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that Priceline.com in 1999 had a $19 billion market capitalization with just $58 million in gross prot. After the dot-com crash, the company did not attain that market cap again until November 2010, but its gross prot last year was $1.9 billion.

appears to be full, and that takes a lot of courage, research, and experience.”

Growth stocks tend to be more volatile and can have sharp price declines due to earnings shortfalls.

Sticking With Leaders

“The fact that Priceline’s valuation is roughly the same now as it was 11 years ago but its prots are 33 times higher shows how excessive the valu- ation was then,” Mr. Greene says.

Portfolio managers also note that companies with dynamic growth opportunities can grow into what seem to be excessive valuations at the time. Mr. Greene observes that the market cap of Google at the end of 2004, the year it went public, was about $52 billion with only $2 billion in net revenue. That valuation seemed excessive, but a year later Google was valued at $121 billion. It is almost $200 billion today, and net revenue last year totaled $22 billion.

“The question is, what is the potential for these companies longer term,” says Dan Martino, manager of the Media & Telecommunications Fund. “Good growth investors stick with companies that are well positioned even when the valuation

Some T. Rowe Price funds have made small investments in a few of these private, new media companies, recognizing their potential growth. The rm’s technology strategy, however, remains focused on such industry stalwarts as Apple, Google, and Amazon, which are all driving change and beneting from new opportunities.

Apple, of course, has been at the forefront of the shift from xed to mobile computing. Its explosive growth has driven its market capi- talization to $321 billion, second in size only to ExxonMobil.

With an 80% market share, Google dominates search on the Internet globally and has been successful with its Android operating system for mobile phones, introduced in 2008, which is driving more trafc—and advertising revenue—to its site.

“In the Internet bubble, stocks traded at 40 to 50 times expected

Explosive Growth in Smartphones and Tablet Computers*

120

100

  • iOS and Android Phones

  • Tablets

Units (Millions)

80

60

40

20

0

2007 2008 2009

2010

*Smartphones reflect iOS (Apple) and Android (Google) operating systems. Tablets reflect Apple’s iPad. 2010 results are estimates. Smartphones are expected to garner a 28% market share of the mobile handset market this year. Source: Stifel Nicolaus.

earnings or more, and today you have companies like Google and Apple that trade at less than 20 times forecasted 2011 earnings,” Mr. Sharps says.

“These are real businesses that are well positioned to take advantage of substantial changes in how we live, and they are trading at valuations that we believe are not onerous at all given their current growth rates and the opportunities they should have over a long period of time.”

Mr. Martino says both Apple and Google potentially could reap more benets as “interest in connectivity continues to grow, especially with the advent of fourth generation (4G) networks. With 4G, data transmis- sion speeds are faster, and software developers will come out with even more exciting applications.”

Mr. Martino expects that Apple’s share of the global mobile computing market will increase over its present level of just 5% and that Google “could be the leader in the mobile ecosystem in terms of software.”

Mr. Eiswert adds: “Investors have underestimated the revenue potential of Apple’s iPad, and in the years ahead we expect to see mass adoption of the Apple platform of products by businesses, the government, and private and public education arenas.”

Amazon also is well positioned to benet from the continuing global migration to online commerce, fund managers say.

Moreover, Amazon, along with Google and Microsoft, is also positioning itself to become a key player in the nascent eld of cloud computing, in which businesses out- source their data centers to a central network that stores and delivers data over the Internet, Mr. Greene says.

Mr. Allen believes that cloud computing and mobile communica- tions are the two dominant trends in

Continued on page 4

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