The technology sector suffered big losses last month due to a decline in mega-cap market caps. The stocks in the sector dragged down the S&P 500 index with the biggest monthly decline of 3.6%, per FactSet data.

The delayed prospect of rate cuts, sell-off in semiconductor stocks and bouts of weak earnings reports from tech titans took a toll on the sector. In particular, Meta Platforms’ (META Quick QuoteMETA - Free Report) earnings announcement spoiled the mood as it forecast weaker-than-expected revenues for the ongoing quarter and unveiled higher artificial intelligence-related spending plans (read: Forget Meta-Led Slump: 3 Reasons to Buy Tech ETFs on the Dip).

The beaten-down prices could be viewed as solid entry points. We have highlighted five ETFs that have been in the red over the past month but have a solid upside potential given the encouraging fundamentals and their solid Zacks Rank #1 (Strong Buy) or #2 (Buy). These include Pacer Data and Digital Revolution ETF (TRFK Quick QuoteTRFK - Free Report) , Strive U.S. Semiconductor ETF (SHOC Quick QuoteSHOC - Free Report) , Invesco AI and Next Gen Software ETF (IGPT Quick QuoteIGPT - Free Report) , Global X Cloud Computing ETF (CLOU Quick QuoteCLOU - Free Report) and Direxion Work From Home ETF (WFH Quick QuoteWFH - Free Report) .

Reasons to Buy

AI Expansion: The artificial intelligence (AI) craze will continue to fuel the rally in the sector with companies investing big on this technology. The expansion of AI applications holds the promise of ushering in fresh opportunities for growth within the sector. According to a new report by Grand View Research, the global artificial intelligence market is expected to witness a CAGR (2024-2030) of 36.6% to reach $811.75 billion by 2030 (read: 4 ETFs to Tap the Renewed AI Craze on Wall Street).

Rate Cut Hopes: Though Powell, in the latest policy meeting, cited a “lack of further progress” on inflation, indicating the stage for a period of extended higher rates, he ruled out the prospect of any rate hike. This means rate cuts are likely later this year. The CME FedWatch tool shows that money markets see a 58% chance of the first rate cut of at least 25 basis points (bps) taking place in September but have priced in a 68.4% chance of a cut in November. As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for further initiatives when interest rates are low.

Cutting-Edge Technologies: The global digital shift has accelerated 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 will continue to fuel a rally.

Higher Spending: Worldwide IT spending is expected to increase 8% year over year to $5.06 trillion this year, according to the latest forecast by Gartner. This will put worldwide IT spending on track to surpass $8 trillion well before the end of the decade. Higher spending across software, data center systems, IT services and semiconductors will further provide a boost to the sector.

Strong Financial Position: 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.

ETFs to Buy

Pacer Data and Digital Revolution ETF (TRFK Quick QuoteTRFK - Free Report) – Down 9%

Pacer Data and Digital Revolution ETF aims to offer investors exposure to the globally listed stocks and depositary receipts of data and digital revolution companies. It follows the Pacer Data Transmission and Communication Revolution Index, holding 78 stocks in its basket. Pacer Data and Digital Revolution ETF has accumulated $28.8 million in its asset base and charges 60 bps in annual fees.

Strive U.S. Semiconductor ETF (SHOC Quick QuoteSHOC - Free Report) – Down 8.3%

Strive U.S. Semiconductor ETF seeks broad market exposure to the U.S. semiconductor sector. It follows the Solactive United States Semiconductors 30 Capped Index and holds 32 stocks in its basket. Strive U.S. Semiconductor ETF has AUM of $57.7 million and charges 40 bps in annual fees (read: Should You Buy the Dip in Semiconductor Stocks With ETFs?).

Invesco AI and Next Gen Software ETF (IGPT Quick QuoteIGPT - Free Report) – Down 7.4%

Invesco AI and Next Gen Software ETF offers exposure to companies with significant exposure to technologies or products that contribute to future software development through direct revenue. It holds 98 stocks in its basket and charges 60 bps in fees per year from investors. Invesco AI and Next Gen Software ETF has amassed $282.4 million in its asset base.

Global X Cloud Computing ETF (CLOU Quick QuoteCLOU - Free Report) – Down 7.3%

Global X Cloud Computing ETF seeks to invest in companies positioned to benefit from the increased adoption of cloud computing technology, including companies whose principal business is in offering computing Software-as-a-Service, Platform-as-a-Service, Infrastructure-as-a-Service, managed server storage space and data center real estate investment trusts, and cloud and edge computing infrastructure and hardware. The ETF tracks the Indxx Global Cloud Computing Index and holds 36 stocks in its basket. CLOU has AUM of $468.3 million and charges 68 bps in annual fees.

Direxion Work From Home ETF (WFH Quick QuoteWFH - Free Report) – Down 5.9%

Direxion Work From Home ETF offers exposure to companies across four technology pillars — Cloud Technologies, Cybersecurity, Online Project and Document Management, and Remote Communications — allowing investors to gain exposure to those companies that stand to benefit from an increasingly flexible work environment. It tracks the Solactive Remote Work Index and holds 40 stocks in its basket. The ETF has accumulated $26.3 million in its asset base and charges investors 45 bps in annual fees.