of 2016. As of now, investors can have a look at these relatively undervalued ETFs. First Trust NASDAQ Technology Dividend Index ETF (NASDAQ: TDIV ) The fund includes 100 technology and telecom companies that pay a common dividend. The lure of dividend helped the fund to evade the recent blow by a large degree. TDIV shed only 3.3% in the last five trading sessions (as of February 8, 2016). TDIV yields 2.71% annually (as of February 8, 2016). Plus, TDIV has a compelling valuation with a P/E (TTM) of 15 times. PowerShares S&P SmallCap Information Technology Portfolio ETF (NASDAQ: PSCT ) This small-cap tech ETF is less exposed to global growth worries and mainly deals with demand from the U.S. PSCT has a Zacks ETF Rank #2 (Buy) and lost 5.4% in the last five trading sessions (as of February 8, 2016). PSCT’s P/E (TTM) stands at 23 times. Robo-Stox Global Robotics And Automation Index ETF (NASDAQ: ROBO ) The fund is designed to measure the performance of robotics-related and/or automation-related companies. ROBO’s P/E (TTM) is 19 times. The fund was off 3.9% in the last five trading sessions. Technology Select Sector SPDR ETF (NYSEARCA: XLK ) This is the largest tech ETF. This large-cap fund has a compelling P/E (TTM) of 17 times and has a Zacks ETF Rank #1 (Strong Buy). The fund retreated 5.9% in the last five days, much less than some Internet funds. Original Post

Feds Tell Google: AI Brain Can Be ‘Driver’ In Self-Driving Car

Hold onto your seats — the whole self-driving car revolution just accelerated. Feds have told Alphabet ’s ( GOOGL ) Google Car chief that under federal law, a computer can count as the “driver” in vehicles that lack things like steering wheels and brakes built for humans to control. “We agree that Google’s Self-Driving System may be deemed to be the driver” for purposes of compliance with certain provisions of law, the feds’ letter to Google says, “given that there will be no foot (or even hand) control to be activated, indeed, given that the SDS will have neither feet nor hands to activate brakes.” The Feb. 4 Google Car letter from the National Highway Transportation Safety Administration  amounts to an abrupt shift in thought after years of carmakers’ developing autonomous cars by focusing on the human driver as final decision maker on the road (which actually means semi-autonomous cars). The letter makes a fork in the road, with both paths likely going forward. Will cars free of human drivers get a final go? Some issues still “must be resolved through rule-making or other regulatory means,” the letter notes. Besides Alphabet,  Apple ( AAPL ) is rumored to be working on self-driving cars in its Project Titan. Electric carmaker Tesla Motors ( TSLA ) has rolled out advanced semi-autonomous driving and inched into full autonomy. The Tesla Summon feature even lets cars maneuver largely alone to pick up owners in their driveway as owners keep an eye on what’s happening. BMW has a Remote Control Parking function on its 7 Series cars, too. Automakers  Toyota ( TM ), Volkswagen ( VLKAY ), Ford ( F ), Volvo, Daimler ( DDAIF ) and others have been testing self-driving cars. Tech firms working on aspects of the innovations include Nvidia ( NVDA ), NXP Semiconductors ( NXPI ), Mobileye ( MBLY ) and others, in partnership with carmakers. How Does A Google Car Work? Google’s approach has stood largely alone, sans humans. Addressed to Chris Urmson, director of the Self-Driving Car Project at Google, the NHTSA letter responds to the company’s November request for interpretation of federal motor vehicle safety standards. “According to Google, those self-driving vehicles (SDVs) are fully autonomous motor vehicles, i.e., vehicles whose operations are controlled exclusively by a Self-Driving System (SDS). The SDS is an artificial-intelligence (AI) driver, which is a computer designed into the motor vehicle itself that controls all aspects of driving by perceiving its environment and responding to it. Thus, Google believes that the vehicles have no need for a human driver,” the letter says. It goes on to say, “In this response, NHTSA addresses each of Google’s requests for interpretation and grants several of them.” A Reuters report Wednesday delved into the details of the NHTSA letter to Google . Safety Worries In Human-Computer Handoff So what happens with insurance when AI is driving? “The insurance aspects of this gradual transformation are at present unclear,” the Insurance Information Institute (III) said in a February 2015 topic paper on self-driving cars . It summed up the special case with Google at the time this way: “Google, the company that has been the public face of self-driving cars in the United States for the past few years, announced in May 2014 that it is building a fleet of vehicles without a steering wheel or role for a driver because its technology has not been able to successfully switch control back and forth from automated driving to the driver in an emergency and does not expect to be able to accomplish that soon. The prototype will have a top speed of 25 mph and will be summoned by a smartphone, in effect serving as an automated taxi service.” The III went on, “Other companies building autonomous cars said that they will continue to work on vehicles that will be able to safely make that switch.” But before mass production of such cars would be possible, it added, the size and cost of sensors powered by lasers used to steer the cars must come down. In the NHTSA response to Google this month, the agency says that Google has been concerned that giving human occupants controls to operate things like steering and braking “could be detrimental to safety” amid human attempts to override a self-driving system. Feds Budget Billions For Autonomous Car Tests Tuesday,  President Obama’s $4.1 trillion federal budget proposal for fiscal 2017 lays out $3.9 billion to test, over 10 years, how connected cars and self-driving cars can operate with infrastructure and each other. The budget, which would levy a $10.25-a-barrel tax on oil, “calls for a 21st Century Clean Transportation initiative ,” Obama said in his budget message, “that would help to put hundreds of thousands of Americans to work modernizing our infrastructure to ease congestion and make it easier for businesses to bring goods to market through new technologies such as autonomous vehicles and high-speed rail, funded through a fee paid by oil companies.” Autonomous car testing is planned, the Department of Transportation said last month, in “corridors throughout the country” in order to accelerate development and adoption of “safe vehicle automation through real-world pilot projects.”

Virtual Reality Wars Heat Up With Facebook Oculus PCs Coming

Facebook ( FB ) is closer to engaging in a virtual reality battle with the announcement that PCs optimized for its Oculus Rift headset are around the corner. Virtual reality gear was a star of the CES consumer electronics game show in Las Vegas last month, with at least three VR systems coming this year. The Oculus Rift will be joined by the Vive from China-based HTC, which also needs a souped-up PC, along with Sony ( SNE ) PlayStation VR goggles, which work with the PlayStation 4 game console. Oculus, which Facebook acquired for $2.1 billion in cash and stock almost a year ago, announced that orders for PCs optimized for the Oculus Rift headset begin Feb. 16. The initial batch of PCs will be in limited quantities and ship in April. Facebook has priced its Oculus Rift headset at $599. Oculus-ready PCs will cost roughly $1,100 to $1,600. Makers include Alienware, Asus and Dell. Also in the game is Alphabet ( GOOGL ), which is working on VR eyewear through its Google Glass platform. Alphabet already offers a virtual-reality experience through its Cardboard VR headset, designed mainly as a companion for YouTube videos. Apple ( AAPL ) is getting its VR game on through the acquisition of companies in the virtual reality space, the most recent being Flyby Media, an image recognition company used by Alphabet. Apple has not yet announced a VR device. Apple has also filed a patent for a head-mounted display apparatus. Microsoft ( MSFT ) also is pursuing virtual reality with its HoloLens headset. Microsoft HoloLens enables holographic computing that can be used for things like creating movie creatures to designing cars. In some cases, the new devices  will be pure virtual reality. The Facebook Rift, for example, immerses viewers into a new world. Others fit the category of augmented reality, where computer-generated images are superimposed on the real world, such as with Microsoft’s HoloLens or Google Glass. Consulting firm Deloitte says VR hardware sales will reach about $700 million this year, with another $300 million in software sales. Analysts estimate Facebook’s VR headsets revenue this year at roughly $350 million to $400 million. RELATED: Alibaba Invests Big In Magic Leap, A Move Beyond Virtual Reality