Can Tech Lead Stocks Higher In The Second Half Of 2025?

view original post

Tech stocks went out with a bang in the second quarter, with the technology sector gaining more than 20%. It was its best quarter since Q2 2020, after the COVID-19 selloff. Given how well US stocks did last quarter — with the S&P 500 up 10.6% and the Nasdaq 100 up 17.6% — it’s no surprise that tech did more than its fair share of the heavy lifting.

That’s as tech commands a ~33% weighting in the S&P 500 and more than a 60% weighting in the Nasdaq 100.

The strong performance for tech stocks was a welcome relief for retail investors. Not only does this group carry a heavy weighting in the indices, but tech — along with financials and energy stocks — tends to be among investors’ favorite holdings.

However, their performance isn’t always guaranteed.

A Rough Run For Tech Stocks

When we look back over the years, it’s a given that tech stocks have been strong performers. During certain stretches — like the first half of 2023 — tech and the Magnificent 7 were really the only game in town (despite the S&P 500 eventually rising over 24% that year).

Consider that in the prior decade (from 2014 to 2024), the tech-heavy Nasdaq 100 returned 485%, easily crushing the S&P 500’s 218% gain. Or that companies like Apple, Nvidia – which just hit $4 trillion – Microsoft, Alphabet, and Meta have ballooned to market caps measured in trillions of dollars, and it’s not hard to get a sense of who the leaders have been.

Despite all this, tech is prone to sluggish periods too — and we know this because we just went through one.

In Q3 2024, tech was the second-worst performing group of the 11 S&P 500 sectors, and held that dubious honor again in Q1 2025. In all, from July 1, 2024 to March 31, 2025 (Q3 2024 through Q1 2025), technology was the worst-performing sector.

Further, tech tends to get hit hard during bear markets, despite it including the biggest firms and their ironclad, fortress-like balance sheets. But that’s the reality, as the Nasdaq underperformed the S&P 500 during the 2025 “tariff tantrum,” the 2022 bear market, and the 2020 COVID selloff.

Naturally, that begs the question: Was this latest quarter a return to the leadership role that investors have come to know and expect of tech stocks? Or was it just a rebound after several disappointing quarters — with more disappointment in store for the remaining two quarters of the year?

Second Half Outlook

When we look at tech stocks, there are at least a few reasons for optimism — the most convincing being related to earnings growth.

Consensus expectations call for 2025 earnings growth of roughly 21%, a figure ahead of all other sectors. This follows a strong 2024, where tech didn’t lead in terms of stock returns but was a leader in earnings growth (at ~18%, second only to communications — a sector dominated by Meta, Alphabet, and Netflix). For context, overall S&P 500 earnings grew about 10% last year.

If we adjust our sights out even further using estimates for 2026, tech stocks are expected to generate earnings growth of ~18% — second only to energy, which is projected to grow earnings by 20% following a third consecutive year of negative growth in 2025.

And because tech stocks underperformed in prior quarters while earnings grew at a healthy clip, valuation concerns have eased to some degree.

Admittedly, looking 12 to 18 months ahead is difficult — especially following a quarter in which US stock indices were down nearly 20% from all-time highs, then set new record highs a few months later.

When combining the expectations for strong earnings growth with renewed semiconductor leadership and AI serving as a bright, thriving catalyst, the pieces may be in place for a strong finish to the year. The group may need the Magnificent 7 to get back in gear — as only Nvidia, Microsoft and Meta hit record highs in Q2 — but if they do, tech could become the obvious (yet somehow still under-the-radar) play heading into year-end.