As companies see an increasing need to do business with the more stable brick-and-mortar companies, growth in the Internet sector has slowed, and that has spooked high-growth investors. Yahoo’s revenues on a year-over-year basis may have increased 90 percent, but sequential growth was only 8 percent. In the first and second quarters, Yahoo’s sequential revenue growth rates were 14 percent and 18 percent, respectively.

Investors are bailing out of the sector over a long list of things, which includes lack of profitability, and revenue assumptions that were wildly optimistic. As reality sank in that some assumptions were too good to be true, so did the reality that stocks were still too expensive. As the market has struggled to figure how to appropriately price technology, technology stocks have gone through a painful, multistage revaluation. Tech stocks are a lot cheaper now than in the spring, but it’s difficult to make the case that they’re attractively valued. The problem is that even including the effects of this tech correction; investors are still paying a hefty premium for tech stocks over nontech companies with similar growth rates. According to research from Merrill Lynch’s quantitative group, tech companies that Merrill analysts expect will grow at 30% or more over the next five years have forward P/Es that are nearly double those of nontech companies expected to show similar growth. That investors are willing to pay nearly twice as much for tech growth is a little ridiculous.

One other problem is that the growth rates that analysts have been assuming for tech have lately been called into question. Growth in technology earnings generally has been trending up. Lately, however, a series of earnings warnings have suggested that tech profits are far more beholden to economic cycles than investors had assumed. “I think tech could still correct further,” says Morgan Stanley Dean Witter chief U.S. investment strategist Byron Wien. “So many companies are disappointing that people are questioning what the growth rate is. It’s one thing to pay one or two or three times the growth rate if you know what the growth rate is. It’s another thing if you do not.”

As far as Yahoo’s recent numbers go, they show that Yahoo may be financially strong and large enough to survive the Internet shakeout. And unlike most Net stocks, Yahoo has already successfully completed the path to profitability. There certainly is reason to be wary about the advertising market in the short term, but these concerns have brought Yahoo’s stock price down to an attractive level for a long-term investor.