Maybe those exceptionally valued

Nasdaq

favorites are, say, a little tired. How else to explain

Aether Systems'

(AETH)

6% decline Monday?

Aether, a wireless-application provider, has been one of the Nasdaq's numerous telecom success stories in recent months. Since its IPO in October, the stock has caught the eye of many an investor hunting for a wireless Internet player, rising more than 400%. Monday, analysts at underwriters

Merrill Lynch

and

US Bancorp Piper Jaffray

boosted their price targets to 350 and 325, respectively, a move that in recent months has often signaled to investors that it's time to buy, buy, buy. Merrill has a buy rating on the stock and Piper Jaffray a strong buy.

But since it hit 345 this month, Aether has reversed course, sliding despite continued excitement in the sector. So on a day when other hot sectors, such as B2B and biotech, saw significant pullbacks, Aether kept losing altitude, too. The stock slid 15 and change to close at 220 1/2, leaving it more than a third off its highs.

Rarefied Air

Named for the rarefied air of the Greek gods, Aether connects Palm Pilots and other handheld devices to stock-trading programs and other Web content. For example, Aether has formed a European joint venture with Britain's

Reuters

(RTRSY)

for financial news, and presumably since Reuters owns after-hours exchange

Instinet

, there is a stock-trading connection.

Its business is certainly expected to be lucrative:

Yankee Group

wireless analyst Mark Lowenstein says the major telcos are talking about financial transactions and stock trading accounting for as much as 20% of their data traffic in the next couple years. Yankee Group consults to all the major wireless telcos.

But while it has a significant head start on the field, Aether faces a growing roster of rivals, including

Datalink.net

(DLK)

,

Research in Motion

(RIMM)

,

724 Solutions

(SVNX)

and a company called

GoAmerica

that recently filed for an IPO.

Dataquest

mobile-data analyst Naqi Jaffery counts no less than 50 companies, most of them start-ups, developing the technology and strategy to go after the wireless e-commerce market. Dataquest consults to most of the wireless industry.

Rationality

Speaking of the selloff, "I think there is a return to a hint of rationality," says

Punk Ziegel

data communications analyst John Loerke, who doesn't follow Aether. Punk Ziegel has no banking ties to Aether. "Today was a bad day for a lot of these companies whose valuations have lost touch with any semblance of reality."

Still, not everyone's thinking that way. In his report, US Bancorp analyst Samuel May, whose price target values the company at 170 times estimated 2001 revenue, says, "Investors should focus on the potential revenue growth" that the company is expected to see from its recent acquisitions and partnerships.

Aether lost $23.5 million in 1999 on revenue of $6.3 million.

"It's tough to call the peaks of these things," says hedge fund manager Michael Kaufman of

K Capital Partners

. Kaufman follows several tech and telecom companies but holds no Aether. "Maybe it's grossly overvalued, but in two years from now it could grow into that valuation, so who wants to guess on when it's going to come back to earth."

Loerke calls it the casino mentality: "Once you part company with any relationship to earnings and find a multiple of revenues that is hardly understandable, then you are basically depending on a continued inflow from the funds."