Can Tech Lead in the Second Half of 2025?
Bret Kenwell | Jun 27, 2025 09:13AM ET
Tech stocks have come roaring back to life, surging 21.5% in the second quarter. For investors, the rally offers a much-needed break after a rough stretch: tech was the worst-performing sector from Q3 2024 through Q1 2025, falling roughly 7.5% over that period.
Leading the comeback are Microsoft (NASDAQ:MSFT) and Nvidia (NASDAQ:NVDA), which now boast a combined market cap of $7.5 trillion. They were the only two members of the Magnificent 7 to notch new record highs during the quarter, reinforcing their dominance and reigniting enthusiasm across the broader tech landscape.
As we turn the page to the second half of the year, a key question arises: Can tech sustain this momentum?
The sector carries the strongest expected earnings growth for 2025, at around 21%, and holds the second-highest growth forecast for 2026. That growth outlook, combined with renewed investor appetite, could help extend the rally — but it’s far from guaranteed.
AI Is Helping Fuel the Rally
The ongoing AI boom and semiconductor strength continue to drive much of tech’s narrative. Growth stocks have been energized by AI developments, while cybersecurity names have also maintained strong uptrends. At the same time, mega-cap tech companies are ramping up spending to build the next wave of AI infrastructure, further validating the theme’s staying power.
Meanwhile, semiconductor stocks — a cornerstone of the AI trade — are gaining steam. Nvidia and Broadcom (NASDAQ:AVGO) have recently reached new all-time highs, while Taiwan Semiconductor sits just shy of its own. Even previously beaten-down chipmakers like AMD (NASDAQ:AMD), ASML (AS:ASML), and Lam Research (NASDAQ:LRCX) have shown meaningful signs of life.
With tech accounting for over 30% of the S&P 500’s weighting, its direction is critical for the broader market. If the sector holds its footing, it could — at the very least — help stabilize a stock market still recovering from early-2025 volatility. At best, it could fuel another leg higher into year-end.
What Investors Should Consider
Tech’s prior underperformance helped ease valuation concerns, even as the sector continued to deliver steady growth. The second quarter may have marked a turning point — or it may prove to be a temporary rebound. The risk? A return to lagging performance. The opportunity? That tech reclaims its leadership role and drives gains through the rest of 2025.
The Setup — Technology ETF
Many investors think of the QQQ ETF as the go-to technology ETF. While its top holdings are made up of many popular mega-cap tech names, its performance actually tracks the Nasdaq 100, and it contains stocks like Costco (NASDAQ:COST), Starbucks (NASDAQ:SBUX), PepsiCo (NASDAQ:PEP), and Booking Holdings (NASDAQ:BKNG).
Get The News You Want
Meanwhile, the XLK is the technology ETF, and it has clearly broken out over the $235 to $240 resistance area.
Chart as of the close on 6/26/2025. Source: eToro ProCharts, courtesy of TradingView.
If investors believe that technology stocks will continue to rise, this ETF (or the QQQ) could be one way to approach these stocks. In either case, bulls will want to see tech stocks hold up above prior resistance. For the XLK, that means staying above the $235 to $240 zone.
If it can do so, perhaps tech can maintain momentum through earnings season in late July and early August, and into the second half of the year. Aggressive bulls might start accumulating the ETF now, while more conservative bulls could wait for some sort of pullback as the XLK is in the midst of its fifth straight weekly rally.
However, should tech stocks lose momentum and the ETF break below this $235 to $240 zone, a larger pullback could ensue.
Options
Buying calls or call spreads may be one way to speculate on more upside, either amid the breakout or on a pullback. For call buyers, it may be advantageous to have adequate time until the option’s expiration.
For those who aren’t feeling so bullish or who are looking for a deeper pullback, puts or put spreads could be one way to take advantage.
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