Why Big Tech ETFs Still Remain Great Bets

The start of the year 2025 was not kind to Big Tech stocks due to trade tensions, fears of rising inflation, and the rise of low-cost artificial intelligence companies in China. The tech-heavy ETF Invesco QQQ Trust QQQ is off 4.8% so far this year and the Technology Select Sector SPDR Fund XLK has lost 7.1% in the year-to-date frame (as of May 5, 2025).

However, this might be a temporary blip, and investors should be unfazed by the year-to-date decline in Big Tech stocks. The tech segment is proving its resilience once again, as evident from the 17.4% past-month uptick in XLK and 14.7% rise in QQQ.

Below, we highlight a few factors that say Big Tech stocks and ETFs are still safe and great investments.

Earnings Blow Past Expectations

This earnings season has underscored how the largest technology companies continue to outperform the broader S&P 500, even amid concerns over tariffs. Excluding NVIDIA NVDA, which reports later this month, the other six members of the "Magnificent Seven" beat Wall Street estimates by an average of 16%, according to Bank of America, as quoted on Yahoo Finance. That’s a sharp contrast to the 4% earnings beat recorded by the rest of the S&P 500 so far.

Forget Pullback: AI Remains the Key Focus

While the tech sector is still recovering from a pullback in February—triggered in part by market reactions to low-cost AI DeepSeek—this hasn't derailed investor optimism. Instead, the pullback caused some valuation corrections and set the stage for renewed focus on U.S. tech leadership and AI investment.

According to Bank of America, the current earnings cycle confirms that hyperscalers are continuing with their AI investment strategies, even if capex growth is moderating slightly.

Capex Surge Signals Long-Term Confidence

Tech giants have not held back on capital expenditures, despite the rise of low-cost AI challengers. Alphabet GOOGL and Microsoft MSFT reiterated their investment plans during earnings calls. Meta META even raised its full-year capex forecast, while Amazon AMZN reported continued triple-digit growth in its AI-related revenues.

Bank of America reports that capital spending by the hyperscaler group grew by 62% year-over-year this quarter, with a projected 35% increase for the full year, as quoted on Yahoo Finance.

Big Capex = Big Conviction?

Despite trade tensions, Big Tech’s aggressive forward plans stand out. In an environment where many are hesitant, these companies are forging ahead. This shows their conviction in their investment plans.

Any Wall of Worry?

Amazon — the cloud computing leader — reported slowing growth, attributing it to capacity limitations in its data center infrastructure. However, Amazon’s revenue outlook met consensus estimates, highlighting the strength and adaptability of its business model amid a tough operating landscape owing to tariffs.

For some, like Alphabet’s Google search franchise, is seen as under threat in the emerging AI world, and the company remains determined to defend its territory. Of the Mag 7 players, Apple faced the most pronounced tariff impact, which has been well known due to its significant exposure to China. If the government manages to strike a trade deal with China or Apple secures some exemptions from government, the outlook for Apple should improve.

ETFs in Focus

Given this, investors may want to invest in these stocks through exchange-traded funds (ETFs). We have highlighted some ETFs with the largest exposure to Mag 7.

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

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This article originally published on Zacks Investment Research (zacks.com).

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