There's a definite buzz in the air about tech stocks. Since the tail end of last year, names like Facebook, Twitter, Groupon and LinkedIn have peppered the news on a regular basis, with speculation surrounding their value and potential to float on the stock exchange in the near future.

Earlier this month, Microsoft bought online calls company Skype for $8.5 billion (£5.2 billion) in what was the firm's largest acquisition to date. And then the long-awaited initial public offering (IPO) of social networking site LinkedIn last week valued it at around $100 per share, up from an initial float price of $45.

Next up in this frenzy of activity are likely to be the IPOs of Twitter and Groupon, and hopes are still high that Facebook will decide to go public by the end of the year. Pundits have called this a 'changing of the guard', as young upstarts snap at the ankles of older more established tech stocks such as Google and Yahoo!.

But are the valuations of these whippersnappers worth the virtual piece of paper they are typed on? And is the tech renaissance in its first flushes, or are we inching towards another tech boom and bust?

Not according to research from PriceWaterhouseCoopers (PwC).

In its latest Valuation Index the accountancy firm looks at whether another tech bubble is emerging, just over a decade after the first one burst. PwC says in 2000 the tech sector's price/earnings (p/e) ratios peaked at close to 90x in the US and UK. It adds that forward projections of Facebook's p/e ratio have been pegged at 100 times, based on expectations that it could achieve revenues of $2 billion in the near-term.

Despite the high p/e ratios currently ascribed to many tech stocks, PwC insists this alone is not enough to cause concern.

'The p/e ratio for the sector has typically always been higher than the FTSE AllShare p/e ratio. The expectation is that these businesses are highly innovative in order to continually meet customer needs and even fulfil needs the customer was not aware of,' the report says.

PwC uses the example of Apple to illustrate its point: before Apple brought out the iPad, the tablet market was relatively marginal, but now it's rapidly growing and taking over market share from laptops.

So the gap between p/e ratios of listed tech companies and the p/e ratios of the other sectors is not reason enough to diagnose a bubble. But PwC admits the picture for private tech companies is more varied. 'There are a large number of start-ups for which valuations are based more on gut feeling than defined metrics,' it adds.

Sentiment over sense

One company that falls into this camp has to be Facebook.

In September 2006, Yahoo! was rumoured to be in talks to buy the social networking site for $1 billion. By August 2010, reports suggested Facebook had a valuation of $34 billion, and since Goldman Sachs invested in the company in January the mooted price for a Facebook IPO has spiked to over $80 billion.

James Gautrey, global sector specialist for tech and telecoms at Schroders, says: 'This is a company that is doing about $2 billion worth of sales. The market is factoring in decades worth of growth and a business model that's unchallenged.'

Twitter is another example of a firm that looks vastly overvalued. Depite generating revenues of around $60 million a year, latest estimates value it at around $3.7 billion, which Gautrey says is 'astonishing'.

Early attempts at turning Twitter into a commercial interest have included sponsored tweets, but the inherent problem with these social networking start-ups is that users have embedded expectations of how the service should work.

Gautrey explains: 'Everyone is growing up with these things believing they are free, and the moment you start monetising it you upset people.'

Search engine Google treaded very carefully when it introduced paid-for advertising on its video channel YouTube. 'It was a very delicate process,' says Gautrey, 'What the market is assuming is that they are companies that will not be deposed and have years of growth ahead of them'.

Winners and losers

But it is important to be selective when investing in tech stocks. As Gautrey says, 'A good story doesn't necessarily make a good stock.'

Nick Evans, fund manager of Polar Capital's Global Tech Fund, agrees that not all tech stocks will benefit from this new rush of optimism. He describes his stance on the sector as bullish with caveats.

One visible strength of many tech companies are their strong balance sheets, which make them cash rich and in many cases acquisition hungry.

Evans says: 'These are growth drivers and we have a very strong conviction there is a new cycle unfolding in tech. The problem with new cycles if you look back in history though is they are littered with examples of incumbents that failed to make it through.'

Some well-known tech giants currently look cheap, but according to Evans they are cheap for good reason. One company he thinks is likely to be a loser of this latest cycle is Nokia. 'In the space of three or four years it has gone from being the global leader in hand sets to being an "also ran". It has missed the boat in terms of smart phones.'

In comparison, Apple, Samsung and HTC have done a good job of grasping the internet as an opportunity.

His forecast for the laptop market is also damning. International Data Corporation (IDC) reported first quarter PC shipments down more than 3 per cent year-on-year and this is in large due to a surge in demand for tablets.

This is bad news for companies such as Dell, Hewlett-Packard and Acer, who have yet to make a distinct effort to branch out of their traditional product bases.

As always, Apple seems to be at the helm of most of these trends and therefore chief beneficiary of them. Evans says: 'It's driving very strong growth from the smart phone market and its tablet expectations almost certainly look too low.' He thinks revenue estimates for iTunes and the company's app store can also be considered conservative.

Roughly 70-75 per cent of the Dow Jones Tech Index is made up of large cap stocks, according to Evans. And of these about half are negatively impacted by new and developing trends and are not strong bets over a two- to five-year period.

But he argues the rest of the tech sector is much more compelling, and small and mid-caps should be favoured over large cap stocks.

Is tech for you?

Gautrey says US investors are generally savvier about tech stocks than their UK counterparts, who in many cases have a knowledge gap.

Of course, many of the names we have heard on this side of the pond are listed in the US, so it's little wonder we feel disenfranchised from the sector.

The technology theme is by nature global, however, and ventures into emerging markets will be another growth opportunity for investors.

Looking at technology funds is a good place to start for those who don't feel confident stockpicking. And for the more adventurous small and mid cap stocks are lurking in the UK market.

Proceeding with caution is advisable though, and for some memories of the previous bubble will be all too clear.

But changes are definitely afoot and it would be a shame to miss out on them all together.