For Internet stocks, did April 4 usher in the phoenix-like rebirth of the New Economy, or the start of the Double Bubble?

Since hitting its recent low of 1638.80 on April 4, the

Nasdaq

has surged 34% through Tuesday's close, but that's small potatoes compared to the Net sector.

TheStreet.com Internet Sector Index

, or the DOT, has skyrocketed 55%, from 178.60 to 277.12. All 24 stocks on the DOT are firmly higher in that time frame, and several have more than doubled.

Some unreconstructed Net bulls say the renewed confidence in the sector signals that a shakeout has taken place, leaving the poised-for-survival companies oversold and ripe for this rally. However, many others caution that nothing substantive has changed regarding Web outfits -- including the outlook for profits. Only nine of the 24 DOT stocks are profitable as of the first quarter.

John Bollinger, head of

Bollinger Capital Management

, says April's exuberance, though a "smaller magnitude of the prior one," carries traces of the first tech meltdown. "There's no question that the same psychology that drove the first bubble is still evident in many of the players."

"For many of the companies, their lows are only a month behind them," Bollinger said. "There has to be years behind them before they can be perceived as growth stocks again."

If the skeptics are right, it could be

deja vu

all over again for the Net sector: massive gains, painful pullback, repeat cycle. A look at a handful of DOT components reveals a disconnect between the first-quarter earnings performance and post-April 4 stock performance.

April's gains in the sector were due in part to the oversold condition in the market, says Mark Edwards, chief investment officer at

Potomac Funds

. His firm's

(PNETX)

Potomac Internet Plus Fund, which tracks the

Dow Jones Internet Index

and uses leverage to target 150% of the index's return, lost 68.2% in 2000 but gained 36.7% for the month of April. (As mutual funds columnist

Ian McDonald

points out, it might be cause for concern if your fund

notches such outsize returns.)

Investors were also encouraged by bullish notes from analysts like

Lehman Brothers'

Holly Becker, who

waxed enthusiastic about

Yahoo!

(YHOO)

and raised her investment rating on the company to buy from market perform on April 5. Becker's note helped the stock shoot up 22% that day.

"And the surprise

Fed

rate cut was like a morphine shot the market needed," says stock analyst George Nichols at

Morningstar.com

, adding that Internet companies are especially interest-rate sensitive, since lower rates mean borrowing to fund their operations gets cheaper.

But Nichols says the good news may have had a ripple effect that extended beyond rationality. "Only a few, like

AOL Time Warner

(AOL)

and

eBay

(EBAY) - Get Report

, released positive earnings news," Nichols said. "For those, the run-up is justified, but not for the others. Investors probably overreacted."

If this is another Internet bubble, there may be one key distinction between this one and the first: the effect it has on the broader market. The severe downturn in Net stocks since March 10, 2000, has diminished their representation in the broader market. On March 10, 2000 -- the day the Nasdaq peaked at 5048.62 -- the 24 stocks that currently make up the DOT had a combined market cap of $844.3 billion. Today, the combined market cap stands at $336.8 billion. Remove AOL from the equation and the numbers are more stark: Excluding AOL, the combined market cap of the DOT stocks tumbles 81% from $589.8 billion on March 10 to $112.1 billion now. The total market cap of the Nasdaq stood at $2.74 trillion at the end of March.

Even the Net bulls acknowledge that the sector's April's performance wasn't met by any real change in the fundamentals of the industry. Even for the few companies that have managed to turn profitable, industry watchers say there are still a lot of question marks looming over their futures.

"There are still questions about the direction Yahoo! can take," says

ABN Amro's

Arthur Newman, citing Yahoo!'s ongoing weak ad revenue stream. "We don't think you can take that to the bank right now."

Potomac's Edwards believes Net investors are more realistic about the sector after the first bubble, and sees this as a hopeful sign that recent gains will stick. "Investors have gotten over their love affair at all costs with the Internet industry," Edwards said, calling April's gains part of a maturation process for the sector.

But even if April's Net rally does indicate that the sector is stabilizing after the first bubble winnowed out the weakest links, Bollinger and others caution that doesn't mean investors should jump back into the fray. "Obviously there are going to be winners," Bollinger says, "but wouldn't you rather fish for winning stocks in areas where prospects for growth and revenues are better? That's a question that investors will ask themselves again."