Tech Stocks Surge 20% In Q2 2025 Driving Market Gains

Tech stocks concluded the second quarter with a strong performance, gaining more than 20%. This marked their best quarter since Q2 2020, following the COVID-19 selloff. The technology sector played a significant role in the overall market gains, with the S&P 500 up 10.6% and the Nasdaq 100 up 17.6%. Tech stocks, which command a ~33% weighting in the S&P 500 and more than a 60% weighting in the Nasdaq 100, were instrumental in driving these gains.

This strong performance was particularly welcome for retail investors, as tech stocks, along with financials and energy stocks, are among their favorite holdings. However, the performance of tech stocks is not always guaranteed. Over the years, tech stocks have been strong performers, especially during certain stretches like the first half of 2023, when tech and the Magnificent 7 were the primary drivers of market growth. The Nasdaq 100, for instance, returned 485% from 2014 to 2024, significantly outperforming the S&P 500’s 218% gain. Companies like Apple, Nvidia, Microsoft, Alphabet, and Meta have grown to market caps measured in trillions of dollars, highlighting their leadership in the sector.

Despite their strong performance, tech stocks are also prone to sluggish periods. From Q3 2024 through Q1 2025, technology was the worst-performing sector. In Q3 2024 and Q1 2025, tech was the second-worst performing group of the 11 S&P 500 sectors. Tech stocks tend to get hit hard during bear markets, despite including some of the biggest firms with robust balance sheets. This was evident during the 2025 “tariff tantrum,” the 2022 bear market, and the 2020 COVID selloff, where the Nasdaq underperformed the S&P 500.

Looking ahead to the second half of 2025, there are reasons for optimism in the tech sector. Consensus expectations call for 2025 earnings growth of roughly 21%, ahead of all other sectors. This follows a strong 2024, where tech was a leader in earnings growth at ~18%, second only to communications. For context, overall S&P 500 earnings grew about 10% last year. Looking further ahead to 2026, tech stocks are expected to generate earnings growth of ~18%, second only to energy, which is projected to grow earnings by 20% following a third consecutive year of negative growth in 2025.

Valuation concerns have eased to some degree as tech stocks underperformed in prior quarters while earnings grew at a healthy clip. The combination of strong earnings growth expectations, renewed semiconductor leadership, and AI serving as a bright, thriving catalyst suggests that the pieces may be in place for a strong finish to the year. The group may need the Magnificent 7 to get back in gear, as only Nvidia, Microsoft, and Meta hit record highs in Q2. If they do, tech could become the obvious yet under-the-radar play heading into year-end.