U.S. tech stocks sprang higher on Wednesday after strong earnings and forecasts from Intel Corp further galvanized hopes the beleaguered technology sector's recovery was underway.

Intel, whose chips power more than three-quarters of the world's PCs, said demand had become much stronger than the company initially expected and it was increasing capacity to meet demand.

A slew of brokerages raised their price targets for the company and investors responded, pushing Intel shares up 3 percent in afternoon trading.

Dreams are arising about a recovery in the entire technology sector, Saxo Bank wrote in a research note.

The shares of other chipmakers, such as Nvidia Corp , Advanced Micro Devices Inc , Texas Instruments Inc and Micron Technology Inc , were also trading higher.

Optimistic comments from Intel executives, particularly about increased business spending, also gave personal computer manufacturers a boost. Dell, which is highly reliant on sales of PCs and servers to businesses, gained 5.6 percent.

The shares of Hewlett-Packard Co , the world's No. 1 PC marker, ticked up 1.3 percent.

Intel reported a 44 percent surge in first-quarter revenue on Tuesday and gave a current quarter forecast that topped Wall Street estimates [ID:nN1382801]. The news prompted brokerages, including Goldman Sachs, BofA Merrill Lynch and Citigroup to raise their price targets on the stock.

The blow-out quarter and strong forecast confirmed expectations the chip industry was slowly, but surely, on its way to reaching pre-recession growth levels after grappling with a two-year downturn, when demand for PCs and consumer electronics crashed.

Of 45 sell-side analysts tracked by Thomson Reuters StarMine, 33 rate Intel a strong buy or buy. Ten rate the stock a hold and two rate it a sell and strong sell.

ANALYSTS SEE MARGIN UPSIDE

Intel forecast a gross margin of 64 percent -- plus or minus 2 percentage points -- for both this quarter and 2010. Analysts said the 2010 gross margin forecast was conservative.

Barclays analyst Tim Luke wrote that Intel may lift its longer-term gross margin guidance to between 55 percent and 65 percent at its investor day on May 11, since the company beat its target range of 50 percent to 60 percent in the last several quarters.

Luke said Texas Instruments and Broadcom Corp should see a boost from Intel's stronger outlook, but he did not expect the same degree of margin and sales upside for AMD, which is expected to report first-quarter results on April 15.

Robert W. Baird & Co said Intel's 2010 outlook should alleviate fears that margins have peaked, since the forecast was above the first quarter's 63 percent. Baird analysts raised their price target 15 percent to $30 and repeated Intel was their top large-cap semiconductor idea for 2010.

Lack of competitive pressures suggest Intel will continue to gain significant market share this year, resulting in above-seasonal pricing trends, they wrote to clients.

But other analysts voiced concerns about the seasonal headwinds Intel may face in the PC market. BofA Merrill Lynch analyst Sumit Dhanda raised his price target to $25 from $23, but kept a neutral rating, citing doubts about whether Intel can sustain growth in the PC market at above-seasonal levels.

The problem is likely more acute at other chip companies where shipment rates into the PC market and other verticals are seemingly tracking to a much higher trajectory than that posted by Intel, he said.

Jefferies & Co, which maintained an underperform rating on Intel, said the company faces headwinds from slowing desktop PC growth and its average selling prices will be pressured by the shift to low-end laptops.

(Reporting by Ian Sherr in San Francisco; additional reporting by Neha Singh and Manasi Phadke in Bangalore; editing by Tiffany Wu and Andre Grenon)

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