The technology sector continued its winning streak in 2024, driving exceptional stock market performance. The Nasdaq Composite Index, with more than 50% weightage in technology stocks, outpaced the broader S&P 500 and Dow Jones Industrial Average indexes year to date.
While the S&P 500 has risen nearly 23% and the Dow Jones Industrial Average 12.3%, the Nasdaq has surged more than 29.1% so far in 2024, showcasing the dominance of tech companies. This impressive rally came amid a year marked by global economic uncertainties and shifting investor sentiment.
What Drove the Tech Sector's Outperformance in 2024?
Several factors propelled the technology sector's stellar performance this year. A major driver was the explosive growth in artificial intelligence (AI) applications and infrastructure. Companies leading AI innovations captured significant market share as enterprises embraced generative AI, large language models and AI-driven analytics. Semiconductor companies played a crucial role, benefiting from the rising demand for high-performance computing (HPC) solutions and AI accelerators.
Cloud computing also remained a growth catalyst, with businesses increasingly transitioning workloads to the cloud to enhance efficiency and reduce costs. Major cloud providers capitalized on this trend, reporting robust revenue growth. Meanwhile, the resurgence of enterprise IT spending, especially in cybersecurity and data analytics, added to the sector's momentum.
Investor confidence was bolstered by improving macroeconomic conditions. The initiation of interest rate cuts by the Federal Reserve and improving inflationary conditions allowed growth stocks, particularly in tech, to thrive. As global supply chains stabilized, the hardware segment rebounded, contributing to the sector's overall strength.
Why the Momentum Will Continue in 2025
The long-term growth prospects of the technology sector look promising owing to continued digital transformations. The adoption of AI technologies will accelerate, driven by advancements in generative AI, robotics and automation. These innovations will fuel demand for chips, software and cloud services, benefiting tech giants with strong AI portfolios.
Enterprises will continue their migration to the cloud, driving growth for cloud service providers and enterprise software companies. Hybrid and multi-cloud solutions are expected to gain prominence. Rising cyber threats will compel businesses and governments to allocate higher budgets for advanced security solutions, boosting growth for cybersecurity firms. The accelerated deployment of 5G technology — the next-generation wireless revolution — is likely to spur further growth. Apart from this, blockchain, the Internet of Things, autonomous vehicles, AR/VR and wearables offer significant growth opportunities.
The latest forecast for worldwide IT spending by Gartner is a positive for tech stocks. Despite the ongoing macroeconomic and geopolitical challenges, the independent research firm forecasts worldwide IT spending to increase 9.3% year over year to $5.74 trillion in 2025.
Investors should look for fundamentally strong technology stocks that could sustain market jitters and ensure solid portfolio returns. In our opinion, Twilio Inc. TWLO, Dropbox, Inc. DBX, Zoom Communications Inc. ZM, QUALCOMM Incorporated QCOM and NVIDIA Corporation NVDA are among the stocks that could skyrocket in 2025. These stocks have a lower forward 12-month price-to-earnings (P/E) multiple than their respective industry averages.
Moreover, these stocks have a favorable combination of a VGM Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy). Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 or #2 and a VGM Score of A or B offer solid investment opportunities.
Our Picks
Twilio is benefiting from accelerated digital transformations amid a growing hybrid working trend. Its selective acquisitions and strategic investments in businesses and technologies are enhancing its product portfolio and fortifying its global presence. The company is gaining traction not only from a solid expansion of its existing clientele but also from first-time deals with new customers due to its firm focus on introducing products and a go-to-market sales strategy. Its ongoing cost-saving initiatives are driving profits and margins, which is praiseworthy.
The stock sports a Zacks Rank #1 and has a VGM Score of B at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
TWLO stock trades at a P/E multiple of 24.77X, lower than the Zacks Internet – Software industry’s 35.24X. The Zacks Consensus Estimate for Twilio’s 2025 earnings has been revised upward to $4.30 per share from $3.89 in the past 60 days. The long-term estimated earnings growth rate for the stock stands at 41.8%.
Twilio Inc. Price and Consensus
Twilio Inc. Price and Consensus
Twilio Inc. price-consensus-chart | Twilio Inc. Quote
Dropbox is a leader in the content sharing and collaboration applications category. It is benefiting from an expanding user base and strong average revenue per paying user (ARPU) growth. The company currently supports more than 700 million registered users through its FSS plans and has a better market share than Apple and Box. It has a strong balance sheet and generates robust free cash flow. The stock sports a Zacks Rank #1 and has a VGM Score of B.
DBX stock trades at a P/E multiple of 11.39X, lower than the Zacks Internet - Services industry’s 21.88X. The Zacks Consensus Estimate for Dropbox’s 2025 earnings has been revised upward by 23 cents to $2.62 per share over the past 60 days. The long-term estimated earnings growth rate for the stock stands at 12%.
Dropbox, Inc. Price and Consensus
Dropbox, Inc. Price and Consensus
Dropbox, Inc. price-consensus-chart | Dropbox, Inc. Quote
Zoom's AI innovation, strong enterprise growth and robust financials signal upside potential. Easy to deploy, use and manage, and solid scalability continue making Zoom’s software more popular among its customers. Zoom’s expanding international presence is a key catalyst for acquiring new customers and expanding across existing customers. Its strong free cash flow generating ability is noteworthy. The stock sports a Zacks Rank #1 and has a VGM Score of B.
ZM stock trades at a P/E multiple of 15.87X, lower than the Zacks Internet - Software industry’s 35.24X. The Zacks Consensus Estimate for Zoom’s fiscal 2025 earnings has been revised upward by a penny to $5.43 per share over the past seven days. The long-term estimated earnings growth rate for the stock stands at 5.4%.
Zoom Communications, Inc. Price and Consensus
Zoom Communications, Inc. Price and Consensus
Zoom Communications, Inc. price-consensus-chart | Zoom Communications, Inc. Quote
QUALCOMM is increasingly focusing on the seamless transition from a wireless communications firm for the mobile industry to a connected processor firm for the intelligent edge. The company is witnessing healthy traction in EDGE networking that helps to transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables and tablets. The stock carries a Zacks Rank #2 and has a VGM Score of A.
QCOM stock trades at a P/E multiple of 13.21X, lower than the Zacks Wireless Equipment industry’s 20.24X. The Zacks Consensus Estimate for QUALCOMM’s fiscal 2025 earnings has been revised upward by 3 cents to $11.14 per share over the past 30 days. The long-term estimated earnings growth rate for the stock stands at 6.6%.
NVIDIA is benefiting from the strong growth of artificial intelligence (AI), high performance and accelerated computing. The data center end-market business is benefiting from the growing demand for generative AI and large language models using graphic processing units based on NVIDIA Hopper and Ampere architectures. The stock carries a Zacks Rank #2 and has a VGM Score of B at present.
NVDA stock trades at a P/E multiple of 32.66X, lower than the Zacks Semiconductor – General industry’s 34.36X. The Zacks Consensus Estimate for NVIDIA’s fiscal 2025 earnings has been revised upward by a penny to $2.94 per share over the past seven days. The long-term estimated earnings growth rate for the stock stands at 20%.
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