Updated from 7:05 a.m. EDT

To the relief of aggrieved investors, semiconductor stocks have been enjoying a modest rally of late. Optimists hope the rebound means rumors of the chip cycle's death were somewhat exaggerated.

On Tuesday, the Philadelphia Stock Exchange Semiconductor Index rose 2.5%, its sixth consecutive up session. To be sure, the rally followed a period of

pronounced weakness; from its intraday peak on Jan. 12 to its intraday low on May 3, the SOX fell 22.8%. (On Wednesday, however, the index was under pressure -- recently down 3.5% -- as specialty chipmakers such as

Altera

(ALTR) - Get Report

,

Broadcom

(BRCM)

and

Xilinx

(XLNX) - Get Report

fell sharply in the wake of

Cisco's

(CSCO) - Get Report

less-than-spectacular results and outlook.)

While small compared with the preceding losses, the recent minirally is encouraging the sector's bulls, who have been saying that the semiconductor cycle has not yet peaked.

"Historical data shows that the top was called prematurely," said Jeff Rottinghaus, an analyst and vice president at T. Rowe Price.

Historically, there is a strong correlation between revenue growth and share value in the sector that should translate into continued growth for at least another three or four months, Rottinghaus noted. "If share prices peaked in January, which was months ahead of the revenue peak, that would be unprecedented," he said.

Longtime "chipheads" have been comparing 2004 with 1994, a year in which strong growth led many analysts to call a top, only to see a rally that continued into 1995. "Are we nearing peak growth rates? Yes. But that doesn't mean we can't hold these

growth rates for a while longer," said Dan Niles, chief executive of San Francisco-based Neuberger Berman Technology Management.

However, Niles cautioned that the market remains very nervous over the prospect of higher interest rates and will

likely be choppy for some time, as evinced by Wednesday's early action. He recalled that the prospect of higher rates in 1994 depressed chip stocks, but when the

Federal Reserve

finally moved, the shares rallied.

Bill Gorman, vice president in the equity research department of Philadelphia-based PNC Advisors, believes that growth rates have peaked -- at somewhat more than 30%. But he said the semiconductor industry can grow 25% or more this year and 14% to 15% in 2005. (Last week, the Semiconductor Industry Association said it will soon

hike its forecast for 2004 growth to over 20%.)

"We think the industry could be in a favorable supply-demand situation heading into 2005," Gorman said.

Lehman Brothers analyst Tim Luke said the semiconductor cycle typically has four stages: a decline in unit volumes followed by a decline in average selling prices, new demand, and supply and demand equilibrium.

"We believe the majority of our universe is in the third stage," he wrote Tuesday. "We remain comfortable with

capital expenditures budgets moving higher, and we do not foresee a situation of overcapacity for the remainder of 2004."

Such views run afoul of the current conventional (bearish) wisdom that the chip cycle has peaked. Despite its recent upgrade for 2004, the SIA's current forecast is for 2005 growth of just 6%. Furthermore, some analysts have noted a buildup in inventories -- a potential red flag.

But Steve Tobak, co-founder of Invisor Consulting and a longtime semiconductor executive, said strong bookings and high capacity utilization have led some companies to build inventories to be sure they can fill orders.

"Companies got very conservative during the downturn. This is a sign that the industry is returning to normal," Tobak said.

A.G. Edwards analyst David Wong added that strong growth in motherboard shipments in March and April indicated that June-quarter desktop PC shipments could grow faster than expected, which is something

Microsoft

(MSFT) - Get Report

forecast in its fiscal third-quarter results. That, he said, bodes well for

Intel

(INTC) - Get Report

, the world's largest semiconductor maker.

Investors will get a better sense of the state of the PC and chip industries Thursday when Intel executives hold the company's regularly scheduled meeting with financial analysts. The company also will present a midquarter update in early June. Separately,

Texas Instruments

(TXN) - Get Report

is holding an analyst meeting on Wednesday.