For Chips, Nibbles Not Bites

"We're going to see the worst part of it here in the next six months," projects Adams, although he expects that chip stocks will get a minor bounce in the near term as valuations become too good to pass up.

The Philadelphia Stock Exchange Semiconductor Sector index is down 17% since early May. The list of stocks that have joined the 52-week-low club in the past month includes Analog Devices(ADI Quote), KLA-Tencor(KLAC Quote) and Maxim Integrated Products(MXIM Quote). Intel shares have recently hit three-year lows.

Bargain prices are enticing some investors to come forward, albeit on a limited, case-by-case basis. Seligman Technology Group's Sangeeth Peruri says he has recently been "nibbling" on shares of Maxim, as well as on Silicon Labs(SLAB Quote) (down 42% since mid-April) and Marvell Tech(MRVL Quote) (down 22% since mid-April).

"The numbers are safe there. I feel like valuations seem very compelling," says Peruri.

But he says he's not about to make a call on the semiconductor sector as a whole, particularly with no near-term catalysts, such as earnings reports, on the horizon.

To be sure, Goldman didn't go so far as to say it's bullish on the semiconductor sector, only that its view of most chip stocks it covers has become "less negative."

The firm upgraded its ratings on SanDisk(SNDK Quote), Advanced Micro Devices(AMD Quote) and Applied Materials(AMAT Quote) to in line from underperform, and said that it remains concerned about a possible inventory correction.

The news did bump up shares of the chosen few. Ending the regular session Wednesday, Intel gained 3.6% to $17.73; AMD rose 3% to $25.11; SanDisk jumped 3.2% to $51.50; and Applied Materials rose 1.9% to $16.44.

The only chip stocks Goldman recommends buying at this point are Marvell, Intel and FormFactor(FORM Quote). (Goldman Sachs has recently received or expects to receive compensation for investment banking services from AMD, Applied Materials, FormFactor, Intel and SanDisk, and the firm makes a market in securities of Applied Materials, FormFactor, Intel and SanDisk.)