* Investors shifted from tech to financials in December
* But tech sector EPS at highest since 2001
* European tech valuations higher than U.S. counterparts
* Investor says high multiples will limit 2018 tech gains
By Helen Reid and Tom Pfeiffer
LONDON, Feb 1 (Reuters) - When German semiconductor maker Infineon slashed its revenue guidance on Wednesday because of a weakening dollar, its shares tumbled to the bottom of the benchmark DAX index.
But as the impact of the announcement wore off, investors bid the stock higher and it closed the day down just 1 percent, leaving it up 37 percent in the past year.
The comeback underscores how European technology stocks are on a roll again after a rapid run-up in 2017 left investors wary of eye-watering valuations and switched to more cyclical industries in December as the global economy picked up steam.
Tech was by far the strongest sector in global stocks last year. Flows data from Bank of America Merrill-Lynch last week showed $2.1 billion poured into tech sector funds, a record figure.
Europe's stock markets are not breaking records like Wall Street is, but in tech, European valuations are higher than their U.S. counterparts on a share price to forward earnings basis. tmsnrt.rs/2Eu48lB
While U.S. tech giants such as Facebook, Amazon.com , Apple and Google owner Alphabet are growing fast, their focus on consumer end-markets puts them squarely in the sights of regulators and consumer watchdogs monitoring their market dominance and policing of online content. Apple, Alphabet and Amazon.com all announce earnings later on Thursday.
European tech is more focused on business-to-business areas such as industrial automation, connected home appliances, business management software and self-driving car components.
Tech is leading Europe's earnings recovery. While European earnings overall are struggling to reach and surpass their pre-financial-crisis peak, tech stocks' earnings have hit their highest level since the tech bubble of 2001. tmsnrt.rs/2DPEqad
The head of Finland's Nokia said on Thursday its mobile networks business, which has struggled with declining demand since 2015, was showing signs of a rebound, sending its shares up 14 percent.
Austria's AMS soared 26 percent on Monday after it boosted revenue guidance on rising demand for its optical sensors from Apple and others.
Wesley Lebeau, portfolio manager of CPR's global disruption fund, said he was avoiding some well-known European digital economy stocks such as Delivery Hero, Zalando or Yoox Net-a-Porter, saying they are more expensive than U.S. peers.
"In Europe what is interesting is on the component side," he said. "AMS has done a fantastic job to get ahead of U.S. and Asian rivals in terms of 3D sensors... They are starting to be a key differentiator."
Chipmaking machine supplier ASML squarely beat profit expectations in the fourth quarter and said many customers were asking for early delivery of its equipment.
Allianz Global Investors is a buyer of ASML, even as China tries to become a global force in semiconductor making.
"This is where barriers to entry are so important," said Marcus Morris-Eyton, European equities portfolio manager at Allianz GI. "ASML are supplying the machines... with their EUV lithography technology you literally have a 30-year runway of growth because the order book is so visible."
Morris-Eyton has 26 percent of his fund invested in tech. That includes Infineon, despite the stock's massive gains in 2017. He points to Infineon's big market share in electric vehicle components.
He also holds Zalando, which he believes can be classified as a tech company even though it started out as an online fashion portal, and banking software maker Temenos, which stands to gain as banks recovering from the financial crisis start to invest again to replace outdated legacy systems.
"We are still very bullish on the (tech) sector but we should assume that the returns we saw last year are probably unlikely to be matched this year because it’s got harder on that multiple side," said Morris-Eyton.
A trader at a European bank said he remained positive on STMicro and Infineon despite recent caution around those names. "The peak of the semiconductors cycle is close but it's not imminent," he said.
He also backed IT services firms. "Even though we are in a final phase of the cycle, there is an acceleration of activity," he said, citing Cap Gemini, Sopra Steria and Altran among house recommendations.
Reporting by Tom Pfeiffer, Helen Reid and Danilo Masoni; Editing by Janet Lawrence