NEW YORK (CNN/Money) - Apple, in addition to being the name of a tasty fruit and Gwyneth Paltrow's new daughter (what were she and Coldplay's Chris Martin thinking?), is also the moniker of one of the hottest tech stocks of the year.

Imagine that. Shares of Apple, the perennial tech underdog, are up 25 percent so far in 2004 and are trading just 10 percent below their 52-week high.

That's impressive...especially when you consider that the 83 tech stocks in the S&P 500 are, on average, down 6 percent year-to-date and 24 percent below their 52-week highs.

So it might seem tempting to say that Apple's run is over. (For a bearish take on the stock from Money magazine, click here.)

But Apple (AAPL: Research, Estimates) still has room to blossom.

Shannon Cross, an analyst with Cross Research, an independent research firm, said that fears about increasing competition from Microsoft and Sony in music are overblown.

So far, the iPod has been able to keep its lead despite competing music players from juggernauts such as Samsung and Dell. And the iTunes music store has fended off efforts from Wal-Mart and Roxio, which relaunched Napster.

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Cross thinks the company's new iPod mini will continue to be a hot seller. Japanese tech firm Hitachi announced earlier this week that it would be increasing the production of disk drives used in the iPod mini to meet demand for the device.

Cross thinks that the company's alliance with Hewlett-Packard will also boost sales for Apple. HP announced in January that this summer it would begin selling a digital music player based on iPod technology, dubbed by some as the hPod.

In addition, HP said that new consumer desktop and notebook computers would come pre-installed with Apple's iTunes software.

Ka-ching is the sound of music Sales of the iPod have grown steadily over the past few quarters. Quarter  iPod unit shipments  iPod sales ($mil)  2Q03  80,000  31  3Q03  304,000  111  4Q03  336,000  121  1Q04  733,000  256  2Q04  801,000  264   Source:  Company reports

The fact that HP (HPQ: Research, Estimates) chose to embrace Apple's technology is significant, said Phil Leigh, an analyst with Inside Digital Media, and could help Apple maintain its lead over Microsoft once Microsoft's digital music software technology, known as Janus, comes out later this year.

"The biggest risk for Apple is iPod and iTunes losing market share," said Leigh. "But it's a pretty big move that the second largest PC company in the world is shifting to a product made by Apple. If Apple can become a standard for digital media on Windows, then there is more room for the stock to run," said Leigh.

Another positive for Apple is that Mac devotees will have to reason to upgrade in the near future, Cross said. The company's iMac is getting a bit long in the tooth, with the latest version (the one that looks like a desk lamp) coming out way back in January of 2002.

Cross also expects an eventual laptop version of the company's Power Mac G5 (the desktop model was released last year) to come out soon.

"The iMac needs a refresh and that could drive sales," Cross said. "This is the beginning of a major product cycle. iPod is just gravy on top."

Analysts have boosted earnings estimates for Apple significantly. During the past three months, the consensus estimate for fiscal 2004 (which ends in September) has increased from 46 cents a share to 62 cents a share, according to Thomson First Call. And estimates for 2005 are now 77 cents a share, up from 60 cents.

Still, what about Apple's valuation? Shares have more than doubled since Apple rolled out the iTunes store last April and now trade at a rich price of 43 times this year's earnings estimates.

But Megan Graham-Hackett, an equity analyst with Standard & Poor's, said Apple should be rewarded for its strong growth prospects. "This reflects the growth dynamics associated with new products," Graham-Hackett said. "The shares are trading at somewhat of a premium but I think it's warranted."

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The analyst also noted the sizable portion of cash on Apple's balance sheet: $4.59 billion as of the end of March. That works out to more than 45 percent of Apple's total market value.

So if you back out the cash, investors are valuing Apple's actual business at about $14.55 a share. And using that price, Apple trades at a more reasonable multiple of 23.5 times fiscal 2004 earnings estimates and less than one times revenue projections.

Sure, Apple remains a niche player in the PC world and some investors will always view that as a negative. But that would be a mistake.

"Apple is one of those stocks where people are definitely polarized. But at this point, it's a good time to own Apple. Revenues are more diverse now," said Cross.

Analysts quoted in this story do not own shares of Apple or other companies mentioned and their firms have no investment banking relationships with the companies.

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