Tech stocks set to gain in the second half

Technology fundamentals are beginning to recover, and tech stocks should gain strength as they move into the second half of the year, analysts at Goldman Sachs said. The Goldman analysts upgraded their rating on both the hardware and software sectors to "attractive", citing industry checks suggesting early signs of recovery in demand, the Wall Street Journal reported. "A return to normal seasonal trends in tech should serve as the first catalyst in the back half of the year, followed by increased IT spending and a corporate upgrade cycle in 2010," the analysts wrote in a note to Goldman clients. In addition, cost cutting at the technology companies should cause earnings to come in better than expected, they said, estimating a 35 to 50 per cent upside to hardware stocks over the next 12 months. The Morgan Stanley Technology Index (MSH) and the S&P 500 technology hardware and equipment sector declined slightly, each down less than one per cent in recent trading. Despite their bullish overall view for technology stocks, the Goldman analysts downgraded their rating on International Business Machines Corp (IBM) to neutral, reflecting their belief that investors should shift from defensive tech stocks like IBM to companies with the potential for higher growth rates as technology spending improves. Dell is an example of a company with higher growth potential under a recovery, the Goldman analysts said, and upgraded Dell to a "conviction buy" from neutral. Keep up with the latest business news from the region with the daily Emirates Business 24|7 newsletter. To subscribe to the newsletter, please click here .