Inflation has raised concerns lately, but Wall Street is on a roll, with all three major indexes on a rally. On May 14, the Nasdaq closed 0.8% higher, hitting a new all-time high of 16,511.18 points.

Nasdaq’s dream run follows a robust 2023 and a solid first quarter of 2024. The tech-heavy index had earlier hit an all-time high in February and rallied through March.

April saw tech stocks being dragged down over concerns of rising inflation. However, Nasdaq, along with the Dow and the S&P 500 have since bounced back, with the rally resuming after a brief pause.

The Nasdaq rally is primarily being driven by the optimism surrounding artificial intelligence (AI), especially generative AI.

Experts' views on the future of generative AI differ, but there has been notable excitement surrounding the zone in recent times. Many see AI as still in its early stages, with untapped potential. When this potential is realized, AI is projected to offer lucrative business opportunities for tech firms, potentially boosting their stocks.

This has seen several big and small tech companies shifting focus toward AI to grab a bigger portion of the market share in the early stages.

Moreover, the rise of smart devices is fueling the expansion of the AI sector. These devices demand advanced computing and learning abilities for tasks such as face detection, image recognition and video analytics.

Another factor triggering the rally is the assurance from the Federal Reserve that there likely won’t be any more rate hikes. Moreover, the Federal Reserve hasn’t hinted at a timeline for rate cuts but said that it still plans multiple rate cuts by the end of this year. High interest rates negatively impact growth assets such as tech stocks.

Once rate cuts start, the tech sector is expected to further get a boost.

3 Best Choices

As a result, we've chosen three funds from the tech sector that are worth buying. These funds have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Semiconductors Portfolio (FSELX Quick QuoteFSELX - Free Report) fund seeks capital appreciation. FSELX normally invests at least 80% of assets in common stocks of companies principally engaged in the design, manufacture, or sale of electronic components (semiconductors, connectors, printed circuit boards and other components); equipment vendors to electronic component manufacturers; electronic component distributors; and electronic instruments and electronic systems vendors.

Fidelity Select Semiconductors Portfolio fund has a track of positive total returns for over 10 years. Specifically, FSELX’s returns over the three and five-year benchmarks are 28% and 32.1%, respectively. FSELX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.68%.

To see how this fund performed compared to its category, and other #1 or 2 Ranked Mutual Funds, please click here.

DWS Science and Technology A (KTCAX Quick QuoteKTCAX - Free Report) fund seeks growth of capital. Under normal circumstances, KTCAX invests at least 80% of net assets in common stocks of U.S. companies in the technology sector.

DWS Science and Technology A fund has a track of positive total returns for over 10 years. Specifically, KTCAX’s returns over the three and five-year benchmarks are 8.1% and 17.8%, respectively. The annual expense ratio of 0.90% is lower than the category average of 1.03%. DWS Science and Technology A fund has a Zacks Mutual Fund Rank #1.

To see how this fund performed compared to its category and other #1 or 2 Ranked Mutual Funds, please click here.

Janus Henderson Global Technology and Innovation Fund (JNGTX Quick QuoteJNGTX - Free Report) aims for long-term growth of capital and specializes in technology. JNGTX invests the majority of its net assets in securities of companies that the portfolio manager believes will benefit significantly from advances or improvements in technology.

Janus Henderson Global Technology and Innovation Fund has a track of positive total returns for over 10 years. Specifically, JNGTX’s returns over the three and five-year benchmarks are 6.1% and 17.1%, respectively. JNGTX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.80%.

To see how this fund performed compared to its category and other #1 or 2 Ranked Mutual Funds, please click here.

Want key mutual fund info delivered straight to your inbox?

Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>