Big Tech reclaims market lead in S&P 500 rally

Big tech stocks pushed the S&P 500 near a bear market in early April, but now they are pulling it back up.

Last week, Nvidia gave a strong sales outlook for large technology firms, even though Washington still blocks the sale of its most advanced chips to China. Bloomberg reported that shares in Nvidia and Microsoft Corp. are close to their record highs, helping many traders expect that the group will continue to lift the whole market upward.

“I feel really good about tech coming out of this earnings season,” said Brett Ewing, chief market strategist at First Franklin Financial Services. “There’s still more gas in this tank.”

The S&P 500 now stands roughly 4% below its February peak. Much of the recovery reflects eased trade talks between the United States and its partners as well as quarterly results that showed steady demand for cloud services, software, devices, and digital ads despite the threat of fresh tariffs.

Since the index low on 8th April, Tesla Inc. has surged 56%. Nvidia has increased by 40%, and Microsoft is up by 30%.

Big Tech Stocks that played a role in S&P 500’s gain. Source: Bloomberg

Moreover, Bloomberg’s “Magnificent Seven” index shows Nvidia, Microsoft, Tesla, Apple Inc., Alphabet Inc., Amazon.com Inc., and Meta Platforms Inc. outperformed the broader S&P 500 during the last eight weeks.

The shift matters because the seven companies together make up about one-third of the benchmark. Bloomberg data show they have added nearly half of the S&P 500’s 19% climb from its April low.

Risks that could stall the rally have not disappeared

Even though those seven big tech stocks did well over the past couple of months, they’ve still earned less than the S&P 500 since the start of the year. That’s rare because the “Magnificent Seven” usually outperform the broader market over a full year.

Apple and Amazon are the main reasons as both import many finished products and have been hurt by higher tariffs, which has held the group back.

“Buying the tech dip will be a theme throughout the year,” Ewing added. “There’s still a lot of money on the sidelines, and it has to be put to work.”

Tariffs and other trade measures advanced during Donald Trump’s presidency still cloud the outlook.

On Friday, the S&P 500 dropped more than 1% after the president accused China of violating an agreement to ease duties. In a separate report, the United States was said to be preparing tougher limits on China’s technology sector. By the end of trading, the index had recovered most of its losses, but the drop showed how quickly investor sentiment can shift.

Another challenge is the high price of Big Tech shares.

Bloomberg’s Magnificent Seven index trades at about 30 times expected profits for the next year, while the S&P 500 as a whole trades at roughly 21 times. In April, the overall market’s price-to-earnings ratio was near 18, and it has since climbed above its ten-year average of 18.6.

Big tech stocks are trading at high prices. Source: Bloomberg

Not every strategist fears that high valuations will halt the advance. Keith Lerner, co-chief investment officer and chief market strategist at Truist Advisory Services, expects big technology firms to steer the broader market higher in the second half of 2025, aided by ongoing spending on artificial-intelligence computing.

Meta Platforms has lifted its estimate for capital expenditures this year, and Microsoft says it will boost spending in its next fiscal year. Those pledges ease concerns that the companies might trim investments after two years of heavy invesment.

“Our view is that earnings could still be maybe flatter but likely have less downside than what we would have thought heading into the earnings season,” Lerner said.

Bloomberg Intelligence data show profit forecasts for the Magnificent Seven in 2025 have held steady during the past two months. Analysts still expect the group to deliver about 15% earnings growth, roughly twice the rate projected for the S&P 500.

“Investors are going to be drawn back toward these names with secular growth,” Lerner added. “Tech could be that catalyst later on to actually see the market re-accelerate later in the year.”

For now, optimism about cloud demand, artificial-intelligence chips, and digital services has pushed tech stocks back into favor and cut the index’s losses since early spring. But because tariff risks persist and valuations are high, this rally still feels fragile.

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