When shares in computer-maker VA Linux floated on the Nasdaq last December, it gained a staggering 700 per cent on its first day of trading. Its performance left even those accustomed to the astronomical valuations commanded by technology companies gasping in awe.

But just as it seemed that there was no end to the stellar gains being logged by dot.coms - as Internet companies have become known - some observers have begun to warn that many firms in the sector are overvalued and that the bubble may be about to burst.

The authors of a new book, The Internet Bubble, argue that as much as half the $400 billion (€410 billion) combined valuation of US dot.coms is due to market hype and investor naivety. In Britain, the Financial Times has been to the fore in warning investors not to be taken in by the hype surrounding the sector.

Many fear that in the event of a crash, those most likely to get burnt are the small retail investors who buy at the high point and do not get out in time while the mutual funds and venture capitalists emerge unscathed.

So what do the Republic's investment professionals make of the technology sector and its prospects? Will it all end in tears for the growing number of ordinary investors who are eschewing the more pedestrian performance of traditional shares for the rich rewards of the high-tech sector?

According to Bloxham Stockbrokers, it could.

"The mania in technology shares has reached a very dangerous phase," the broker says in a recent research note. "The explosive gains in the technology sector late last year and the heightened volatility are classic signs of a major top."

But not everyone agrees and others believe that high-tech stocks will continue to drive the market in the year ahead.

"Last year was the year of the telecom companies but 2000 will be the year for Internet and technology firms," says Ms Jemma Houlihan, analyst with ABNAmro.

"A lot of companies are rebranding and focusing on their Internet strategies. We believe the sector will outperform."

Looking further ahead, most fund managers and analysts are bullish about the longer-term prospects for the sector.

Underpinning technology shares is a massive transformation in the way business and commerce are being conducted - an information revolution that is no less significant in its way than the Industrial Revolution was in its day.

According to Mr Paul Montgomery, managing director of investment managers Montgomery Oppenheim whose technology fund returned a world-beating 206 per cent last year, the growing importance of technology is part of a long-term trend which is only just beginning.

"Over the last few years, the market has been driven by consumer-led stocks but we believe that capital goods will be the new leader of the market and technology makes up more than 50 per cent of that," he says.

But all investment professionals agree that the sector will have winners as well as losers and that a lot of money is being badly invested.

Many of the start-up companies that are commanding such high multiples will not be around in a few years' time, leaving investors to rue their blind faith.

But those that have a real future also have the potential to deliver real returns for shareholders. "It's a stock-picker's paradise," says one fund manager.

But how does the ordinary retail investor know which stocks to pick with traditional valuation measures largely considered redundant as firms sacrifice short-term profits to build the business for the longer-term?

Among the issues investors should consider are: the company's business model and its sustainability; its financial position; and crucially, whether or not it has a strong management team.

Mr Tomas Jones, technology analyst with Davy Stockbrokers, also advises investors to look at what is value-added in terms of what the company is doing; how difficult it is to replicate; and if it can be copied, whether or not a firm has significant first-mover advantage.

Nor is everyone convinced that traditional evaluation techniques such as price/earnings multiples should be jettisoned completely.

"At some point people will need cash-flow to reinvest and things like earnings and cash-flow will have to come back into the equation," says Mr Jones.

And fund managers point out that there are areas in the market that even on conventional measurements of value are reasonably priced. It is just a matter of finding them.

Above all, private investors are urged to do their research and not bet the farm on the latest fashion.

Those not confident of their own stock selection abilities have a growing number of funds at their disposal which provide them with exposure to a range of firms within the technology area.

By investing in a mix of hardware and software firms, Internet stocks and equipment providers, shareholders can spread their risk and are not exposed to the fortunes of just one or even a handful of companies.

Investing in a fund also allows them to avail of the expert research on offer.

But for those prepared to stock pick, and who are keen to support home-grown firms, what of the Irish high-tech companies which have performed so well of late?

The founders, staff and shareholders of the likes of Trintech and Baltimore have had plenty to be grateful for in recent times.

Shares in Trintech recently rose by 60 per cent in a week after it signed a deal with Motorola, catapulting the company ahead of the Kerry Group in terms of its market capitalisation.

Baltimore, an Internet security specialist, is another phenomenal performer.

At the end of last week, the shares were more than 350 per cent above the price at which they floated on the Nasdaq last October.

Even Iona and SmartForce, both of which took a drubbing in the wake of profit warnings in recent years, have bounced back and the shares are again on an upward track.

Most analysts believe that the Irish high-tech firms are well-run outfits with solid sustainable businesses in niche areas that should allow them to continue to deliver strong growth.

Iona, in particular, is believed to be undervalued relative to its peers. SmartForce is expected to benefit from having stolen a march on competitors with its new Internet strategy while analysts suggest that earning reports later in the month from both Baltimore and Trintech should be positive for the share price.

But some sound a note of caution because even solid businesses will find it hard to make progress if the market as a whole goes into reverse.

"I don't think things can go up forever," says one technology analyst who started the year expecting high-tech shares to at best move sideways.

But he now admits that the market is just not willing to lie down, leaving investors facing a dilemma. Run the risk of a crash or miss out on a golden opportunity? For in weighing up their options, investors should also bear in mind that caution too can cost.