Can Tech Lead in the Second Half of 2025?

Tech has been the best-performing sector thus far in Q2. The Day by day Breakdown explores whether or not that momentum can proceed into Q3 and This autumn.

Friday’s TLDR

Tech has been a laggard
However was the highest sector in Q2
And now, it’s breaking out

What’s Occurring?

Tech shares have come roaring again to life, surging 21.5% within the second quarter. For buyers, the rally presents a much-needed break after a tough stretch: tech was the worst-performing sector from Q3 2024 by Q1 2025, falling roughly 7.5% over that interval.

Main the comeback are Microsoft and Nvidia, which now boast a mixed market cap of $7.5 trillion. They have been the one two members of the Magnificent 7 to notch new file highs throughout the quarter, reinforcing their dominance and reigniting enthusiasm throughout the broader tech panorama.

As we flip the web page to the second half of the 12 months, a key query arises: Can tech maintain this momentum? 

The sector carries the strongest anticipated earnings progress for 2025, at round 21%, and holds the second-highest progress forecast for 2026. That progress outlook, mixed with renewed investor urge for food, might assist lengthen the rally — but it surely’s removed from assured.

AI Is Serving to Gasoline the Rally

The continued AI increase and semiconductor energy proceed to drive a lot of tech’s narrative. Progress shares have been energized by AI developments, whereas cybersecurity names have additionally maintained robust uptrends. On the identical time, mega-cap tech firms are ramping up spending to construct the following wave of AI infrastructure, additional validating the theme’s endurance.

In the meantime, semiconductor shares — a cornerstone of the AI commerce — are gaining steam. Nvidia and Broadcom have just lately reached new all-time highs, whereas Taiwan Semiconductor sits simply shy of its personal. Even beforehand beaten-down chipmakers like AMD, ASML, and Lam Analysis have proven significant indicators of life.

With tech accounting for over 30% of the S&P 500’s weighting, its path is vital for the broader market. If the sector holds its footing, it might — on the very least — assist stabilize a inventory market nonetheless recovering from early-2025 volatility. At greatest, it might gas one other leg increased into year-end.

What Traders Ought to Take into account

Tech’s prior underperformance helped ease valuation considerations, even because the sector continued to ship regular progress. The second quarter could have marked a turning level — or it might show to be a brief rebound. The chance? A return to lagging efficiency. The chance? That tech reclaims its management position and drives positive aspects by the remainder of 2025.

Need to obtain these insights straight to your inbox?

Enroll right here

The Setup — Know-how ETF

Many buyers consider the QQQ ETF because the go-to know-how ETF. Whereas its high holdings are made up of many in style mega-cap tech names, its efficiency truly tracks the Nasdaq 100, and it accommodates shares like Costco, Starbucks, PepsiCo, and Reserving Holdings. 

In the meantime, the XLK is the know-how ETF, and it has clearly damaged out over the $235 to $240 resistance space. 

If buyers consider that know-how shares will proceed increased, this ETF (or the QQQ) could possibly be one technique to strategy these shares. In both case, bulls will wish to see tech shares maintain up above prior resistance. For the XLK, meaning staying above the $235 to $240 zone. 

If it will probably achieve this, maybe tech can preserve momentum by earnings season in late July and early August, and into the second half of the 12 months. Aggressive bulls may begin accumulating the ETF now, whereas extra conservative bulls might look forward to some form of pullback because the XLK is within the midst of its fifth straight weekly rally. 

Nevertheless, ought to tech shares lose momentum and the ETF breaks under this $235 to $240 zone, a bigger pullback might ensue. 

Choices

Shopping for calls or name spreads could also be one technique to speculate on extra upside — both amid the breakout or on a pullback. For name patrons, it might be advantageous to have sufficient time till the choice’s expiration. 

For those who aren’t feeling so bullish or who’re searching for a deeper pullback, places or put spreads could possibly be one technique to take benefit.

To study extra about choices, take into account visiting the eToro Academy.

Disclaimer:

Please be aware that because of market volatility, among the costs could have already been reached and eventualities performed out.