AI Giants Drive Market Gains in 2025: Nvidia and Alphabet Lead the Way

AI-Powered Tech and Communications Sectors Dominate Market Growth

In 2025, the technology and communication services sectors emerged as the undisputed leaders of market gains, propelled by the artificial intelligence (AI) boom. According to Morningstar, these two sectors accounted for nearly 60% of the total gains in the Morningstar US Market Index, which ended the year up 17.4%. Tech giants Nvidia and Alphabet were the standout contributors, reflecting the growing influence of AI-related stocks on market performance.

Nvidia, with a market capitalization of $4.7 trillion, and Alphabet, valued at $3.9 trillion, each added over 2 percentage points to the market return. Together, these two companies were responsible for more than a quarter of the market’s gains in 2025. The semiconductor industry, a critical component of the AI ecosystem, contributed 11.9 percentage points to the 21.4% gain of the Morningstar US Technology Index. Nvidia alone added 6.0 points, while Broadcom contributed 2.7 points.

The surge in AI-related stocks was further supported by software infrastructure firms like Microsoft and Palantir, which added 2.3 and 1.1 percentage points, respectively. Microsoft’s return of 15.6% and Palantir’s staggering 135.0% return highlighted the market’s enthusiasm for companies building AI platforms and infrastructure.

Consumer Defensive and Real Estate Sectors Lag Behind

While AI-driven sectors thrived, consumer defensive and real estate stocks struggled to keep pace. The consumer defensive sector, which includes giants like Walmart and Costco, posted a mere 1.1% gain for the year. Procter & Gamble, a key detractor, fell 12.3%, subtracting 1.4 percentage points from the sector’s overall performance. Costco and Target also detracted 0.9 and 0.5 percentage points, respectively.

Real estate stocks fared slightly better with a 4.1% gain but still underperformed compared to the broader market. Equinix and Alexandria Real Estate Equities were notable drags on the sector, detracting 1.1 and 0.5 percentage points, respectively. Sluggish consumer spending and rising input costs due to tariffs weighed heavily on both sectors, particularly in the latter half of the year.

AI’s Impact on Market Dynamics

The dominance of AI-related stocks in 2025 underscores a broader shift in market dynamics. AI’s role as a growth catalyst is evident in the outperformance of tech and communications sectors, which have become the backbone of the modern economy. However, not all tech stocks benefited equally. Software application companies, particularly those focused on end-user business tools rather than AI platforms, faced challenges. Salesforce and ServiceNow, for instance, detracted 0.3 percentage points each from the tech index’s gain.

The AI boom also highlighted the growing divide between sectors that are embracing technological innovation and those that are struggling to adapt. The success of companies like Nvidia and Alphabet reflects the market’s confidence in AI’s transformative potential, while the underperformance of consumer defensive and real estate stocks points to broader economic headwinds.