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

The Vanguard Information Technology ETF (NYSEMKT: VGT) was established in 2004. It has since produced a compound annual return of 13.7%, outperforming the S&P 500 (SNPINDEX: ^GSPC) which gained 10.6% annually over the same period. Although the 3.1 percentage-point difference doesn't sound like much at face value, it made a remarkable impact in dollar terms thanks to the magic of compounding. But more on that later.

This Vanguard exchange-traded fund (ETF) exclusively invests in stocks from the information technology sector, which hosts artificial intelligence (AI) giants like Nvidia, Microsoft, and Palantir Technologies. These stocks have produced incredible returns over the last few years, and with trillions of dollars in AI spending in the pipeline, they are likely to continue leading the broader market higher.

Here's why I predict the Vanguard ETF will beat the S&P 500 yet again in 2026.

Image source: Getty Images.

Hundreds of technology titans in one ETF

The Vanguard Information Technology ETF holds 320 stocks from 12 subsegments of the information technology sector, but a whopping 34.4% of its assets are parked in the semiconductor segment alone. That's because the fund arranges its holdings by their market capitalization, meaning the largest companies have a greater influence over its performance than the smallest.

Semiconductor companies Nvidia, Broadcom, Micron Technology, and Advanced Micro Devices are worth a combined $6.8 trillion. Hence, they are among the largest holdings in the ETF.

By 2030, Nvidia CEO Jensen Huang believes data center operators could be spending up to $4 trillion per year on infrastructure to meet demand from AI developers, as every new model they bring to market requires more computing capacity than the last. In other words, those semiconductor companies could grow even larger in the coming years, which would drive further upside in the Vanguard ETF.

But this fund also owns some of the biggest buyers of those AI data center chips and components, like Microsoft and Oracle. They are building infrastructure and renting the computing capacity to AI developers through the cloud for a fee, which has become a very lucrative business model.

The six stocks I've just named have delivered a median return of 353% since the AI boom started gathering momentum at the start of 2023, and each of them has crushed the S&P 500 over that period (except Microsoft, which is lagging).

NVDA data by YCharts.

But they aren't the only powerhouse AI stocks in the Vanguard ETF. It also holds:

• Palantir Technologies, which offers a suite of software platforms to help businesses and government organizations extract maximum value from their data. Its stock has soared by a staggering 2,200% since the start of 2023.
• CrowdStrike, which developed one of the cybersecurity industry's only all-in-one platforms for enterprises. It uses AI to automate security workflows, but it's also helping businesses deploy AI software and AI agents safely. Its stock has more than quadrupled since the start of 2023.
• Palo Alto Networks, which is another cybersecurity company. It has one of the most expansive AI-powered product portfolios in the entire industry, but it's also thinking ahead by designing solutions to protect enterprises from the future threat posed by quantum computing. Its stock has more than doubled since the start of 2023.

The Vanguard ETF can beat the S&P 500 again in 2026

Circling back to the returns I highlighted at the top, here's how much an investor would have earned had they parked $50,000 in the Vanguard Information Technology ETF in 2004 instead of in the S&P 500:

Calculations by author.

Therefore, although the Vanguard ETF only outperformed the S&P 500 by an average of 3.1 percentage points since 2004, the compounding effect resulted in substantially higher returns in dollar terms.

I think the ETF is likely to beat the S&P 500 yet again in 2026, mostly because of the incredible momentum in the AI space. Nvidia will start shipping commercial quantities of its new Vera Rubin AI chips for the data center in the second half, and demand is expected to exceed supply by a wide margin. Plus, cloud providers like Microsoft and Oracle each have order backlogs worth hundreds of billions of dollars from AI customers who are waiting for more infrastructure to come online.

If those companies continue to produce strong financial results, then their stock prices should trend higher from here, which will fuel another strong year of gains for the Vanguard ETF.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, CrowdStrike, Micron Technology, Microsoft, Nvidia, Oracle, and Palantir Technologies. The Motley Fool recommends Broadcom and Palo Alto Networks. The Motley Fool has a disclosure policy.