Can Tech Stocks Lead Markets Higher In The Second Half Of 2025?
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.
Sector performance from Q3 2024 through Q1 2025, with technology lagging in performance but boasting ... More the strongest earnings growth expectations for 2025.
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.
Sector-by-sector earnings growth and earnings growth expectations.
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.
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