Investing in Tech Stocks

The technology sector is vast, comprising gadget makers, software developers, wireless providers, streaming services, semiconductor companies, and cloud computing providers, to name just a few. Any company that sells a product or service heavily infused with technology likely belongs to the tech sector.

What are tech stocks?

What are tech stocks?

Software companies are increasingly moving to a software-as-a-service (SaaS) model in which customers buy a subscription to a program instead of a one-time license. The arrangement generates recurring revenue for the software company.

Semiconductor chips largely power the hardware. Semiconductor companies design and/or manufacture central processing units (CPUs), graphics processing units (GPUs), memory chips, and a wide variety of other chips that help to run today's devices.

Telecom companies that provide wireless services support the tech sector, but actually belong to the communications sector; so do the video streaming companies that provide easy access to high-quality content, and the cloud computing providers that power those streaming services.

Our list of stocks

The best tech stocks in 2025

Many of the most valuable companies in the world are technology companies. Here are three of the most dominant and largest tech stocks that investors should consider:

1. Microsoft

1. Microsoft

Microsoft (MSFT 0.22%) is a dominant software company known for its Windows PC operating system and Office productivity software. Microsoft is also the second-largest provider of cloud infrastructure, and it provides AI exposure through Copilot, which is available in many different Microsoft products.

2. Apple

2. Apple

Apple (AAPL -0.28%) makes the iPhone, iPad, and Mac computers. Intense customer loyalty ensures plenty of repeat customers, and a growing array of services makes Apple's ecosystem sticky.

3. Nvidia

3. Nvidia

Nvidia (NVDA -0.02%) is the premier manufacturer of semiconductors and advanced GPUs critical for not only gaming, but also for AI applications.

The current market

Tech stocks in the current market

Technology stocks, as tracked by the Technology Select Sector SPDR Fund (XLK 0.15%), which follows S&P 500 technology stocks, have strongly outperformed for the past several years, and the trend has continued in 2025.

While the S&P 500 climbed 7.8% in the first seven months of 2025, the Technology Select Sector SPDR Fund ripped 13% higher during the same period.

With the market downturn in April in the rearview, investors returned to growth stocks as the market remained keenly focused on tech stocks that have a focus on artificial intelligence (AI). It was less interested in conservative options such as stocks in the utilities and consumer staples sectors.

Multiple companies have committed to accelerating their AI spend or are in the process of commercializing more AI products. Here are a few highlights:

• Nvidia: Nvidia has seen massive increases in quarterly revenue, largely driven by data center revenue for generative AI training and inference. In the first quarter of 2026, for example, Nvidia reported quarterly data center revenue of $39.1 billion, a year-over-year increase of 73%. Nvidia's GPUs are at the forefront of the AI revolution, making it a key player in the tech sector.
  
• Microsoft: Microsoft has reported double-digit growth in revenue, operating income, net income, and diluted earnings per share (EPS). This growth is largely attributed to the integration and use of AI in its products, such as Copilot, which is driving stronger AI integration and increased usage of Microsoft Cloud, including Azure and Intelligent Cloud. Microsoft returned $9.4 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2025.
  
• Apple: In August 2025, Apple announced a further $100 billion commitment -- adding to the $500 billion it plans to allocate to developing projects located in the United States over the next four years. Included in the various U.S.-based projects, Apple is developing an advanced manufacturing facility in Houston. Expected to open in 2026, the Houston facility will produce servers that support the company's AI initiative, Apple Intelligence.

Related investing topics

Analyzing tech stocks

How to analyze tech stocks

For mature tech companies that produce profits, the price-to-earnings (P/E) ratio is a useful metric. Divide the stock price by per-share earnings, and you get a multiple that tells you how highly the market values the company's current earnings. The higher the multiple, the more value the market is placing on future earnings growth.

Many tech companies aren't profitable, so the price-to-earnings ratio isn't a good metric to evaluate them. Revenue growth matters more for younger companies. If you're investing in something unproven, you want to make sure it has solid growth prospects.

For unprofitable tech companies, it's also important that the bottom line is moving from losses toward profits. As a company grows, it should become more efficient, especially when it comes to the sales and marketing spending necessary to close deals. If it's not, or if spending is growing as a percentage of revenue, that could indicate something is wrong.

Ultimately, a good tech stock is one that trades at a reasonable valuation, given its growth prospects. Accurately figuring out those growth prospects is the hard part. If you expect earnings to skyrocket in the coming years, paying a premium for the stock can make sense. But if you're wrong about those growth prospects, your investment may not work out.

Investing in an exchange-traded fund (ETF) that focuses on tech stocks is one way to avoid making mistakes. The iShares Expanded Tech Sector ETF (IGM 0.29%) is a comprehensive option at a 0.41% expense ratio.

Investing in tech stocks can be risky, but you can reduce your risk by investing only when you feel confident that their growth prospects justify their valuations.