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The Street

Business

Michael Sheldon, CFA, CFP

Major stock themes to target in 2025

United States Stock Market Artificial Intelligence Bitcoin Google Nvidia

Investors have many choices when they want to invest in the stock market. Buying equities through vehicles like mutual funds, ETFs, and individual stocks is the most common way to invest.

The problem, however, is that there are thousands of mutual funds, ETFs, and individual stocks to choose from, and it’s hard to know when the time is right to invest in a fund or stock.

Investors are left to wonder if they should invest in the broad market (for example, in the S&P 500). Or maybe tilt toward growth, value, the U.S., or foreign markets? Or should they take a more narrowly focused approach, such as specific themes like artificial intelligence?

Since the stock market is on pace for a second consecutive year of robust returns, many investors are likely uncertain about what to do with their money now. Here are five investment themes that investors can consider in 2025.

Thematic investing offers investors an opportunity to profit from specific market trends.
Spencer Platt/Getty Images

What is thematic investing?

Thematic investing involves focusing on a somewhat narrow range of stocks that may generate above-average growth in emerging industries or parts of the economy.

Thematic investors typically target transformational industries or societal trends that have the potential to reshape industries and create new markets over time.

For example, companies operating in the FinTech or digital payments space, such as Block (SQ) or SoFi Technologies (SOFI) , might benefit from increased use of credit and debit cards worldwide, the deployment of new technologies like blockchain, and the introduction of cryptocurrencies like bitcoin (along with increased adaptation by consumers and large global financial firms that hold, trade and custody these assets).

A number of investment firms offer various thematic investments, including (mostly in ETF form) Goldman Sachs, JP Morgan, Global X, State Street Global Advisors, First Trust, Invesco, Advisor Shares, Blackrock (i Shares), Fidelity, Charles Schwab, and others.

Thematic investing examples

A few examples of thematic investments include stocks or funds that focus on electric vehicles, such as Tesla (TSLA) , obesity / GLP-1 weight-loss drugs like Eli Lilly (LLY) , cloud computing companies like Alphabet's Google Cloud (GOOGL) , cybersecurity, lithium, telemedicine, U.S. onshoring, renewable energy, online gaming, space companies like Rocket Lab USA (RKLB) , genomics, water scarcity, artificial intelligence, including stocks like Nvidia (NVDA) , robotics, marijuana or healthy eating.

Of course, this is just a small sample of the many themes investors can target, and there are many more stocks that could benefit from those themes than are listed above.

The pros and cons of thematic investing

Pros…

If you choose a thematic investment theme that generates attractive results, it can help boost overall portfolio investment returns
Adding thematic investments can provide greater portfolio diversification when added to more traditional investments
Thematic investing can help individuals align their investments with their own personal values or interests

Cons…

Thematic investments often focus on a fairly narrow group of stocks, which can increase the amount of risk involved
The time period involved in thematic investing may be longer than what is utilized for traditional investments
Thematic investing can add additional volatility due to rapid transformative changes often taking place in various industries

Thematic investments worth considering in 2025:

Here are five intriguing themes that investors can target next year.

Artificial Intelligence. The surge in interest in artificial intelligence in recent years results from interest in generative AI, which is the ability of AI to generate text, images, and videos based on text prompts. The AI research company OpenAI built a GPT (generative pre-trained transformer), ChatGPT, which became the foundation of future models used for A.I. development. Today, multiple investments allow investors to access companies actively involved in developing, deploying, or researching artificial intelligence. According to www.Statista.com, the market for artificial intelligence is around $200 billion today and is expected to grow to $1.8 trillion by 2030.

Defense. Unfortunately, the world is unsafe these days, with multiple geo-political hotspots worldwide. According to Deloitte and The Stockholm International Peace Research Institute, there were approximately 59 countries at war in 2022 (27 countries more than in 2019). As a result, global defense expenditures surpassed U.S. $2.4 trillion in 2023 (the most recent data available at the time of publication). While things could change, given recent global trends, it appears that defense spending is likely to remain on an upward trajectory.

Onshoring. For several years, U.S. manufacturing activity has moved overseas, driven by lower costs, which helped U.S. companies boost their bottom lines. However, that trend is now starting to reverse. Due to a desire to 1) make the U.S. less dependent on foreign manufacturing, 2) increase supply chain resiliency, 3) rebuild the U.S. manufacturing and industrial base, and 4) increase manufacturing jobs here at home, there has recently been an increased emphasis on onshoring in recent years. This trend looks likely to continue under the next presidential administration.

Robotics. Companies with large manufacturing operations worldwide have been focusing more on robotics. The main reasons for this include an increased focus on boosting automation (and profits) and helping offset the impact of an aging workforce in many industrialized countries. According to Mordor Intelligence, the global robotics industry is currently $89.7 billion and is forecast to grow by about 12.5% annually through 2029.

Cybersecurity. Unfortunately, it’s hard to go a week or two without hearing about a major cybersecurity breach at a U.S. company. Cybersecurity breaches can cause crippling damage to companies and lead to multi-billion dollar damages. As a result, companies spend increasingly more money defending their networks and computer systems from hackers and foreign government agents. For reference, the research firm IDC forecasts that “the global security product market will continue to see double-digit growth over the next five years with total revenue reaching $200 billion in 2028.”

Is thematic investing a smart move?

Thematic investing involves identifying and capitalizing on trends and themes that have the potential to drive long-term growth and market outperformance. Investors can access them in a number of ways, such as through ETFs, mutual funds, or individual stocks. In many situations, thematic investing means gaining access to companies or industries that are undergoing transformative change or rapid growth.

More Wall Street Analysts:

This investment approach can offer investors a unique way to diversify their portfolios, align investments with personal values, and potentially achieve higher returns.

However, it's far from guaranteed that thematic investments will pay off, and even if they do, how long it may take to reap rewards.

As a result, thematic investing should be considered alongside more traditional investing (as opposed to a replacement for it) due to the potential risks and volatility sometimes associated with it. Investors should carefully consider these issues before pulling the trigger.

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