Prediction: This Unstoppable Vanguard ETF Will Crush the S&P 500 Again in 2026

With just a few days left in 2025, the S&P 500 index is sitting on a return of 17%, which is comfortably above its average annual gain of 10.5% dating back to its inception in 1957. However, had investors bought the Vanguard Information Technology ETF (NYSEMKT: VGT) at the start of this year, they would have earned a 23% return instead.

The Vanguard Information Technology ETF is an exchange-traded fund (ETF) that exclusively invests in companies from the information technology sector. It holds 322 different stocks from both inside and outside the S&P 500, offering investors broad exposure to high-growth trends like artificial intelligence (AI).

The Vanguard ETF's strong performance in 2025 isn't a one-off result, because it has beaten the S&P 500 every year since its inception in 2004. Here's why I predict it will crush the index yet again in 2026.

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The world's top AI stocks packed into one ETF

The Vanguard Information Technology ETF invests across 12 different subsegments of the information technology sector, but the semiconductor segment has the largest weighting by far at 32.1%. That isn't a surprise considering the value of some of its biggest constituents; Nvidia has a market capitalization of $4.4 trillion, and Broadcom is worth $1.6 trillion.

Data center chips, networking equipment, and other components are at the heart of the AI revolution, which is why hardware suppliers feature prominently in the Vanguard ETF's top 10 holdings. However, a few AI software and platform providers are also in the mix:

Data source: Vanguard. Portfolio weightings are accurate as of Nov. 30, 2025, and are subject to change.

Even though the Vanguard ETF holds 322 stocks, its performance is heavily influenced by the above 10 names because they represent 59.1% of the value of its entire portfolio. Fortunately, many of them have solid fundamentals that could support further upside in 2026 (and beyond).

Nvidia, Broadcom, AMD, and Micron Technology supply some of the world's best data center chips, components, and networking equipment for developing AI models, and they continue to experience more demand than they can supply. Each of these companies is generating rapid revenue growth in their data center segments, which could fuel further returns in their respective stocks.

Microsoft and Oracle are two of the world's biggest buyers of AI chips and data center infrastructure. They make the computing capacity available through their respective cloud platforms, which companies can rent to develop and deploy AI software. This business model is extremely lucrative, with both Microsoft and Oracle boasting enormous order backlogs from customers who are waiting for more capacity to come online.

Sitting just outside its top 10 holdings, investors will find several other popular AI stocks like customer relationship management specialist Salesforce, cybersecurity giants CrowdStrike and Palo Alto Networks, and cloud services provider Snowflake.

The Vanguard ETF has a stellar track record against the S&P 500

The Vanguard Information Technology ETF has delivered a compound annual return of 14.1% since its inception in 2004, comfortably beating the S&P 500 -- which climbed at an average pace of 10.4% per year over the same period.

While AI is driving returns in the ETF right now, other technologies like the smartphone, enterprise software, and cloud computing have also made big contributions over the last two decades. And when the AI boom eventually tapers off, future technologies like quantum computing, robotics, and even autonomous vehicles could step up to become the dominant source of returns.

This highlights the incredible versatility of the tech sector, which is why it's so popular with investors.

Looking ahead to 2026, all signs point to growing AI data center infrastructure spending, which should drive further returns in some of the Vanguard ETF's biggest holdings, like Nvidia, Broadcom, AMD, and Micron. Plus, the cloud divisions at Microsoft and Oracle could experience accelerating revenue growth as they bring more data center capacity online to fulfill their order backlogs, which will be great for their stock prices, too.

As a result, I think this Vanguard ETF is likely to beat the S&P 500 yet again next year, so it could be a great addition to any diversified portfolio that currently lacks exposure to the AI revolution.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Cisco Systems, CrowdStrike, International Business Machines, Microsoft, Nvidia, Oracle, Palantir Technologies, Salesforce, and Snowflake. The Motley Fool recommends Broadcom and Palo Alto Networks and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.