By Joseph Moss, International Banker
2024 proved to be yet another strong 12 months for the technology sector, with the S&P 500 Information Technology index returning around 37 percent, easily outperforming the broader benchmark’s gains of 23.3 percent. Other measurements of stock-market performance showed similar results—for example, the Morningstar U.S. Communication Services Index rose by 39.13 percent, while the Morningstar U.S. Technology Index climbed by 36.16 percent. Both easily surpassed the broader Morningstar U.S. Market Index (MSTAR), which gained 24.09 percent. Another strong year of growth lies ahead in 2025, with further momentum building in artificial intelligence (AI) adoption, as well as a more supportive environment for the tech sector in the United States to thrive.
“Out of the 24.09 percentage points gained by the US Market Index in 2024, 13.2 came from just eight stocks, which are mainly seen as benefiting from artificial intelligence technologies: Nvidia, Apple, Amazon.com, Meta Platforms, Tesla, Broadcom, Microsoft, and Alphabet,” Morningstar noted in its January 3 review of the US market gains in 2024. “In other words, 55 percent of total market gains in 2024 can be attributed to these companies. These same companies contributed 53 percent of total market gains in 2023.”
Aside from highlighting just how concentrated US stock-market gains have become in recent years, these figures also reveal how well tech stocks continue to perform. AI stocks, in particular, soared in 2024. The Morningstar Global Next Generation Artificial Intelligence Index climbed by 37 percent during the year, largely thanks to key developments made in the semiconductor industry by companies such as Nvidia, which, in turn, fuelled the generative AI (GenAI) boom that continued throughout the year.
“These stocks carry significant weight in the technology and communication services indexes, dictating overall sector performance in recent years, for better or worse. In 2024, it was largely for the better,” Morningstar added in its review. “Nvidia—which holds a 14.56 percent weight in the tech index—was the leading contributor in 2024, adding 15.60 of its 36.16-percentage-point gain. The next-largest contributor, Apple, holds a 17.26 percent weight in the index and contributed 6.02 percentage points to its return. The next three biggest contributors were Broadcom, Microsoft, and Palantir Technologies PLTR. Palantir soared 340.48 percent on the year, marking the third-best gain of any stock in the index.”
So, will it be much of the same in 2025, with semiconductor stocks leading another bumper year for tech? Most likely, with AI spearheading the charge once again. “AI remains one of the most exciting and fast-moving sectors in the market, so 2025 will shape up to be a pivotal year, continuing to offer opportunities for investors,” according to Susannah Streeter, head of money and markets at Hargreaves Lansdown, who spoke with Yahoo Finance on December 31.
“The huge sums needed to be ploughed in to keep up with the tech pack are also eye-watering, and companies will need to show benefits are coming thick and fast to account for splashing so much cash,” Streeter added. “As with most new innovations, it’s still set to be a bumpy road ahead, and some promises might not live up to their hype.” That said, she predicted Nvidia, Apple, Alphabet, Tesla, Meta, Microsoft and Amazon to continue leading the gains on Wall Street.
It should also be observed that while AI-linked semiconductor stocks, such as Nvidia, may well continue to outperform, other sectors of the chip industry, such as industrial products and electronics, have not performed as spectacularly in the face of excess supply blighting many firms’ performances. But as AI adoption across such industries induces hardware upgrades across the board, we may see these previous laggards enjoying marked upticks in their stock values.
“I believe there could be attractive potential in the year ahead for these ‘non-AI-winner’ chip makers. The broader semiconductor industry is more than 2 years into an inventory correction. After the pandemic initially caused dramatic shortages for semiconductors, the industry responded by ramping up production—leading to one of the worst oversupply conditions in decades,” Adam Benjamin, Fidelity Investments’ sector portfolio manager, wrote on December 13. “However, I believe these oversupply dynamics are likely to prove temporary and could be poised to resolve soon. One catalyst for this could be the coming AI-driven product-upgrade cycle, as AI adoption begins to reach across all technology devices and end markets. Any lift to the general economic environment, perhaps aided by lower interest rates, could help as well.”
Within the AI space, moreover, Gartner has identified Agentic AI—those autonomous systems that can take certain actions to fulfil users’ goals—as being the top strategic technology trend for 2025. Agentic AI offers the promise of a virtual workforce that can offload and augment human work, according to the technology-consulting firm.
“Gartner predicts that by 2028, at least 15 percent of day-to-day work decisions will be made autonomously through agentic AI, up from 0 percent in 2024. The goal-driven capabilities of this technology will deliver more adaptable software systems, capable of completing a wide variety of tasks,” Gartner wrote in an October 21 report. “Agentic AI has the potential to realize CIOs’ desire to increase productivity across the organization. This motivation is driving both enterprises and vendors to explore, innovate and establish the technology and practices needed to deliver this agency in a robust, secure and trustworthy way.”
According to Franklin Templeton Investments, moreover, the shift toward AI agents will be bolstered by the recent advances made in GenAI large language models (LLMs), as they continue to improve their “reasoning” capabilities. “We’ve observed tangible progress, with the industry coalescing around the concept of AI ‘agents’ capable of executing a task on your behalf. At work, an agent could analyse customer purchase histories and automatically select and deliver personalized email promotions designed to boost sales,” the investment firm wrote in its 2025 Technology Outlook published on December 10. “At home, an agent might help plan and book travel, tutor your children in math, or create the weekly family meal plan, including coordinating the purchase and delivery of groceries.”
The operating environment for tech should also be more supportive under the administration of President Donald Trump, with a likely pro-business, low-tax, deregulation agenda in 2025. During his election campaign, the incoming president vowed to reverse an executive order from his predecessor, Joe Biden, that he claimed “hinders AI Innovation, and imposes Radical Leftwing ideas on the development of this technology”. And with Elon Musk set to remain by Trump’s side during his second term in office, the likes of social media, AI and the cryptocurrency sector can be expected to outperform this year.
That said, Trump’s first term saw his Department of Justice bring a number of antitrust cases involving tech and media firms. “He has, at least through [the] people that he appointed, a record of being tough on tech in terms of competition issues,” Professor Rebecca Haw Allensworth, associate dean at Vanderbilt University Law School (VLS), told The Guardian. “Since then, we’ve seen him cosying up to tech in general, and Elon Musk in particular. So that cuts the other way.”
Given Trump’s preference to confront China through protectionist trade measures, moreover, the outlook for semiconductors remains uncertain. The tariff rate on semiconductors imported from China will also increase from 25 percent to 50 percent by 2025, as authorised by the outgoing Biden Administration in May 2024. “China’s policies in the legacy semiconductor sector have led to growing market share and rapid capacity expansion that risks driving out investment by market-driven firms,” the White House stated at the time.
Reports also abound that Trump has been hosting frequent meetings with tech and venture capital (VC) leaders at his Mar-a-Lago residence, including Sequoia Capital partner Shaun Maguire, Palantir adviser Jacob Helberg and Craft Ventures partner David Sacks, whom Trump has picked as his AI and crypto czar. “There has been an effort in the Washington bureaucratic swamp to stifle innovation with more regulation and higher taxes,” Brian Hughes, a spokesperson for the Trump-Vance transition, explained to the Washington Post. “With support from many entrepreneurs who are thrilled to turn the page on the past four years, President Trump and David Sacks will safeguard free speech online, steer us away from big tech censorship, and develop a legal framework so the crypto industry can thrive in the United States.”
Postquantum cryptography (PQC), which provides users with protection against the decryption risks posed by the burgeoning quantum-computing sector, represents another notable growth prospect for 2025. “As quantum computing developments have progressed over the last several years, it is expected there will be an end to several types of conventional cryptography that [are] widely used,” Gartner also stated. “It is not easy to switch cryptography methods, so organizations must have a longer lead time to ready themselves for robust protection of anything sensitive or confidential.” Gartner has predicted that by 2029, advances in quantum computing will make most conventional asymmetric cryptography unsafe to use, and as such, postquantum cryptography is becoming an essential data-protection tool.