Momentum investing relies on discovering stocks that are gaining upward price momentum. Stocks that have recently gained value are likely to continue doing so - typically for several months. In August 2025, several equities emerge with decent momentum, supported by robust earnings guidance, sector trends, and technical indicators. These equities make excellent entry points for short- to mid-term capital.
Momentum is a market phenomenon in which already rising stocks extend their upward trend. This trend is often attributed to investor psychology - increased buying power leads to more buying. Typically used measures include recent price action compared to broader indexes, higher-ranked analyst ratings, and changes in earnings estimates. Identifying momentum isn't just about performance—it also includes technical levels, such as breakout levels or relative strength trends. Momentum strategies can outperform, but they require discipline and risk control.
August has seen considerable stock market toughness outside Big Tech. The Russell 2000 small-cap benchmark gained over 7%, its best August in years, suggesting a broad sentiment rally. Semiconductor players have gained traction following a government investment of $8.9 billion in the industry's key sectors and strong earnings by key chipmakers. Taiwan Semiconductor (TSMC) is on the cusp of breaking out to new highs.
Futu, an online brokerage firm, boasts a Zacks Rank of #1 as of Aug 28, backed by 17.7% earnings estimate increase in 60 days. Its stock price appreciated 71% in recent times, indicating high momentum.
TAT too has acquired a Zacks Rank #1. Its earnings estimate climbed 10.7%, and the stock appreciated about 35% in three months—way ahead of the S&P 500.
Lumentum, a photonics leader, also carried a Zacks Rank #1. Its recent three-month appreciation of nearly 57.5% reflects its positive momentum profile.
Arista's cloud networking business reflects positive momentum; share performance was up by 46% over three months, with a Zacks Rank #1 and positive momentum scores.
TSMC stands alone in the semiconductor space. With strong fund interest and a potential breakout buy point of $ 248 USD, the firm is supported by broad tailwinds from AI and chip demand.
Last month, cyclicals like financials, materials, and consumer discretionary sectors took the lead. Materials picked up around 5.6%, outperforming tech's 1.3%. Rate-cut hopes and small-cap strength propelled the rotation—showing how sector momentum can draw attention for investors.
Momentum investing involves risk exposure to volatility. Stocks that have rallied can reverse sharply - some have experienced significant drawdowns of over 70% in previous episodes. High turnover and transaction costs can reduce net returns. Stop-loss techniques, discipline, and position sizing remain critical for containing downside risk.
A prudent momentum strategy strikes a balance between aggressive and defensive choices. Futu, Lumentum, and Arista possess high growth potential but are short-term threats. TAT and TSMC provide sector diversification. Remaining vigilant, monitoring fundamentals at intervals, and reducing positions as averages change enable sustainable outcomes.
Momentum in August 2025 suggests a shift in market leadership, as cyclicals and small-cap stocks are performing well, with notable tech and semiconductor leaders continuing to excel. Stocks such as Futu, Lumentum, Arista, TAT, and TSMC are excellent examples of the momentum factor being evident. Applying technical indicators combined with fundamentals can enhance entry precision and risk management. In a momentum market, market participants must be quick, wise, and disciplined.