A renewed surge of doubt about the semiconductor cycle has accelerated the year-to-date slide in chip-equipment stocks. But some investors are becoming enticed by the sector's beaten-up valuations and the distinct possibility the equipment buying cycle could last longer than conventional wisdom suggests.

Investors certainly haven't shifted into full-scale buying mode, Thursday's bounce notwithstanding. But in the face of downgrades and increasingly dour commentary from analysts, renewed interest in the sector by contrarian investors could help put a floor under some of the stocks.

While there's evidence that order growth for new equipment has slowed, bulls point out that plenty of chip-equipment outfits are putting up healthy results and may still be on track to surpass the profit and revenue levels of the prior peak. Furthermore, earnings reports from Intel ( INTC) and IBM ( IBM) -- plus raised guidance from Dell ( DELL) -- show end-market demand for hardware remains healthy.

Minding the Gap

A day after offering a fat upside surprise and generous guidance, shares of Lam Research ( LRCX) shot up 20% Thursday.

But Lam's earnings report starkly underscored the gap between those who think the equipment cycle has longer to run and the skeptical majority.

In separate research notes, analysts at Susquehanna and American Technology Research both honed in on Lam's slowing order growth rates as a trouble spot. After order growth of 17% in the quarter ending in June, Lam said it expects 5% sequential growth in the September quarter.

Similarly, Novellus ( NVLS) predicted last week it will have organic order growth of just 0% to 5% in the current quarter.

But bulls say lumpy order patterns aren't so unusual for the equipment business, and argue that profits and revenue at some companies are on pace to best the bubble era peaks.

ThinkEquity Partners' Suresh Balaraman predicts Lam will net 60 cents in earnings in the quarter now under way, besting its previous record of 48 cents EPS in March 2001. Similarly, he expects KLA-Tencor ( KLAC) to exceed its historical peak net margin of 22% over the next few quarters. He upped his ratings on both stocks to a buy in the past week.