Key Takeaways
- The technology and communication-services sectors were the biggest winners in 2025.
- AI giants Nvidia and Alphabet were the leading individual contributors.
- Consumer defensive and real estate stocks struggled.
For a third consecutive year, communication-services and technology stocks pushed the market to new highs, fueled by the artificial intelligence boom. By contrast, consumer defensive and real estate stocks lagged in 2025 amid sluggish third- and fourth-quarter performance.
Overall, the Morningstar US Market Index ended the year up 17.4% in 2025. The Morningstar US Communication Services Index rose 33.9%, while the Morningstar US Technology Index climbed 21.4%.
Of the Morningstar US Market Index’s total 17.4% gains in 2025, 7.0 percentage points—or 40%—came from the tech sector, and another 3.1 percentage points—18%—came from communications stocks. Put together, nearly 60% of market gains in 2025 can be attributed to the two sectors.
Nvidia NVDA, the largest tech stock with a market capitalization of $4.7 trillion, and Alphabet GOOGL/GOOG, the largest communications stock with its market cap of $3.9 trillion, each added over 2 percentage points to the market return. Combined, the two companies accounted for more than a fourth of the gains posted by the market in 2025.
The consumer defensive sector, which includes Walmart WMT and Costco COST, lagged far behind with a gain of 1.1%. Real estate stocks also brought up the rear with an overall gain of 4.1%. Each of the two sectors added just 0.1 points to the overall market return.
AI-Related Stocks Lead Market Performance in 2025
Of the 21.4 percentage points gained by the Morningstar US Technology Index, 11.9 came from the semiconductor industry—the hardware backbone of the AI trade. Home to the chipmakers powering AI computing, such as Nvidia, which added 6.0 points, and Broadcom AVGO, which added 2.7 points, the industry surged in 2025. The Morningstar US Semiconductors Index gained 42.8%, more than double the broader market’s return.
The next largest contribution came from software infrastructure firms, specifically those building the AI platforms that run on that computing power. Microsoft MSFT, which added 2.3 percentage points with a return of 15.6%, and Palantir PLTR, which added 1.1 percentage points and surged 135.0%, had the biggest impact.
However, not all tech stocks have benefited from the AI boom. Amid concerns that AI will upend the application layer of the software industry, software application companies—those selling end-user business tools rather than AI platforms—struggled in 2025. The industry detracted 1.0 percentage points from the tech index’s gain, with cloud-based customer relationship management company Salesforce CRM—down 20.2%—and enterprise IT service provider ServiceNow NOW—down 27.8%—each detracting 0.3 percentage points.
Within the communication-services sector, Google parent company Alphabet contributed nearly all the gains. Of the 33.9 percentage points gained by the Communication Services Index, 28.0 came from the two Alphabet share classes. Another 3.3 came from Facebook parent company Meta Platforms META. Alphabet stock had a particularly strong year, surging nearly 50% since Sept. 1 as the successful release of its Gemini 3 AI model and easing regulatory concerns lifted shares.
Consumer Defensive and Real Estate Stocks Struggled
The consumer defensive sector had a decent first two quarters, posting a gain of 4.9% through June 30. Since then, however, the sector dropped 3.8% to end the year with a small 1.1% gain.
A key detractor within the Morningstar US Consumer Defensive Index was global consumer goods giant Procter & Gamble PG, which fell 12.3% for the year and detracted 1.4 percentage points from the sector’s overall gains. Big-box warehouse retailer Costco detracted 0.9 percentage points, and merchandise retailer Target TGT detracted 0.5. Sluggish growth in consumer spending and rising input costs because of tariffs have weighed on the sector in recent months.
Real estate stocks fell and rose with the market amid tariff announcements in the first half of the year, but since then, they’ve been relatively flat at just over 1% since July 1 to end the year up 4.1%.
Third-party data center provider Equinix EQIX, which detracted 1.1 percentage points, and urban office REIT Alexandria Real Estate Equities ARE, which detracted 0.5 percentage points, were the biggest drags on the sector.
