Technology Sector Growth Driven by AI and Investment
The technology industry experienced a notable expansion in the second quarter of 2025, largely fueled by the increasing integration of Artificial Intelligence (AI) and machine learning, along with advancements in Generative AI (GenAI). This sector is thriving amid a broader trend of digital transformation. The swift adoption of innovations such as AI, cloud computing, 5G, the Internet of Things (IoT), wearable tech, and augmented and virtual reality (AR/VR) systems has contributed significantly to this growth. The demand for drones, robotics solutions, cybersecurity measures, blockchain technology, and quantum computing has also played a vital role in enhancing the sector’s prospects.
Several tech companies are preparing to announce their financial results imminently. Noteworthy stocks to watch include Meta Platforms, Lam Research, Flex, and Seagate Technology, all of which appear well-positioned to exceed earnings predictions this quarter.
AI’s Impact on Technology Investments
The rising demand for AI is significantly impacting data center capacity. Major cloud service providers, including Amazon, Alphabet, Microsoft, and Meta Platforms, have declared ambitious, multi-year investments aimed at bolstering cloud infrastructure and AI capabilities. Microsoft has earmarked around $80 billion for these initiatives, while Meta’s budget ranges from $64 billion to $72 billion for AI-related improvements.
The emergence of Generative AI has also spurred considerable investment. Large Language Models, central to GenAI, demand substantial computational resources to analyze vast datasets. This surge in demand necessitates considerable investments in hardware, especially graphics processing units (GPUs). According to data from the Semiconductor Industry Association, semiconductor sales reached $59 billion in May 2024, representing a 19.8% increase compared to the previous year and a 3.5% rise month-over-month.
In addition to these trends, the personal computer (PC) market has experienced growth. IDC reported approximately 68.4 million sold units in the second quarter of 2025, reflecting a 6.5% year-over-year increase, while Gartner estimated shipments at 63.2 million units, up 4.4% year-over-year. The PC segment is benefiting from an ongoing upgrade cycle as support for Windows 10 is set to expire in October 2025, alongside a rising demand for AI-capable PCs.
Identifying Earnings Surprises: A Strategic Approach
Unearthing technology stocks that could outperform earnings expectations might seem challenging, but there is a strategy that simplifies the process. To hone in on promising stocks, focus on those that possess a Zacks Rank of #1 (Strong Buy), #2 (Buy), or #3 (Hold), along with a favorable Earnings Surprise Prediction (ESP). This method helps identify stocks that hold the highest potential for positive surprises ahead of their earnings announcements.
Earnings ESP quantifies the likelihood of a stock surpassing earnings expectations by calculating the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Research indicates that stocks meeting these criteria can have as much as a 70% likelihood of delivering positive surprises.
Strong Candidates for Earnings Growth
Meta Platforms, based in Menlo Park, California, has an Earnings ESP of +1.83% and a Zacks Rank of 1. The company’s integration of AI across its platforms—including Facebook, Instagram, WhatsApp, and Messenger—is driving increased user interaction. This focus is projected to enhance ad revenues for the second quarter of 2025, which the Zacks Consensus Estimate places at $43.94 billion, reflecting a 14.6% growth year-over-year. The company plans to report its results on July 30, 2025.
The predicted earnings for Meta have crept up by four cents to $5.80 per share over the past month, suggesting a year-over-year growth of 12.4%.
Lam Research, also positioned for success, has an Earnings ESP of +2.71% and ranks #2. The company is anticipated to share its fourth-quarter fiscal 2025 results on July 30. Benefiting from shifts in semiconductor demand, particularly in AI and data center chips, Lam Research provides crucial manufacturing tools necessary for advanced chip production. Consensus revenue estimates for their Systems business indicate a significant rise of 48.5% year-over-year.
Flex, operating out of Singapore, is set to release its first-quarter fiscal 2026 results on July 24. With an Earnings ESP of +2.77% and a Zacks Rank of 2, Flex’s upcoming quarter is expected to reflect growth driven by its expanding intellectual property portfolio and strong demand across data center and automotive markets.
Lastly, Seagate Technology, based in Dublin, Ireland, will report its fourth-quarter fiscal 2025 results on July 29. The company has an Earnings ESP of +2.34% and a Zacks Rank of 2, benefiting from continued demand for mass capacity storage, driven by the surge in cloud services and AI applications.
By recognizing these indicators and focusing on technological innovations, investors can better navigate the dynamic landscape of the tech sector.
