Investing in tech stocks: Is now a good time?

Technology influences the market more than most investors realize, and that influence shows up quickly when leadership shifts. In 2025, information technology (24%), communication services (34%), and industrials (19%) outpaced the S&P 500’s 18% return and the NASDAQ Composite’s 21% return, ¹ underscoring how a few sectors can steer broader market performance. For investors, that leadership matters because sector winners often shape both opportunity and volatility across diversified portfolios.

Tech’s market footprint keeps getting bigger

Information technology stocks make up over a third of the S&P 500’s market capitalization, while communication services represent another 10%, ² so market performance often reflects what happens in a relatively small slice of mega-cap companies. That concentration can lift returns when leadership stays intact, but it can also magnify volatility when expectations shift. Investors who hold broad equity market exposure may already own a sizeable “tech tilt”, even without an explicit technology allocation.

The “Magnificent Seven” still drives the conversation

The “Magnificent (Mag) Seven” refers to the most influential publicly traded technology-focused companies, and together with Broadcom represent the eight largest companies in the S&P 500. Alphabet led the group with a 66% gain in 2025, followed by Broadcom at 50% and Nvidia at 39%, while Apple, Microsoft, Amazon, Meta Platforms and Tesla trailed their peers and the broader market. ¹ This dispersion matters because market concentration does not guarantee uniform returns – company fundamentals and valuation discipline still differentiate winners from laggards. While technology-oriented stocks still drove 2025 market performance, returns were more subdued than the prior two years.

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

Are tech stocks vulnerable?

AI innovation continues to accelerate, and that speed brings both opportunity and uncertainty as new competitors and use cases emerge. Early in 2025, DeepSeek—a Chinese AI platform— demonstrated comparable performance with the popular ChatGPT service while requiring much less computing power and energy use, and markets did not initially price in that kind of competitive pressure. ³ Investors responded by raising AI growth expectations even as firms reduced semiconductor demand on the news, showing how quickly narratives can shift – and how quickly prices can follow.

Valuations, tariffs, and the cost of AI

“Businesses are investing heavily in technology to boost productivity and profitability,” 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, points to concern about technology stock valuations and adds, “In the long run, these valuations could be reasonable, but in the short run, we have questions to overcome.” He highlights key unknowns: “How will global tariffs affect the macroeconomic environment? What should AI development cost considering the presence of new competition? Are business use cases expanding at a pace that requires continued robust capex spending?” Those questions frame the near-term debate: strong themes can persist, but valuations demand consistent execution.

What could trigger meaningful downside?

Despite valuation concerns, recent quarterly results have exceeded expectations, which has supported higher stock prices. The bigger risk typically arrives when earnings weaken broadly or when macro conditions change that compress valuations across the market. “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

Investors continue to gravitate toward technology because innovation can translate into scalable earnings growth, even if price swings feel uncomfortable along the way. “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 that trend continued in 2025. ²

Why the theme persists: Productivity, capex, and selective opportunity

“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,” and AI spending may continue to fuel future growth through hardware, infrastructure, software, and implementation. At the same time, Haworth notes that “Diminishing benefits to AI investing will likely vary significantly by industry,” which reinforces why selectivity matters as the theme matures.

How tech stocks have generated wealth

Technology’s compounding effect has been powerful over time, and the numbers help explain why the sector commands so much attention. 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 That outperformance comes with a tradeoff: tech stocks often fluctuate more than the rest of the market, and strong stretches can set up periods of consolidation.

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

Even with short-term volatility, technology’s long-run case often rests on how quickly it improves productivity and reduces friction across the economy. Sandven remains optimistic and explains, “Companies are seeking growth through technology investments rather than hiring,” says Sandven. He adds, “Data fuels AI,” and points to firms involved in chip design, data capture, storage, processing, software analytics, security and data center electrification as areas well-positioned for future growth.

What a “selective approach” looks like in practice

U.S. Bank Asset Management Group recommends a selective approach because outcomes vary widely - some startups succeed spectacularly, while many do not. Investors can improve decision quality by aligning technology exposure with goals, time horizons, and risk tolerance rather than chasing recent winners. Investors should also consult with their financial professionals for guidance, especially when volatility or valuation concerns arise.

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.

FAQs

What are technology stocks?

Technology stocks include companies that actively push the boundaries of innovation in both current and emerging fields. These businesses range from those building computer hardware and software to firms developing internet platforms and medical devices. By investing in technology stocks, you tap into a sector that consistently shapes market trends and captures investor interest across the globe.

Why are technology stocks up in value?

Investors drove technology stocks higher from the 2010s through 2021 by capitalizing on low interest rates and plentiful market liquidity. This environment made growth stocks especially attractive, with many people focusing on future earnings rather than immediate profits. Although rising inflation and interest rates drove a sharp tech stock correction in 2022, excitement returned in 2023, 2024 and 2025, especially for companies leading advances in artificial intelligence (AI). ³

Are technology stocks a good buy?

Technology stocks mostly maintained strong momentum from 2023, except for a brief dip in the third quarter of 2024. In early 2025, these stocks lagged the broader market, but many technology-oriented companies still hold high valuations. ³ If you’re considering investing, take time to evaluate whether a tech stock is attractively priced—some offer compelling value, especially those with steady revenue and earnings growth, while others may not. Always consult with your financial professional before making investment decisions.