Big Tech Stocks Face Challenges but Show Signs of Recovery
At the beginning of 2025, Big Tech stocks struggled due to trade tensions, inflation fears, and competition from low-cost artificial intelligence companies in China. As of May 5, 2025, the tech-heavy ETF Invesco QQQ Trust has dipped 4.8%, while the Technology Select Sector SPDR Fund has seen a 7.1% decline this year. Despite these setbacks, there are indications that investor confidence remains intact.
Recent data suggests that the dip in Big Tech stocks may be temporary. Notably, the XLK increased by 17.4% in the past month, and the QQQ climbed 14.7% during the same period.
Earnings Exceed Expectations
The latest earnings season has shown that major technology companies consistently outperform the S&P 500, even with tariff-related concerns. According to Bank of America, all but one member of the “Magnificent Seven” exceeded Wall Street’s earnings predictions by an average of 16%. In contrast, the broader S&P 500 has only recorded a 4% earnings beat thus far.
AI Remains a Central Focus
Although the tech sector faced a pullback in February—partly due to market reactions to low-cost AI firms like DeepSeek—investor enthusiasm remains high. Rather than derailing momentum, the pullback allowed for necessary valuation corrections, reaffirming a renewed focus on U.S. tech leadership and AI investments.
Bank of America indicates that hyperscalers continue to commit to AI investment strategies, despite a slight moderation in growth in capital expenditures (capex).
Capex Growth Indicates Long-Term Confidence
Despite emerging challenges from low-cost AI competitors, tech giants are not scaling back on capital investments. Both Alphabet and Microsoft confirmed their investment plans during recent earnings calls. Additionally, Meta increased its capex forecast for the year, while Amazon reported consistent triple-digit growth in its AI revenues.
Capital spending by hyperscalers has surged 62% year-over-year this quarter, and Bank of America projects a 35% overall increase for the year.
Big Capital Expenditures Reflect Strong Conviction
Even against the backdrop of trade tensions, Big Tech’s proactive investment plans are notable. In a climate where many hesitate, these companies are advancing their strategies, demonstrating strong belief in their future.
Addressing Challenges
Amazon, which leads in cloud computing, reported slowing growth due to capacity limits in data center infrastructure. However, its revenue outlook met consensus expectations, indicating resilience amid tough market conditions influenced by tariffs.
Some analysts express concern for Alphabet’s Google search business, fearing threats from AI. However, the company remains determined to protect its market position. Apple has faced the most significant impact from tariffs due to its heavy reliance on the Chinese market. A potential trade deal with China, or the possibility of exemptions for Apple, could improve its outlook.
Focus on ETFs
Given the current dynamics, investors might consider gaining exposure through exchange-traded funds (ETFs). Below are some ETFs heavily focused on the “Magnificent Seven”:
Roundhill Magnificent Seven ETF MAGS – Down 12.2% YTD; Up 14.6% Past Month
MicroSectors FANG+ ETN FNGS – Down 2.7% YTD; Up 21.5% Past Month
Vanguard Mega Cap Growth ETF MGK – Down 5.8% YTD; Up 16.2% Past Month
Invesco S&P 500 Top 50 ETF XLG – Down 6.6% YTD; Up 12% Past Month