Updated from 7:17 a.m. EDT

Semiconductor stocks retested this year's lows this week, and the near-term potential for this volatile group seems limited.

"I don't see demand falling off a cliff, and I don't see a big boom coming to surprise the heck out of everyone," says Tim Allen, a portfolio manager with Wentworth, Hauser & Violich. "If the market discounted either of those scenarios, then I would sell into a boom scenario and buy into a bust scenario."

Muted growth has been predicted for the semiconductor industry this year, but stocks have jumped and stumbled in the first three months of 2005 on alternating views of better-than-expected growth and weaker-than-expected demand.

The viewpoints came together this week as major and minor technology companies reported their financial results for the first quarter and their expectations for the coming months. The indications have been mixed.

IBM

(IBM) - Get Report

and

Sun Microsystems

(SUNW) - Get Report

sparked a selloff with their dour financial reports, while

Texas Instruments

(TXN) - Get Report

ignited investors with its

solid performance.

Intel

(INTC) - Get Report

, the world's largest chipmaker, also turned in a strong performance, but peer stocks

failed to rally on the news.

The Philadelphia semiconductor index closed Wednesday off 2.2% to 384, near a six-month low of 382.6 set last week and a late-January level of 383. On March 1, the index hit a four-month high of 447.

Amid broader market gains Thursday, the index was up 1.3%.

Allen, whose firm manages $5.7 billion, says the short-term myopia of semiconductor investors is causing the gyrations. "Valuations tend to swing much more wildly than the value of the underlying franchise," he says. "This is a business where the long-term trajectory is somewhat predictable, but then there's a huge amount of noise around it. Buy the signal and sell the noise."

The difficulty then becomes placing a value on a stock. As evidenced by the wild swings in share prices these days, that's not so easy. When underlying sector trends aren't boosting all fundamentals equally, investors are left picking and choosing between winners and losers.

"There's a lot of selectivity going on out there," says Bill Gorman, vice president of equity research with PNC Advisors, a $50 billion money management firm. "We've avoided news that the semiconductor industry is going into another slump, but it's hard to make the case that we're in for anything more than a year of moderate growth."

He says the possibility still exists that stocks will climb if investors get added assurances that the second half of the year will be strong. "That would set us up for a late-year rally in the sector, but it's too early to be real definitive on that."

Uncertainty about the final six months of 2005 is probably the primary impediment for semiconductor stocks. All year, investors have been betting that strength in the back half would provide the better fundamentals to carry stocks higher. While a seasonal uptick in results is expected later this year -- due to the usual forces of back-to-school spending, holiday shopping and the flushing of corporate IT budgets -- its size is unclear.

"This is still a really difficult environment to forecast, and that's what's reflected," says analyst Kevin Rottinghaus with FTN Midwest Research. "There is a lack of conviction overall in end-market strength."

Expect semiconductor stocks to remain choppy until investors get confidence that they won't be let down about projected growth later this year. The mixed reaction to the reports out of the sector so far indicates that investors don't have this confidence.

And maybe they shouldn't. Case in point:

Qualcomm

(QCOM) - Get Report

, the world's second-largest maker of chips used in cell phones,

cut its financial targets for the next six months late Wednesday amid weak demand in Europe and Asia.