Wall Street may be jittery, but it still has a stomach for what were its bad apples: tech stocks.

Investors have defied gurus and advisers alike over the last several weeks and bid up prices of formerly disgraced tech names like it's 1999. Neither terrorist threats nor anxiety over the coming earnings season has stanched the buying. The

Nasdaq

has outperformed both the

S&P 500

and the

Dow Jones Industrial Average

by gaining 14.6% in the last two weeks. It could all come to a head or a crisis today when the sector's two heaviest hitters,

IBM

(IBM) - Get Report

and

Intel

(INTC) - Get Report

release third-quarter results after the bell.

Until now, few have heeded the warnings of strategists who don't think the optimism has basis in reality. Momentum-gulping investors have pointed in particular to IBM, whose refusal to issue a profit warning in recent weeks was hailed as evidence that technology companies are in better shape that people supposed. That makes tonight's earnings report all the more dramatic, and has analysts worrying that a big profit miss or, more likely, lowered fourth-quarter guidance, will mark the end of the latest round of exuberance.

"If IBM has good things to say, that would help things. But I think you'll have to take it with a grain of salt," said Chuck Hill, stock market strategist at Thomson Financial/First Call. Hill, who expects IBM's outlook to be "disappointing," also thinks the average full-year earnings estimate for the S&P 500 technology sector is "not very realistic." The 82 tech stocks in the group are trading at a lofty price-to-earnings ratio of 41 times forward earnings, said Hill, and analysts and investors alike "haven't thrown in the towel yet."

IBM closed up 1.2% to $102 Monday. PC rival

Dell

(DELL) - Get Report

finished down 2.3% to $23.58, while

Hewlett-Packard

(HWP)

and merger partner

Compaq

(CPQ)

lost 1.3% and 1.2%, respectively.

Naysayers had to hold their fire Monday, when IBM said it displaced key competitors like

EMC

(EMC)

to win a storage equipment deal with retail giant

Wal-Mart

(WMT) - Get Report

. The company did not disclose the financial terms of the deal, but analysts estimate it is worth tens of millions of dollars and could drive demand for IBM's services business.

International Profits Machine?

According to earnings tracker Thomson Financial/First Call, 17 analysts expect IBM to post third-quarter earnings of 89 cents a share, down from $1.08 a share in the same period last year. They expect quarterly revenue of $20.8 billion, compared with $21.8 billion last year. For the fourth quarter, analysts see earnings of $1.35 a share, compared with $1.48 a share a year ago.

Analysts at J.P Morgan and Goldman Sachs were among those that lowered their fourth-quarter earnings estimates for IBM last week, citing the company's sluggish pace of growth.

Most analysts say they're less concerned with IBM's third-quarter earnings than they are about its fourth-quarter and 2002 outlook. "I'd not be surprised to see them lower the bar," said Shebly Seyrafi, analyst at A.G. Edwards, who hasn't touched his prior fourth-quarter earnings estimate of $1.40 a share for IBM. Seyrafi said he'll be watching out for IBM's guidance on its services business, which he said probably has been affected by the general economic downturn.

If IBM lowers its 2002 guidance, the stock could end up trading at a "pricey" multiple of about 20 or more times forward earnings, said Seyrafi. "You shouldn't be paying more than a teen-like multiple" for the stock, Seyrafi said. He thinks a fair price is $85 to $90. The analyst, whose firm hasn't done any underwriting for IBM, has a neutral rating on the stock.

Looking for Momentum

Other analysts say it's possible that a dynamic is perpetuated in which any news that isn't surprisingly bad is treated by the market as a reason to buy. Stocks in the Nasdaq have been under pressure, and the "slightest piece of good news could be well received," said Peter Boockvar, equity strategist at Miller Tabak.

But it's also possible that any "knee-jerk" reactions, even on the upside, could eventually culminate with the market retesting recent lows, said Michael Filighera, stock strategist at Global Markets Strategists. A "sustained recovery rally" will only come when the global situation regarding terrorism stabilizes and the U.S. economy shows signs it has "turned the corner," said Filighera.

Technical guru John Bollinger, president of Bollinger Capital, agreed. The Nasdaq could slide back to "the low 1400s," he said. And Bollinger, who's "modestly on the sidelines" right now, prefers to err on the side of caution. It's still "too early to get back into tech," as it's going to take years for many tech stocks to recover.

As for IBM, the company "hasn't grown for years and years," said Bollinger, adding that he finds small-cap value stocks most attractive at present. "The world could be entirely rewritten here, and often it is in the wake of a bear market. Just because a company is a so-called strong player in today's market is a poor indication of what prospects it'll have in tomorrow's market."