(FORTUNE Magazine) – Technology stocks have been the Road Runner of this bull market. Like that gravity-defying cartoon character, tech has zoomed to ever higher heights after each setback and left the rest of the market in the dust. The big mid-December drop, however, keeps the billion-dollar question very much alive: How long before the sector plummets to a spectacular crash?

The craze for technology stocks is not unprecedented. Remember the Nifty Fifty, the favorite growth stocks of institutional buyers in the early 1970s? In the first two years of that decade, the group rose 98% in value before collapsing with the rest of the market in 1974. Or what about the early 1990s craze for biotech issues? They soared 299% from 1989 to 1991 before nosediving 40% in 1992. Even semiconductor shares have had flings with investors. They were bid up 134% from August 1982 to the start of 1984 before dropping 25%.

Says Laszlo Birinyi, who runs his own research firm out of Greenwich, Connecticut, of today's tech run-up: "This is not an irrational market for these stocks. You might call it a lower-case mania, but remember that this is a sector with enormous earnings and growth potential. In the early 1980s the multiples on many of these stocks were higher than they are now."

Investors can also ease their anxiety with the knowledge that today's craze differs from past manias in several respects:

First, despite their spectacular price increases, many of the most profitable computer software and hardware companies are still selling at reasonable multiples to 1996 estimated earnings, book value, and cash flow. The semiconductor sector, for example, is selling at an average trailing P/E ratio of 20 and a 1996 estimated P/E of only 13. The current P/E of the S&P 500 is roughly 17. Since 1980, the peak P/E range for tech stocks has been between 31 and 34. Currently the 250 top tech stocks have an estimated 1996 P/E of 25.

Second, the three-year to five-year growth-rate estimates for those 250 companies is a robust 25% a year, according to IBES, a research firm that tracks Wall Street's earnings forecasts.

Third, demand for computer-related products is picking up steam all over the world--and in all categories. In the U.S., for example, technology now absorbs 50% of capital spending, vs. 33% eight years ago. In Europe, PC sales are increasing at double-digit rates.

Still, 1995's craze has been eye-popping. Morgan Stanley's index of 35 bellwether tech companies, which includes giants like Microsoft, Intel, and IBM, was up 57.6% last year, following a 34.7% rise in 1994. In contrast, the Standard & Poor's 500-stock index rose 34.7%. The 57% increase also masks whopping climbs in various subsectors of technology (see chart).

The ongoing flood of technology IPOs helps stoke the mania. Some pros, in fact, are avoiding IPOs altogether. Says Preston Athey, manager of T. Rowe Price's Small-Cap Value fund: "I refuse to look at IPO offerings at this point. I'm getting ten to 15 a day across my desk, and some are just ridiculous. If so many people think it's a wonderful time to sell, why do I want to be a buyer?" Not everybody agrees, of course, as the following story makes clear. Even Athey thinks that generally the tech group is not overextended.

The one subsector being whipped by manic euphoria contains stocks connected to the Internet. Notably, Netscape trades at an otherworldly multiple to 1996 estimated earnings and closed recently at $136.50 a share, or 427 times estimated earnings of 32 cents a share. That's down from its recent high of $174 a share.

Entertainment technology and multimedia stocks may also have gotten way ahead of themselves, says Arsen Mrakovcic, manager of the Seligman Frontier fund. But, he adds, "the semiconductor guys should continue to do very well."

Tech stocks have had at least one brief 10% to 20% drop a year for the past 11 years, says Charles Morris of T. Rowe Price's Science & Technology fund. And if there are negative earnings surprises in 1996, the temporary downturn may be more vicious. So far, however, that eventuality looks remote. Concludes Robert Austrian, a technology analyst at Morgan Stanley: "No matter how you slice it, tech stocks have had a huge run, and there will be pauses along the way. But the long-term trend is very positive."