Investing in tech stocks: Is now a good time?

Despite the recent market pullback, technology stocks have powered the market’s gains in 2025, continuing their strong performance from previous years. By November 19, the information technology sector rose 22%, while the tech-focused communication services sector climbed 26%. Both sectors outpaced the S&P 500’s 14% return and the NASDAQ Composite’s 17% return, showing technology’s outsized influence on market trends.¹

These sectors shape the broader market, with Information technology stocks making up over a third of the S&P 500’s market capitalization and communication services accounting for another 10%. The “Magnificent (Mag) Seven” refers to the most influential publicly traded technology-focused companies, and along with Broadcom represent the eight largest companies in the S&P 500. Alphabet led the group with a 55% gain this year, followed by Broadcom at 53% and Nvidia at 39%. In contrast, Tesla, Amazon, Apple and Meta trailed their peers, and the broader market.¹

Sources: U.S. Bank Asset Management Group Research, Bloomberg. Reflects total return from 12/31/22 to 12/31 24; and from 12/31/24 to 11/19/25. No taxes or fees are assumed.

Technology companies often experience volatility and periods of weaker returns. Early in 2025, DeepSeek—a Chinese artificial intelligence (AI) platform— demonstrated comparable performance with the popular ChatGPT service while requiring much less computing power and energy use. ² This development raised risks for established American tech firms, as markets did not initially anticipate such competitive developments. Investors responded by raising expectations for AI growth, even as firms reduced semiconductor demand on the news. Despite initial pressure from tariffs and profitability concerns, resilient consumer spending and robust corporate investment in AI infrastructure pushed the S&P 500 to new highs.

Are tech stocks vulnerable?

Ongoing AI developments introduce uncertainty, but companies across industries continue to find new AI uses, keeping the outlook positive. “Businesses are investing heavily in technology to boost productivity and profitability, with spending shifting from consumers to business-to-business investment,” says Terry Sandven, chief equity strategist with U.S. Bank Asset Management Group.

Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group, notes that investors are increasingly concerned with technology stock valuations. “In the long run, these valuations look reasonable, but in the short run, we have questions to overcome.” He highlights questions such as, “How will global tariffs affect the macroeconomic environment? What should AI development cost considering new competition?  Are business use cases expanding at a pace that requires continued robust capex spending?”

Despite valuation concerns, recent quarterly results have exceeded expectations, supporting higher stock prices. Do elevated tech stock valuations make them more vulnerable if markets exhibit significant weakness? “It would take a meaningful earnings deterioration or a resurgence in inflation for that to occur, which doesn’t seem likely given current conditions,” says Haworth.

Tech stocks remain popular

The technology sector’s innovation continues to attract investors. “Fast is getting faster, and speed, scale and efficiencies don’t happen without technology,” notes Sandven. Communications services and information technology have consistently outperformed the broader S&P 500 in recent years, despite higher volatility, and this trend continues in 2025.³

“Technology companies offer strong earnings growth potential and some industries within the sector are less sensitive to the business cycle,” says Haworth. “Secular, rapid business growth can drive significant performance gains.” AI spending is poised to continue driving future technology sector growth. “It’s the major sector investment story vis-a-vis build out, hardware, infrastructure, software and ultimately, implementation,” says Haworth. “Diminishing benefits to AI investing, however, will likely vary significantly by industry,” he notes.

How tech stocks have generated wealth

Tech stocks posted an impressive track record in recent years. A hypothetical $100,000 investment in the S&P 500 communications services and information technology index in 2018 would have grown to over $480,000 by 2025, far surpassing the S&P 500’s overall return.³

Recent technology stock volatility is not unusual or surprising, given the previous two years’ outsized results. Haworth notes that technology stocks tend to fluctuate in price more than the rest of the market. “Today’s elevated valuations indicate some risk, but also potential future growth opportunities.”

The future of technology stocks

Despite short-term volatility, Sandven remains optimistic about technology’s long-term potential. “Companies are seeking growth through technology investments rather than hiring,” says Sandven. He adds, “Data fuels AI, and firms involved in chip design, data capture, storage, processing, software analytics, security and data center electrification are well-positioned for future growth.”

U.S. Bank Asset Management Group recommends a selective approach to technology stocks. While some startups succeed spectacularly, many do not. Investors should align their portfolios with their goals, time horizons, and risk tolerance, and consult their financial professionals for guidance.

The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. It is an unmanaged index and direct investment in the index is not possible.