The technology sector is poised for significant earnings growth in 2025, driven by advancements in artificial intelligence (AI), cloud computing, and semiconductors. Despite economic uncertainties, tech companies continue to innovate, supporting revenue and profit expansion.
According to a December 2024 report by FactSet’s John Butters, earnings for the S&P 500 are projected to increase by roughly 15% in 2025, with information technology (IT) playing a crucial role. Notably, all eleven sectors of the S&P 500 are expected to see year-over-year earnings growth, with six—including IT—anticipating double-digit increases. The report also highlights a shift away from the “Magnificent 7,” the mega-cap tech companies that historically led market performance. While analysts forecast a 21% earnings growth for the Magnificent 7 in 2025, they project a 13% increase for the remaining 493 companies in the S&P 500. This is a considerable jump from the 4% earnings growth expected for those companies in 2024, suggesting broader market participation in 2025.
Investor Focus Shifts
Investor sentiment is increasingly turning towards smaller, high-growth tech firms, even as the Magnificent 7 continue their market dominance. Gene Munster, Managing Partner at Deepwater Asset Management, noted in a recent CNBC interview that while large-cap tech remains fundamentally strong, smaller companies within the frontier tech sector (typically valued under $500 billion) are positioned for outperformance in the coming years. This shift is driven by concerns about the limited growth potential of trillion-dollar companies, pushing investors to explore smaller opportunities in AI, cloud infrastructure, and semiconductor equipment manufacturing.
A report from Deloitte’s 2025 Technology Industry Outlook reinforces the sector’s growth trajectory. Technology investments are expected to accelerate despite economic headwinds, with increased spending on AI, cybersecurity, and enterprise software. Cybersecurity will be a critical focus due to the expanding digital attack surface caused by the rise of IoT, generative AI, and cloud adoption. The global cost of cybercrime is projected to reach $10.5 trillion in 2025, underlining the need for enhanced security investments.
Cognex Corporation (CGNX)
Cognex Corporation (NASDAQ:CGNX), ranks 10th on our list of most promising technology stocks. CGNX is a global provider of machine vision products and solutions. Machine vision products are employed in the automation of manufacturing and distribution, identifying, inspecting, and measuring discrete items such as mobile phones and e-commerce packages. Their solutions combine physical products and software to capture and analyze visual information, automating manufacturing and distribution tasks.
Cognex Corp. (NASDAQ:CGNX) reported its Q4 2024 financial results on February 12. Quarterly revenue increased by 17% year-over-year (YoY) to $230 million, and adjusted EBITDA was $42 million with an 18.5% margin. Net income per diluted share was $0.2, an 84% YoY increase. However, slightly softer guidance for Q1 2025 prompted a price target reduction from Needham analyst, though the firm maintained its Buy rating. Management expects momentum to continue in areas such as logistics and semi, while automotive remains weak.
While Cognex has potential, our conviction lies in AI stocks, which we believe offer a greater chance of higher returns in a shorter timeframe. If you are looking for an AI stock that is more promising than CGNX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
