Why tech stocks could keep rallying

Market Rally Drivers

• The Nasdaq, which experienced its worst start to the year in 15–20 years with a 15–20% decline, has rallied back to flat on the year following a sharp correction in March and early April.
• The rebound is attributed to three primary factors:
  • An upbeat set of earnings results, particularly regarding capital expenditure (CapEx) and cloud growth.
  • Increased clarity surrounding tariff and trade policies announced in early April.
  • A return of risk capital to the market after significant de-risking earlier in the year.
• Market sentiment has shifted from macro concerns (recession, tariffs) that caused AI convictions to lag earlier in the year, back toward micro-level themes focused on artificial intelligence.

Earnings and Fundamental Data

• S&P 500 earnings grew 12% in Q1, significantly outpacing market expectations of approximately 6%.
• The technology sector specifically outperformed the broader S&P 500 growth rate during Q1.
• Large-cap technology stocks maintained double-digit earnings growth despite market volatility.
• Corporate fundamentals remain resilient; companies demonstrated liquidity, strong capital return programs, and investments for future growth.

Sector Dynamics and Investment Strategy

• Large-cap tech is regaining its status as a defensive asset class, though investor debates continue regarding its cyclicality.
• Market concentration concerns within the "Magnificent Seven" have quieted due to increased dispersion, with some names up on the year while others remain down 10–20%.
• This dispersion has provided investors with stock-picking opportunities rather than a binary "all-or-nothing" exposure to mega-cap tech.
• Goldman Sachs Technology Sector Specialist Pete Callahan maintains a positive outlook, noting that the AI narrative is likely "more ahead of us than behind us."
• The recommended strategy involves holding positions rather than "selling in May," as the current fact pattern supports further upside into the second half of the year.

Forward-Looking Indicators and Risks

• Immediate focus is shifting to a busy calendar of conferences, user events, and analyst days where micro-level catalysts will dominate.
• Upcoming key economic data points include the next Non-Farm Payrolls print and continued monitoring of inflation (CPI).
• The bond market remains a critical watchpoint; rates hovering around 4.5% could impact tech valuations due to the heavy reliance on future cash flows in technology stocks.