The technology sector is on track to be the highest-returning S&P 500 sector of stocks in 2025. This outperformance can in part be explained by better-than-average earnings revisions for the sector relative to the broader market. And this fundamental strength in tech stocks has been led by the largest companies in the sector.
A Strong Year
Tech stocks look like they’ll once again outperform the market in 2025. Through Thursday’s close, XLK (the S&P 500 technology sector ETF) has returned 27.3% so far in 2025, as shown below. That’s a sizable advantage compared to the S&P 500’s return of 17.6%, and well clear of the second closest sector, Communication Services, return of 20.7%.
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Driven By Fundamentals
The table also details the change in FactSet’s consensus earnings estimates for each sector from the start of the year. Negative revisions for this year’s earnings estimates are not uncommon – analysts often come into the new year bullish on a company’s prospects, and management tries to lower the bar to beat expectations. So the S&P 500’s negative one percent EPS revision for 2025 earnings since the start of the year isn’t anything out of the ordinary. However, investors may want to pay attention to which sectors are outperforming or underperforming the benchmark’s revisions as a sign of strength or weakness.
Tech stocks stand out on this measure, with the sector seeing a positive 2.1% revision to its 2025 earnings expectations from the start of the year. Only four of the eleven S&P sectors can claim this strength in 2025, and tech ranks third.
The positive revision in technology’s earnings estimate has been driven by the largest stocks in the sector. As shown below, the four largest stocks have all seen positive earnings revisions since the start of the year. What’s more, investors in technology stocks appear to have become even more bullish on 2026’s prospects, as earnings estimates for next year have drastically outpaced 2025’s revisions. Perhaps this is another reason why tech stocks have been so strong this year as investors look to 2026.
Even Good Years Can Have Bad Days
If investors sought to own technology stocks with the correct belief that earnings estimates would outpace the market, they may have expected the stocks to have positive returns on the day after their earnings reports. Unfortunately, this hasn’t been the case this year. Tech stocks performed poorly on the day following their earnings reports, as shown below. The four largest stocks in the technology sector have each reported quarterly earnings four times a year, for a total of 16 ‘post-earnings’ days. There have only been five positive reactions in these 16 instances, and they’ve collectively seen an average return of -0.7% on the day following their earnings reports. I’m reminded of the phrase ‘investing is in the waiting,’ and that appears to be the case for tech stocks throughout the course of 2025.
The technology sector is the highest-returning S&P 500 sector so far in 2025. This outperformance has been driven by positive earnings revisions, whereas the broader market has seen negative earnings revisions. Tech’s fundamental outperformance has been driven by the sector’s largest companies, with the four largest all seeing positive 2025 earnings revisions and even more robust 2026 revisions. While tech’s fundamental story was strong this year, that didn’t translate to positive returns on the day following their earnings reports.
For more content by Blake Anderson, CFA®, Associate Portfolio Manager, click here.
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