Tech stocks rallied on Wednesday after bellwether Intel Corp reported quarterly earnings and a revenue forecast that blew past expectations, buoying investor hopes of a recovery.

Investors have been scrutinizing the battered tech sector for signs of strength after the economic crisis depressed demand and severely crimped corporate spending.

Advanced Micro Devices Inc and Nvidia Corp should see a direct impact from Intel's strong report, and there could be secondary impact on companies like Intersil Corp , said Oppenheimer & Co analyst Rick Schafer.

It sets the tone. It sets the pace for semiconductor companies, particularly those with PC exposure.

Valuations for chip stocks look attractive, particularly when you consider we believe there is a positive bias, or an upward bias to earnings, he said.

Intel's shares rose more than 2 percent on Wednesday after analysts raised their price targets for the stock following the strong quarterly earnings report and revenue forecast on Tuesday. The shares are trading at roughly 31 times forward earnings, compared with a semiconductor industry figure of 17 times forward earnings.

Chief rival AMD is not currently profitable. Tech companies Google Inc and International Business Machines Corp are respectively trading at 24 times forward earnings and 13 times forward earnings. All three companies are due to report on Thursday.

Despite Intel's strong results, some analysts were cautious. Robert W. Baird and Co analyst Tristan Gerra reiterated his neutral rating on the company.

We expect gross margin to peak in this December quarter, and historically, the stock peaks when gross margins peaks, he said.

Gerra said in a note that Intel's business is still highly sensitive to consumer demand and the company's push into smartphones and set-top boxes is unlikely to materially impact revenue growth in 2010-2011.

UBS raised its price target for Intel shares to $27 from $24 after the report while Lazard Capital increased its price target to $26 from $24.

Intel is benefiting from strong demand for retail notebooks and Nehalem servers. With better control of costs and prices, we see a structural improvement in Intel's margin profile, Needham & Co analyst Edwin Mok said in a research note in which he announced a price target increase to $28.

Computer maker Dell Inc saw its shares rise more than 2 percent after Intel forecast fourth-quarter revenue of $10.1 billion, well above Wall Street expectations of $9.5 billion. Microsoft Corp shares were up 1.5 percent.

In 2010, Mok said, technology investors could look forward to a boost in computer sales after Microsoft releases its Windows 7 computer operating system on October 22.

Beyond the near-term, we believe Windows 7 will drive a much-needed corporate refresh in 2010, leading to further revenue growth and substantially higher earnings, Mok said.

FBR Capital Markets analyst Craig Berger said Intel's fourth-quarter revenue guidance is back to levels achieved ... before the credit driven financial meltdown.

Berger said Intel's biggest rival, Advanced Micro Devices, could also see its shares rise on the strength of Intel's outlook.

Intel shares were up 2.2 percent at $20.94 in afternoon trading on the Nasdaq.

(Reporting by Clare Baldwin and Ian Sherr in San Francisco and Sinead Carew in New York; Editing by Dave Zimmerman and Steve Orlofsky)

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