Investing in tech stocks: Is now a good time?

Technology stocks continue to lead the market in 2025, building on strong 2023 and 2024 returns. By October 21, 2025, the Information Technology sector gained 23%, and the tech-focused Communication Services sector increased 25%. Both sectors have outperformed the S&P 500’s 15% return and the NASDAQ Composite’s 19% return. ¹

Technology sector trends significantly influence broader market performance. Information Technology stocks now make up about one-third of the S&P 500’s market capitalization while Communication Services companies account for another 10%. All 11 S&P 500 sectors have posted positive returns this year, with seven sectors rising at least 12%. Five of the S&P 500’s largest seven companies — the “Magnificent Seven” — have climbed 23% or more. Broadcom leads with a 49% gain, followed by NVIDIA at 35% and Alphabet at 33%. Apple and Amazon have lagged peers. ¹

Technology companies often experience volatility and periods of weaker returns. Early this year, DeepSeek, a Chinese-developed artificial intelligence (AI) platform, demonstrated competitive performance at lower cost with less energy consumption, highlighting risks for incumbent American tech firms. Investors responded by increasing AI application growth expectations even as processing chip demand slowed. While tariffs and profitability concerns initially pressured share prices, consumers’ resilient spending, firms’ robust AI infrastructure expenditures, and strong corporate profit growth has pushed the S&P 500 to new highs.

Are tech stocks vulnerable?

Ongoing AI developments introduce uncertainty to the Technology sector, but the general outlook remains favorable. AI and cloud computing now drive a significant share of corporate spending, with companies investing heavily in the technologies to boost productivity and profitability. “We’re seeing information technology spending not just from consumers, but on a business-to-business basis,” says Eric Freedman, chief investment officer for U.S. Bank Asset Management Group. “That’s where companies are disproportionately spending their capital.”

Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group, notes that investors increasingly focus on technology stock valuations. “In the long run, these valuations look fine, 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 applications expanding at a pace that requires continued robust capex spending?”

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,” says Terry Sandven, chief equity strategist with U.S. Bank Asset Management Group. 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.

“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. However, Haworth notes, “Diminishing benefits to AI investing will likely vary significantly by industry.

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 on December 31, 2018, grows to more than $480,000 by 2025, far surpassing the return of the same amount invested in the S&P 500 over the same period. ²

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.