Nasdaq-100 Surges 37% in 2025, AI Boom Drives Tech Sector Recovery

Goldman Sachs' top TMT expert has observed that as of mid-2025, the U.S. technology sector has returned to its state from the previous year. The expert highlighted that the AI boom is once again dominating the market, with investors seizing opportunities to buy on dips. The Nasdaq-100 Index has shown a strong rebound of 37% in the first half of the year, recovering lost ground and entering an overbought territory. This resurgence in the technology sector is largely driven by the renewed interest in AI, which has become a focal point for market activity. The expert's observations underscore the cyclical nature of the technology market, where periods of decline are often followed by robust recoveries, particularly when driven by innovative technologies like AI.

The expert noted that the Nasdaq-100 Index, after experiencing a 25% peak-to-trough decline at the beginning of the year, has rebounded strongly by 37%, entering an overbought territory with a 14-day RSI reaching 73, the highest level since July 2024. This momentum has led to comparisons with the peak frenzy of the summer of 2024. Despite the market's high sentiment and the absence of clear short-term negative catalysts, the overbought status and seasonal volatility could pose challenges in the third quarter.

The AI boom has been a significant driver of the technology sector's performance. Core AI stocks such as NVIDIA, Meta, and Microsoft have shown strong performance, while other tech giants like Apple, Amazon, and Google have lagged behind. The expert pointed out that the market's expectation for a reversal in the performance of lagging stocks is not strong, with investor sentiment favoring "clean, popular, and effective" stocks like Microsoft and NVIDIA, while showing less confidence in Amazon and Google. Additionally, the market anticipates that a potential rate cut by the Federal Reserve could benefit cyclical stocks, providing a relatively favorable environment for technology stocks.

The expert also mentioned that the market has recently exhibited a "buy on dips" pattern, with the Nasdaq-100 Index experiencing only three instances of a 1% or more single-day decline since the April low, indicating strong buying support. While the current valuation levels are within a reasonable range, the overbought risk is becoming apparent. The Nasdaq-100 Index's 14-day RSI is around 73, the highest level since July 2024, which could lead to an early manifestation of seasonal volatility in July. Furthermore, the U.S. stock market has recorded net buying for eight consecutive weeks, but the Nasdaq-100's year-to-date gain is only 7%, with about 25% of its components showing negative performance, indicating potential market breadth issues.

Looking ahead to the second half of 2025, the technology sector and AI-related events will remain in the spotlight. Investors should pay close attention to developments in data center infrastructure and semiconductor AI sectors, in addition to quarterly earnings reports. While market sentiment is high, potential risks such as tariffs, geopolitical issues, and market breadth problems, although known, still require close monitoring. The expert's insights provide a comprehensive view of the current state of the technology sector, highlighting the importance of AI and the need for cautious optimism as the market continues to evolve.