First-quarter earnings have offered no shortage of sunny news to bolster tech stocks. Trouble is: nobody cared, judging from the sea of red

last week.

The bloodbath has been worst in chip stocks: Last week, the Philadelphia Stock Exchange Semiconductor Index sank 9.2%, falling below its 200-day moving average. The bellwether chip index now resides more than 20% below its January peak of 560; technically speaking, that's bear market territory.

Above all, investors are seeking to avoid the losses of the last tech bust, when many held on too long as cyclical stocks entered a brutal downturn. Currently, investors in the most volatile segment of tech -- semiconductors -- are rushing to take profits at what many consider to be the peak of the industry's upcycle.

"The real money to be made in deep cyclicals like semis was when things looked bleak about a year ago. It's hard to at this point in the cycle," said Chris Casey, head of portfolio management at Boston Private Bank, an investment management firm with $1.95 billion in assets.

More proof that Wall Street has grown much harder to please emerged Friday, when the SOX sank 1.6% to 443 despite

better-than- expected quarterly sales guidance from leading global foundry

Taiwan Semiconductor

(TSM) - Get Report

. Normally, chip investors would be cheered by news of unexpectedly strong demand.

In fact, a slew of companies recently bested Wall Street's sales expectations only to see their shares take a hit, including chipmakers

Skyworks,

(SWKS) - Get Report

,

Texas Instruments

(TXN) - Get Report

and

Xilinx,

(XLNX) - Get Report

, as well as chip-equipment plays

Novellus

(NVLS)

and

Lam Research

(LRCX) - Get Report

.

The market's dismissal of sunny forecasts reflects what Bernard Diggins, a partner at the investment management firm of Gardner Lewis, described as "more rational analysis on multiples" amid concerns about interest rates and capacity utilization.

Higher interest rates make stocks relatively less attractive to Treasuries, where yields have risen sharply in anticipation of

Federal Reserve

tightening. Rate hikes would also hurt stocks by increasing the cost of capital, making it harder for companies to finance expansion. With relatively little debt, tech companies would be less directly affected than other sectors. But rising interest rates could dampen demand from potential technology customers if companies and consumers are forced to earmark more of their cash to service debt.

"There will be valuation compression because interest rates are going higher, and the sectors with the highest multiples are going to compress the most," said Diggins, whose fund owns only a handful of names in the space, including

Dell

(DELL) - Get Report

,

EMC

(EMC)

,

Qualcomm

(QCOM) - Get Report

and

Advanced Micro Devices

(AMD) - Get Report

.

Sell-Side Skepticism

Fund managers aren't the only market participants to sound jaded about the outlook for technology plays. In a marked shift from the boom years, securities analysts have been among the most bearish voices, quick to pounce on any signs of weakness. Back in January, analyst Mark FitzGerald of Banc of America was already cautioning that chip momentum would peak by mid-year, hurting semiconductor equipment makers.

"A lot of sell-side analysts got crushed in the bear market," said Diggins. "They're not going to make the same mistake twice, so this time they're trying to be early rather than late. People are racing to call the top."

TheStreet Recommends

Following

KLA-Tencor's

(KLAC) - Get Report

April 21 admission that orders could drop 15% in the quarter underway -- one of the more downbeat bits of news this earnings season -- American Technology Research downgraded not just the stock, but the entire equipment sector to neutral from buy.

Of course, the move to preemptively dump stocks at the peak of the business cycle makes plenty of sense, since short-term investors theoretically want to look six months down the road and, in this case, try to exit stocks before their businesses are hurt by an impending cyclical downturn.

"We're at about the best point of

growth comparisons we can have year on year, for the semi-space in particular," Diggins said. "And that's where you want to sell stocks rather than hold them."

Moreover, the downturn will hardly come as a surprise. A leading tech trade group, the Semiconductor Industry Association, has predicted chip sales will drop off 6% in 2005, capping three years of growth.

Still, the new wariness over tech has created some odd disconnects.

Growing skittishness among analysts and fund managers has coincided with increasing bullishness from tech CEOs. For example, top executives at

IBM

(IBM) - Get Report

,

Microsoft

(MSFT) - Get Report

,

Dell

(DELL) - Get Report

and

Intel

(INTC) - Get Report

all say corporate IT spending is rising.

Renewed enterprise spending was mostly responsible for better-than-expected growth in first-quarter computer shipments, according to research house IDC. Global PC shipments rose 16.5% to 41.2 million units, faster than the 13.5% expected by IDC.

On April 29, the Commerce Department said first-quarter business spending on equipment and software rose a robust 11.5%.

"We think enterprise spending will continue to pick up and companies will continue to post solid growth in earnings," said Casey. The problem in a rising interest rate environment is where valuations stand and where the leadership is."

Anticipating the turn, his fund started unloading clients' stakes in, among others,

Applied Materials

(AMAT) - Get Report

and

EMC

(EMC)

earlier this year. Although Casey owns blue-chip tech names like Microsoft and IBM, he sounded more enthused about indirect plays on tech trends, such as education companies that retrain workers, including

Apollo Group

(APOL)

,

Career Education

(CECO) - Get Report

and

ITT Educational Services

(ESI) - Get Report

.

Another favored sector is video game software, where Casey has a stake in

Electronic Arts

(ERTS)

.

Not only have tech favorites shifted, but investors have grown a lot savvier after the heartbreak of the tech bubble's bust. From 2000 through 2002, many rode tech stocks all the way to the bottom, hoping in vain for a turnaround. But this time they're speeding for the exits, anticipating the inevitable downturn well before it actually happens.