Despite notable volatility, the S&P 500 Index delivered an 18% total return in 2025—its third consecutive year of 15% or higher gains. However, the strength was not evenly distributed across all 11 sectors.
Only three outperformed the broader index, driven by distinct tailwinds such as AI momentum, infrastructure investment, and content demand. Sector-level performance is based on State Street’s SPRD Sector ETFs.
Industrials Soar as Aerospace, Defense, and Power Drive Growth
Coming in third place is the industrial sector, which slightly outperformed the index with a 19.5% return. Two key investment themes, aerospace and defense, as well as data centers, influenced the strong performance of this sector. GE Aerospace (NYSE: GE) and RTX (NYSE: RTX) delivered returns of 86% and 61%, respectively. Together, these gains contributed around 600 basis points to the sector’s total return.
Both firms saw strong sales growth from commercial and defense customers. GE Aerospace ended last quarter with a backlog of $175 billion, while the figure came in at $250 billion for RTX. These numbers are several times higher than the revenue GE and RTX generated over the last 12 months, providing significant revenue visibility going forward.
Caterpillar (NYSE: CAT) delivered a return of 61%, benefiting greatly from data center buildouts. Caterpillar’s power generation business sells reciprocating engines. This machinery provides backup power to data centers in case electrical grids fail, and companies are increasingly using it to supply power in non-emergency situations.
Hyperscalers and Mega-Merger Awards Communications Sector Second Place
The communications sector takes the silver medal in 2025, delivering a total return of 23%. Although often associated with the tech sector, Meta Platforms (NASDAQ: META) and Google parent company Alphabet (NASDAQ: GOOGL) are technically communications stocks. These names rose 13% and 66%, respectively, in 2025.
Meta’s revenue growth accelerated in every quarter, driven by its investments in artificial intelligence (AI). The same was true for Google, with the company’s 16% revenue growth in Q3 2025 being its fastest in over three years. Google Search, Google Cloud, and YouTube ads all saw strong growth, driven by AI. Google also established itself as a leader in large language models through Gemini. These two stocks contributed 1,110 basis points to the sector’s return.
Warner Bros. Discovery (NASDAQ: WBD) also played a key role, contributing more than 300 basis points of return. The stock surged 172% as multiple companies jockeyed for the right to acquire it, with WBD ultimately accepting Netflix’s (NASDAQ: NFLX) offer.
AI Pushes Tech to the Top of the Heap
Unsurprisingly, technology took the cake for the best-performing sector in 2025, delivering a total return of 24.6%. AI drove gains across the sector. Advanced chip designers NVIDIA (NASDAQ: NVDA) and Broadcom (NASDAQ: AVGO) delivered returns of 39% and 51% as hyperscalers continued to demand more of their products. Together, these stocks contributed 760 basis points to the sector’s return.
The memory chip trade also did some heavy lifting. Memory chip stock Micron Technology (NASDAQ: MU) soared 240%, and wafer fabrication equipment maker Lam Research (NASDAQ: LRCX) shot up 140%. Memory chips are experiencing a surge in demand due to the rise of AI. Micron has already sold its entire 2026 production capacity for high-bandwidth memory chips (HBM). This benefits Lam Research, as memory chip makers need to buy its equipment to increase production capacity. Combined, Micron and Lam contributed 380 basis points to the technology sector’s return.
When it comes to AI applications, Palantir Technologies (NASDAQ: PLTR) is arguably the biggest winner in the sector. The stock rose 135%, with government and commercial customers in the United States spending billions to deploy its Artificial Intelligence Platform (AIP) software.
AI Makes Its Mark Across Industrials, Communication, and Technology
AI was the clear thread connecting all three of these sectors in 2025. From heavy machinery to software applications, the technology is making its presence felt throughout vast swaths of the economy.
While analysts expect AI investment to continue rising in 2026, the winners in this space are likely to evolve, like the technology itself.
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The article "The S&P 500's Top-Performing Sectors: 3 Lead the Pack in 2025" first appeared on MarketBeat.
