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Why the best could be ahead for soaring tech stocks

Tech stocks hit multi-year highs
Tech stocks hit multi-year highs

Tech stocks have reached the highest levels in 16 years, but two strategists say there's more to come, deeming the group one of the best to buy right now.

One look at the XLK — the exchange traded fund tracking technology, the sector with the greatest weighting in the — will show the group has risen steadily and hit its highest levels since 2000.

Eddy Elfenbein, editor of the Crossing Wall Street blog, said Friday on CNBC's "Trading Nation" that tech stocks today do not resemble 1999 or 2000, the so-called dot-com bubble, with "a lot of smaller companies, with not much in the way of earnings; or if they had earnings, they were trading at huge, huge multiples to them."

"Lately with the tech sector, I think the fundamentals have been driving it," said Elfenbein. "It's looking quite good."

Elfenbein says he particularly likes Microsoft, noting a solid earnings report and dividend, and the company adapting to a new climate for tech, moving into the cloud space.

The tech sector is really making their returns the old-fashioned way; they’re beating earnings.
Nick Colas
chief market strategist, Convergex
Amazon founder and CEO Jeff Bezos and Facebook CEO Mark Zuckerberg.
DSK | AFP | Getty Images

This quarter, Amazon's earnings beat expectations by a long shot. Facebook's earnings beat analysts' expectations, as did Microsoft's and Apple's.

Another strategist, Nick Colas of Convergex, says he still generally sees quite a bit of interest from clients in the tech space, and believes the group is a good place to be for the back half of the year.

"They had to live through some choppiness in the first half of the year," said Colas on Friday's "Trading Nation," adding that the payoff came at the end of July, when the tech sector "is really making their returns the old-fashioned way; they're beating earnings."

One "hidden upside" in the group, noted Colas, is its connection to a weaker U.S. dollar, falling this week following the Federal Reserve's decision to hold off on hiking interest rates.

Tech, said Colas, is the "most exposed" to the dollar of any of the 10 major S&P sectors, as a large chunk of its revenue — 59 percent, says Colas — comes from overseas.

"So if the dollar weakens further on this bad news that we are getting from the U.S. economy, it actually helps technology earnings for the back half of the year."