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The technology sector continued its winning streak in 2024, driving exceptional stock market performance throughout the year. The Nasdaq Composite Index, with more than 50% weight in technology stocks, outpaced the broader S&P 500 and Dow Jones Industrial Average indexes year-to-date.

While the S&P 500 has risen nearly 23% and the Dow Jones Industrial Average increased by 12.3%, the Nasdaq has surged more than 29.1% so far in 2024, showcasing the dominance of tech companies. This impressive rally came in a year marked by global economic uncertainties and shifting investor sentiment.

What Drove the Tech Sector's Outperformance in 2024?

Several factors propelled the technology sector's stellar performance this year. A major driver was the explosive growth in artificial intelligence (AI) applications and infrastructure. Companies leading AI innovations captured significant market share as enterprises embraced generative AI, large language models, and AI-driven analytics. Semiconductor companies played a crucial role, benefiting from the rising demand for high-performance computing (HPC) solutions and AI accelerators.

Cloud computing also remained a growth catalyst, with businesses increasingly transitioning workloads to the cloud to enhance efficiency and reduce costs. Major cloud providers capitalized on this trend, reporting robust revenue growth. Meanwhile, the resurgence of enterprise IT spending, especially in cybersecurity and data analytics, added to the sector's momentum.

Investor confidence was bolstered by improving macroeconomic conditions. The initiation of interest rate cuts by the Federal Reserve and improving inflationary conditions allowed growth stocks, particularly in tech, to thrive. As global supply chains stabilized, the hardware segment rebounded, additionally contributing to the sector's overall strength.

Why the Momentum Will Continue in 2025

The long-term growth prospects of the technology sector look promising, owing to continued digital transformations. The adoption of AI technologies will likely accelerate, driven by advancements in generative AI, robotics, and automation. These innovations will fuel demand for chips, software, and cloud services, further benefiting tech giants with strong AI portfolios.

Enterprises will continue their migration to the cloud, driving growth for cloud service providers and enterprise software companies. Hybrid and multi-cloud solutions are expected to gain prominence.

Rising cyber threats will compel businesses and governments to allocate higher budgets for advanced security solutions, boosting growth for cybersecurity firms. The accelerated deployment of 5G technology — the next-generation wireless revolution — is likely to spur further growth. Apart from this, blockchain, the Internet of Things, autonomous vehicles, AR/VR, and wearables may offer significant growth opportunities.

The latest forecast for worldwide IT spending by Gartner is a positive for tech stocks. Despite the ongoing macroeconomic and geopolitical challenges, the independent research firm forecasts worldwide IT spending to increase 9.3% year-over-year to $5.74 trillion in 2025.

Investors should look for fundamentally strong technology stocks that could survive market jitters and ensure solid portfolio returns. In our opinion, Twilio Inc. (TWLO - Free Report), Dropbox, Inc. (DBX - Free Report), Zoom Communications Inc. (ZM - Free Report), QUALCOMM Incorporated (QCOM - Free Report), and NVIDIA Corporation (NVDA - Free Report) are among the stocks that could skyrocket in 2025. These stocks have a lower forward 12-month price-to-earnings (P/E) multiple than their respective industry averages.

Moreover, these stocks boast a favorable combination of a VGM Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy). Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 or #2 and a VGM Score of A or B offer solid investment opportunities.

Our Picks

Now, here is a look at the stocks discussed above.

Twilio

Twilio is benefiting from accelerated digital transformations amid a growing hybrid working trend. Its selective acquisitions and strategic investments in businesses and technologies are enhancing its product portfolio and fortifying its global presence.

The company is gaining traction not only from a solid expansion of its existing clientele, but also from first-time deals with new customers due to its firm focus on introducing products and a go-to-market sales strategy. Its ongoing cost-saving initiatives are driving profits and margins, which is praiseworthy.

The stock sports a Zacks Rank #1 (Strong Buy) rating, and it has a VGM Score of B at present.

The stock has been trading at a P/E multiple of 24.77X, lower than the Zacks Internet – Software industry’s 35.24X. The Zacks Consensus Estimate for Twilio’s 2025 earnings has been revised upward to $4.30 per share from $3.89 in the past 60 days. The long-term estimated earnings growth rate for the stock stands at approximately 41.8%.

Twilio Inc. Price and Consensus

Image Source: Zacks Investment Research | Twilio Inc. Quote

Dropbox

Dropbox is a leader in the content sharing and collaboration applications category. It is benefiting from an expanding user base and strong average revenue per paying user (ARPU) growth.

The company currently supports more than 700 million registered users through its FSS plans, and it has a better market share than Apple and Box. It has a strong balance sheet and generates robust free cash flow. The stock sports a Zacks Rank #1 (Strong Buy) rating, and it has a VGM Score of B.

The stock has been trading at a P/E multiple of 11.39X, which is lower than the Zacks Internet - Services industry’s 21.88X. The Zacks Consensus Estimate for Dropbox’s 2025 earnings has been revised upward by 23 cents to $2.62 per share over the past 60 days. The long-term estimated earnings growth rate for the stock stands at around 12%.

Dropbox, Inc. Price and Consensus

Image Source: Zacks Investment Research | Dropbox, Inc. Quote

Zoom Communications

Zoom's AI innovation, strong enterprise growth, and robust financials all signal upside potential. The ease of use, deployment, and management, along with solid scalability, have continued to make Zoom’s software more popular among its customers.

Zoom’s expanding international presence is a key catalyst for acquiring new customers and expanding across existing customers. Its strong free cash flow generating ability is also noteworthy. The stock sports a Zacks Rank #1 (Strong Buy) rating, and it has a VGM Score of B.

The stock has been trading at a P/E multiple of 15.87X, which is lower than the Zacks Internet - Software industry’s 35.24X. The Zacks Consensus Estimate for Zoom’s fiscal 2025 earnings has been revised upward by a penny to $5.43 per share over the past seven days. The long-term estimated earnings growth rate for the stock stands at around 5.4%.

Zoom Communications, Inc. Price and Consensus

Image Source: Zacks Investment Research | Zoom Communications, Inc. Quote

QUALCOMM Incorporated

QUALCOMM is increasingly focusing on the seamless transition from being a wireless communications firm for the mobile industry to a connected processor firm. The company is witnessing healthy traction in EDGE networking, which helps to transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables, and tablets. The stock carries a Zacks Rank #2 (Buy) rating, and it has a VGM Score of A.

The stock has recently been trading at a P/E multiple of 13.21X, which is lower than the Zacks Wireless Equipment industry’s 20.24X. The Zacks Consensus Estimate for QUALCOMM’s fiscal 2025 earnings has been revised upward by 3 cents to $11.14 per share over the past 30 days. The long-term estimated earnings growth rate for the stock stands at 6.6%.

QUALCOMM Incorporated Price and Consensus

Image Source: Zacks Investment Research | QUALCOMM Incorporated Quote

NVIDIA Corporation

Finally, NVIDIA is benefiting from the strong growth of artificial intelligence, high performance, and accelerated computing. The data center end-market business is benefiting from the growing demand for generative AI and large language models using graphic processing units based on NVIDIA Hopper and Ampere architectures. The stock carries a Zacks Rank #2 (Buy) rating, and it has a VGM Score of B at present.

The stock has been trading at a P/E multiple of 32.66X, which is lower than the Zacks Semiconductor – General industry’s 34.36X. The Zacks Consensus Estimate for NVIDIA’s fiscal 2025 earnings has been revised upward by a penny to $2.94 per share over the past seven days. The long-term estimated earnings growth rate for the stock stands at around 20%.

NVIDIA Corporation Price and Consensus

Image Source: Zacks Investment Research | NVIDIA Corporation Quote

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