The end of the tech stock party

Despite the uncertainty, this much is clear: We won’t soon see a run in tech stocks like the one that just petered out.

Break out the orange juice and aspirin: Wall Street’s tech party is officially in hangover mode.

Investors don’t have to look far to see the signs. Apple (AAPL) shares are down 14 percent from their high of $192 earlier this month. Google (GOOG) shares are down 15 percent, and Research in Motion (RIMM) 22 percent.

Of course, it’s hard to feel too much pity for long-term holders of these feel-good stocks, since their recent tumbles have merely put them back at their September and October levels. But now is a good time to face a sobering truth: It will be many months before the markets throw another another tech party like the one that just ended — and holiday sales could be the best gauge of how bad things will get.

Slowing down

Nasdaq Chart: Jon Fortt

Why the buzz kill? Blame the subprime mortgage fiasco, gas prices and a credit crunch that is slowly infecting other parts of the economy. Because the consumers and businesses who have driven tech industry growth for the past few years are finally getting skittish, they’re knocking tech’s growth prospects into a lower gear.

That’s a change from the positive tech momentum that the stock market has enjoyed for much of 2007. The Nasdaq Computer index — which includes computer services, Internet, software, computer hardware, electronic office equipment, and semiconductor companies — was up about 30 percent for the year until it lost nearly 10 percent this month. By comparison, the S&P 500 had gained only about 11 percent for the year before it gave up more than half of those gains over the last two weeks.

As for the outlook on tech sales to large businesses, investors will be listening closely to Hewlett-Packard (HPQ) CEO Mark Hurd as he goes over the company’s financial results this afternoon — and in the next two weeks, technology investor conferences hosted by Credit Suisse First Boston and Lehman Brothers will give more insight into the corporate mood.

Microsoft’s Zune: The sequel (Photos 1-4)

The Cisco effect

The first big sign of the slowdown came two weeks ago, when networking giant Cisco (CSCO) offered growth forecasts that met, but didn’t exceed, Wall Street’s expectations. Analysts zeroed in on one particular bit of bad news: CEO John Chambers said that sales to large U.S. businesses, particularly banks and brokerages, had dipped precipitously.

Chambers tried to reassure investors by emphasizing the fact that U.S. financial services companies don’t hold the sway over Cisco that they used to. Because of the global nature of the company’s business now, and because of growth with mid-sized companies, the large enterprises alone can’t stop Cisco’s growth. “The market I would watch would be the U.S. commercial,” Chambers said in the company’s earnings call, referring to mid-sized companies. “As long as it holds up well, barring a surprise, the service providers feel good. … So the U.S. will be OK as long as those two of the three hold, and this again speaks to the balance.”

But there are early hints that mid-sized businesses like the clothing makers that sell their wares through department stores won’t hold up so well after all, which means there could be two wobbly legs on Chambers’s three-legged stool. Most glaringly, holiday retail sales projections don’t look so hot, and that could affect the mid-sized companies that are increasingly buying tech gear.

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Holiday outlook

Department store chain J.C. Penney (JCP) last week warned that the uncertain U.S. economic environment will stifle year-end sales, echoing misgivings that Wal-Mart (WMT), Home Depot (HD) and Macy’s (M) had expressed days earlier. If those businesses do end up logging disappointing holiday sales, chances are their mid-sized suppliers who buy technology from companies like Cisco will, too. “If the mid-market business starts to weaken, I think the spillover is going to be undeniable,” said Jason Ader, an analyst with Thomas Weisel Partners. “If the market continues to deteriorate like this, I think you’ll see a lot of CEOs and CFOs of big companies say you know what, we can hold off on some spending.

“Strong overseas markets won’t be a cure-all either, Ader cautioned. “If the U.S. slows down, you’re not going to get bailed out by India — even though India’s growing really fast, it’s still really small relative to the U.S.”

New design in HP’s business displays (Photos 1-5)

Still, it’s too soon to completely write off the holidays. Greg Joswiak, Apple (AAPL) vice president of iPod and iPhone product marketing, sounded optimistic last week when he talked to Fortune about the company’s holiday iPod lineup and overall prospects. And Sony Electronics (SNE) President Stan Glasgow earlier this month expressed confidence that the season will be strong for high-definition video products and electronics in general, based on orders from major stores and sales through Sony’s own retail operation.

Even so, some things about the current mood in tech are already pretty clear. For instance, it’s time to put away those party hats.