What Is Going On With These Surging Tech Stocks?

In the intraday trading on Friday, Alibaba Group Holding Ltd (NYSE:BABA), Cypress Semiconductor Corporation (NASDAQ:CY), JD.Com Inc (ADR) (NASDAQ:JD), Yahoo! Inc. (NASDAQ:YHOO) are gaining ground on the back of various reasons. Let’s take a closer look at the news surrounding each of these tech stocks.

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First, a little bit about us. Insider Monkey tracks the smart money activity. From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 50 by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 36 month period beginning from September 2012 (see the details here).

Alibaba Group Holding Ltd (NYSE:BABA) is up by 4.8% after the Chinese Central bank cut one-year lending deposit rates by 0.25 percentage points to 4.35% from 4.6% and trimmed the reserve ratio requirement by 0.5% on Friday to further stimulate growth. The easing should boost China’s GDP and increase Alibaba’s EPS growth as a result. Helping Alibaba’s stock is also an improving sentiment. The Shanghai index is no longer falling and investors are no longer fleeing China-based companies. This means Alibaba is worth more from the relative valuation perspective.

As previously written, we feel Alibaba Group Holding Ltd (NYSE:BABA) is a great long term holding. It has 300 million loyal customers, a wide moat protected by network effects, and substantial exposure to one of the world’s fastest growing economies (in the long run). At a forward P/E of 21.27, its stock is relatively cheap.

Many hedge funds hold shares of Alibaba Group Holding Ltd (NYSE:BABA). A total of 85 investors among those we track reported stakes with a total value of $4.77 billion as of the end of the second quarter, representing 2.30% of the company’s float. That compares to 86 funds with $5.8 billion worth of Alibaba shares a quarter earlier. Rob Citrone‘s Discovery Capital Management owns 6.52 million shares of Alibaba, while Andreas Halvorsen’s Viking Global is long 6.04 million shares.

In other news, Cypress Semiconductor Corporation (NASDAQ:CY) rallied by 3% after the company had reported third quarter earnings of $0.17 per share on revenues of $470.06 million, beating earnings estimates by $0.01 per share but missing revenue expectations by $9.21 million. Guidance is a bit light, with management expecting fourth quarter revenue of $430 – $460 million and earnings per share of $0.11 – $0.15, slightly below the Street’s estimates of $478.7 million and $0.16, respectively. Shares are also in green because Cypress Semiconductor Corporation (NASDAQ:CY) announced a new $450 million stock buyback program that could reduce the float by around 13% at current prices. Management is also ahead of schedule in its 3-year plan to realize $160 million in annual synergies from the Spansion acquisition. There has been a huge wave of M&A in the semiconductor industry, and further accretive mergers are not out of the question. George Soros‘ Soros Fund management owns 15.87 million shares of Cypress as of the end of June.

In the next page, we examine why JD.com and Yahoo are advancing today.