Investing in tech stocks: Is now a good time?

Technology plays a larger role in the market than many investors realize. While performance in 2026 has been impacted by the war with Iran, in 2025, Information Technology returned 24% and Communication Services returned 34%, both ahead of the S&P 500’s 18% gain and the Nasdaq Composite’s 21% return. ¹ Those results show how a relatively small group of companies can shape broader market performance and influence returns across diversified portfolios.

That influence also shows up in index weights. Information Technology represents more than one-third of the S&P 500’s market capitalization, while Communication Services adds another 10%. ² Investors with broad U.S. equity exposure may already hold a meaningful technology tilt, even if they have not made a dedicated allocation to the sector.

Why technology stocks still drive market leadership

Leadership in the technology sector remains powerful, but performance within the group is far from uniform. The largest technology-oriented stocks (known as the “Magnificent 7) along with Broadcom, Micron Technology and Advanced Micro Devices, have driven much of the market’s recent advance, yet the winners have changed over time and performance has varied widely from one company to the next. Micron Technology is leading the group with a 77% gain in 2026 (as of April 28), followed by Advanced Micro Devices at 51% and Broadcom at 16%, while Apple, Microsoft, and Tesla are trailing their peers with negative year-to-date returns. ¹

Sources: U.S. Bank Asset Management Group Research, Bloomberg. Reflects total returns 12/31/22-12/31/24; 12/31/24-12/31/25; and 12/31/25 to 4/28/26. No taxes or fees are assumed.

2025 results also reflected dispersion and shifting leadership from previous years. Micron gained 223%, Advanced Micro Devices was up 71%, Alphabet gained 66%, Broadcom rose 49%, and Nvidia returned 39%, while Apple, Microsoft, Amazon, Meta Platforms, and Tesla lagged those leaders by a wide margin. ¹ While technology-oriented stocks still drove 2025 market performance, returns were more subdued than the prior two years.

Investing in technology means investing in productivity and innovation

The long-term case for investing in technology starts with business demand. Companies continue to invest in tools that can improve productivity, expand margins, and support earnings growth over time. That spending reaches across hardware, software, infrastructure, communications platforms, and the systems that power artificial intelligence.

Terry Sandven, chief equity strategist with U.S. Bank Asset Management Group, puts it simply: “Businesses are investing heavily in technology to boost productivity and profitability.” He also notes, “Fast is getting faster, and speed, scale and efficiencies don’t happen without technology.” Those statements help explain why the sector continues to attract investor attention even when short-term volatility picks up.

How Artificial Intelligence is shaping technology stock opportunities

Artificial intelligence (AI) has become one of the most important drivers of technology spending. Companies are directing billions of dollars toward AI-related capital expenditures, especially in compute infrastructure and data centers, which has supported semiconductor and component suppliers. At the same time, investors are watching closely to see how quickly those investments turn into durable revenue and profit growth.

AI is also creating pressure in other parts of the market. Some software companies face questions about whether AI can reduce headcount needs, lower the number of software licenses companies buy, or change the value of existing products. That mix of opportunity and disruption helps explain why technology stocks can remain attractive while still experiencing sharper swings than the broader market.

Valuations, competition, and the cost of AI

Valuation remains one of the most important issues in the sector. Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group, says, “In the long run, these valuations could be reasonable, but in the short run, we have questions to overcome.” He adds that investors should keep asking, “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?”

High valuations leave less room for disappointment. When investors expect rapid growth, even solid earnings results may not be enough if adoption slows or returns on spending take longer to emerge. A strong long-term theme can stay intact, but the path forward may still include periods of volatility and repricing.

What could create downside risk for technology stocks

Technology stocks have delivered strong long-term returns, but they also tend to fluctuate more than the rest of the market. Recent quarterly results have generally supported higher stock prices, which have helped sustain confidence in the sector. Even so, elevated expectations mean investors should stay realistic about the risk of pullbacks when growth slows or sentiment changes.

Haworth points to two main factors that could create more meaningful downside. He says, “It would take a meaningful earnings deterioration or a resurgence in inflation for that to occur, which doesn’t seem likely given current conditions.” That is a constructive backdrop, but it still supports a disciplined approach rather than a chase for short-term momentum.

A selective approach to investing in technology stocks

A selective approach remains the clearest message for investors. Technology companies can offer strong earnings growth potential, and some businesses in the sector are less sensitive to the business cycle than other parts of the market. Haworth notes, “Secular, rapid business growth can drive significant performance gains,” but he also warns that “Diminishing benefits to AI investing will likely vary significantly by industry.”

That distinction is important because not every company will convert technology spending into lasting shareholder value. Some businesses will benefit from stronger demand, better margins, and wider adoption, while others may struggle with competition, execution risk, or prices that already reflect aggressive growth expectations. Investors can improve decision-making by aligning any technology exposure with their goals, time horizon, and tolerance for volatility.

Why long-term investors still watch the technology sector closely

Technology’s long-term wealth-building record helps explain why the sector remains so important. A hypothetical $100,000 investment in the S&P 500 Communications Services and Information Technology indices in 2018 would have grown to more than $528,000 by April 2026, compared with about $250,000 for the broader S&P 500. ¹ That difference highlights the power of sustained earnings growth and innovation, even though the ride can be less stable along the way.

The longer-term case still rests on how effectively technology reduces friction across the economy and helps companies grow without relying only on larger workforces. Sandven says, “Companies are seeking growth through technology investments rather than hiring,” and adds, “Data fuels AI.” He points to chip design, data capture, storage, processing, software analytics, security, and data center electrification as areas that may remain well positioned as the technology theme evolves.

Why technology plays a central role in equity markets

In recent years, technology stocks have been the engine of stock market performance. Information technology stocks are the largest sector in the benchmark S&P 500 Index, accounting for approximately one-third of the index’s market capitalization. As a result, technology stock performance will have a disproportionate impact on overall market performance. In recent years, profit growth among prominent technology stocks has driven S&P 500 earnings expansion, helping boost overall returns.

What distinguishes technology companies from other sectors

The technology sector is unique in that many companies in it don’t require a massive physical footprint. While large research and development (R&D) investments are common, technology firms typically have lower capital requirements than industrial companies. The marginal cost of serving the one millionth customer for a software or digital services company is virtually zero, compared with the increased investment in raw materials, shipping, and labor that a manufacturing company must make to reach the same level. Much of the value of a technology company is held in its intellectual property.

Growth potential and risk trade offs in technology investing

Technology investing is typically viewed as one of the most attractive growth-oriented equity investment opportunities, but it also carries a higher risk of price volatility than most other sectors. Over certain periods, technology stocks generate significant returns that far outpace the rest of the market. For example, according to S&P Dow Jones Indices, from 2016 through 2025, the S&P 500 Communication Services and Information Technology sector generated double-digit total returns in eight of the ten years, peaking at 57.4% in 2023. However, it had two years of negative performance, including a 31.2% decline in 2022. The data reflects the degree of volatility technology stocks are subject to.

Why technology investing often requires a long term perspective

Investors primarily seek long-term technology growth, as these companies tend to prioritize future potential over current results. Historically, technology companies thrive on innovation, and the payoff often comes down the road rather than immediately. This can require significant upfront investments that may dampen short-term earnings, with the expectation of greater future earnings. Technology stocks often trade at higher price-to-earnings multiples than the broader market average, reflecting expectations of future growth.

For investors, that means the most productive strategy may be a thoughtful one rather than an aggressive one. The technology sector still offers meaningful long-term opportunity, but success is likely to depend on selectivity, discipline, and a willingness to look past short-term noise. Investors should also consult with their financial professionals for guidance, especially when volatility or valuation concerns arise.

FAQs

What are technology stocks?

Technology stocks are shares of companies that build or support digital tools, computing systems, software, semiconductors, internet platforms, and related services. These businesses often help other companies improve productivity, lower costs, or create new products and services. For investors, the sector can offer strong growth potential, but it also tends to bring more price volatility than the broader market.

Why are technology stocks up in value?

Technology stocks have benefited from years of strong investor interest, especially during periods when markets rewarded future earnings growth. More recently, excitement around artificial intelligence, digital infrastructure, and productivity-enhancing tools has added support to the sector. Investors continue to focus on companies that can turn innovation into stronger revenue, wider margins, and long-term earnings growth

Are technology stocks a good buy right now?

Technology stocks can still make sense for investors, but this is not a sector where broad enthusiasm alone should drive decisions. Many companies continue to offer attractive long-term growth potential, yet valuations remain high and outcomes are likely to vary widely across businesses. A selective approach can help investors focus on companies with durable earnings growth, reasonable valuations, and business models that can benefit from ongoing technology adoption.