Technology has turned out to be the most profitable sector so far this year, driven by the artificial intelligence (AI) boom, easing inflation and a surge in “magnificent seven.” Bets that the Fed will soon end its tightening policy have also driven the sector higher. However, the hopes faded in recent months with the expectation of higher rates for longer than expected, pushing the sector down.

The decline seems short-lived per Wedbush analyst Dan Ives who believes that the technology sector is poised to weather a prolonged phase of increased interest rates. Ives eyes the "biggest tech revolution in 30 years" on the horizon, with the new tech bull market kicking off.

Amid this, we have highlighted five stocks that have been leading the sector higher so far this year. Most interestingly, these stocks have a solid Zacks Rank #1 (Strong Buy) or 2 (Buy), suggesting their outperformance in the month ahead as well. These are Applied Optoelectronics, Inc. (AAOI Quick QuoteAAOI - Free Report) , Arlo Technologies, Inc. (ARLO Quick QuoteARLO - Free Report) , Super Micro Computer, Inc. (SMCI Quick QuoteSMCI - Free Report) , Nvidia (NVDA Quick QuoteNVDA - Free Report) and Vertiv Holdings Co (VRT Quick QuoteVRT - Free Report) . You can see the complete list of today’s Zacks #1 Rank stocks here.

The AI mania will continue to accelerate and provide a boost to tech stocks. The global digital shift has enhanced e-commerce for everything, ranging from remote working to entertainment and shopping, thereby bolstering strength in the sector. The rapid adoption of cloud computing, big data, the Internet of Things, wearables, VR headsets, drones, virtual reality, machine learning, digital communication, blockchain and 5G technology should continue to fuel a rally.

Additionally, any prospective reductions in interest rates – with the market forecasting at least two for the next year – coupled with the ongoing rise of AI will act as a major tailwind. Higher spending across software, semiconductors and digital media consumer sectors will further provide a boost to the sector.

Further, the tech titans have strong balance sheets, durable revenue streams and robust profit margins, making them attractive investments. They are better positioned to withstand a possible economic downturn and have demonstrated improved cost discipline.

We have profiled the stocks below:

Applied Optoelectronics designs, develops and manufactures advanced optical devices, packaged optical components, optical subsystems, laser transmitters and fiber optic transceivers. With a market cap of $318.9 million, the stock has skyrocketed 407%.

Applied Optoelectronics has an estimated earnings growth rate of 48.51% for this year. It has a Zacks Rank #2 and a Growth Score of A.

Arlo Technologies' product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focus on delivering a seamless, smart home experience. It has an estimated earnings growth of 428.6% for this year and has a market cap of $955.6 million. The stock has surged more than 189%

Arlo Technologies has a Zacks Rank #2 and a Growth Score of A.

Super Micro designs, develops, manufactures and sells energy-efficient, application-optimized server solutions based on the x86 architecture. With a market cap of $12.5 billion, the company has an estimated earnings growth of 31.6% for the fiscal year ending June 2024.

Super Micro has risen 187% and has a Zacks Rank #1.

Nvidia is the worldwide leader in visual computing technologies and the inventor of graphic processing unit or GPU. The stock has jumped nearly 185% so far this year. It has an estimated growth of 219.5% for the fiscal year ending January 2024.

Nvidia has a Zacks Rank #1 and a Growth Score of A.

Vertiv Holdings provides digital infrastructure and continuity solutions. It offers hardware, software, analytics and ongoing services. It has an estimated earnings growth of 200% for this year and a market cap of $13.9 billion.

This Zacks Rank #1 stock is up nearly 167% so far this year and has a Growth Score of B.