What's going on?

Most of the major tech companies have now reported their second quarter financial results � and their stocks reacted wildly, in both directions, as a result. Twitter, LinkedIn, Yelp and Baidu (the Chinese search engine) saw its shares decline more than 10% after reporting results. On the other hand, Google, Amazon and Netflix posted gains greater than 10% post-results.

What does this mean?

As a sector, tech has performed well this year with the tech-heavy NASDAQ index up 8% versus a gain of only 2% for the broader S&P 500 index. However, the rally has led �valuations� to increase significantly, meaning that analysts and investors attribute a higher value to a company and consequently are willing to pay more for the same share. However, it�also means that there is significant room for the stock price to fall if a company doesn't deliver. The basic goal for relatively young tech companies is that they should be exhibiting strong user growth and/or significant growth in revenue.

Why should I care?

1. Be aware that the market is now, more discerning when it comes to investing in tech companies; no longer is it an indiscriminately �in vogue� sector. Companies like Yelp and Twitter, for example, which are facing serious issues, are vulnerable to further significant falls.
2. Despite the rally, tech companies still represent �the future.� Those that can maintain strong growth � in users and revenue � will eventually generate higher profits, and will likely see their stock price appreciate.