For most of the past decade, a handful of high-flying technology companies have pushed the US stock market to record highs and become cornerstones of investment portfolios. But that’s collapsed this year.
Despite the S&P 500 Index (^GSPC) clawing back into the green for 2025 after being whipsawed by President Donald Trump’s vacillating trade policies, tech giants like Apple Inc. (AAPL), Alphabet Inc. (GOOG, GOOGL), Amazon.com Inc. (AMZN) and Tesla Inc. (TSLA) are still down.
The Bloomberg Magnificent 7 Index — which includes those companies as well as Meta Platforms Inc. (META), Microsoft Corp. (MSFT) and Nvidia Corp. (NVDA) — is underperforming the S&P 500, and if that holds through Dec. 31, it would make this just the second year in the last 10 where that’s happened.
A Sharp Contrast to Last Year’s Tech Boom
Technology and telecommunications stocks both rose more than 35% last year, leading the S&P 500’s 23% gain. But in 2025, industrials, utilities, and financials — typically lagging groups — are driving the stock market’s rebound.
“The market is starting to look back more at individual stocks and companies and financial strength and innovation rather than letting the uncertainty around tariffs and where they may go really dominate the conversation,” said Rick Gardner, chief investment officer at RGA Investments. “And if you want to start talking about the US economy and you want to start talking about technology, that’s a really bright story.”
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Investors Tiptoe Back In
Gardner has been buying Big Tech stocks for his clients over the past month as the market has rebounded but they’ve languished.
He’s not alone. Signs are emerging that professional traders are increasingly wading back in after slashing equity positioning amid the economic uncertainty triggered by Trump’s global trade war.
For example, hedge funds on Tuesday snapped up US equities at the fastest pace since April 9, the day the S&P 500 soared 9.5% after Trump announced his tariff reprieve, according to Goldman Sachs’ prime brokerage desk. Technology stocks were the biggest beneficiaries of the buying.
The Risk of a Tech Decline
The flipside of this optimism is the reality that tech stocks have had a massive runup over the past few years, and with the economy in flux the risk is these shares could have much more room to fall.
“I think we’re going to stall out here,” said Lisa Shalett, Morgan Stanley’s chief investment officer, in an interview with Bloomberg Surveillance. “It’s hard to justify the numbers.”
Michael Burry, the hedge fund manager who famously bet against the housing market in 2008, bought put options on Nvidia in Q1, according to Scion Asset Management’s 13F filing. The filing also noted the securities “may serve to hedge long positions which are not eligible to be reported.”
What If Big Tech Comes Back?
The stock market’s big “what if” question is: If those Big Tech laggards start to outperform again, what does that mean for the S&P 500?
The Magnificent Seven accounts for about a third of the benchmark’s market capitalization. The mega-tech index is down 4.2% for the year compared with a 1.3% rise in the S&P 500. If it reverses course and takes the lead, how much does the S&P rally?
“I think all-time highs are possible,” Gardner said. “I would hate to be the one betting against our technology industry and innovation right now.”
He has a point. Since the S&P 500 bottomed in April, tech stocks have led the way higher, with the sector rising 31% compared with a 20% gain for the entire index.
Not All Tech Is Sinking
Not all Big Tech stocks have been underperformers. Meta Platforms is up 9.4%, leading the Magnificent Seven, while Microsoft has gained 7.8%. Both have limited exposure to tariffs and posted better-than-expected earnings. Nvidia, which reports May 28, is roughly flat for 2025.
Still, betting on a tech rally comes with its own risks. Trump could resume his hard-line approach to tariffs when his 90-day pause ends in July. The jury is still out on whether a demand shock from his levies will derail the US economic expansion and cause inflation to flare up again.
Inflation Fears and Consumer Sentiment
So far, businesses have absorbed most of the costs from Trump’s tariffs, but Walmart Inc. said in its earnings report last week that consumers will start to see higher prices soon.
Meanwhile, US consumer sentiment is at the second-lowest level on record and inflation expectations are at multi-decade highs, according to the monthly survey by the University of Michigan.
China Exposure a Common Challenge
While the factors weighing on big tech laggards vary, the common challenge most of them face is exposure to China, which has been hit with the highest tariffs by the Trump administration.
For instance, the majority of Apple’s iPhones are still mostly made in China, and the country accounted for 17% of its 2024 revenue, according to Bloomberg. The company reported a 2% decline in China sales in its fiscal Q2, short of analyst expectations.
Apple has lost more than $700 billion in market value since Dec. 26 and is now worth less than Microsoft and Nvidia.
Alphabet, meanwhile, faces mounting concerns about risks to its Google search business from AI chatbots like OpenAI’s ChatGPT. Searches on Apple’s Safari browser fell for the first time in April, according to court testimony from an Apple executive last week.
