The Nasdaq Composite Did This After Hitting a Low in April 2025. Here's What the Index Can Do in 2026 After the Latest Sell-off.

The Nasdaq Composite index was under pressure in the first three months of 2026, losing 7% of its value before staging a comeback in April. The index's decline is primarily due to external factors like the war in the Middle East, which has sent shock waves through the global economy.

Rising oil prices and the increasing odds of a U.S. recession weighed on the index's performance in Q1 this year. However, recent developments, such as the talks between the U.S. and Iran to resolve the conflict, have injected life into the Nasdaq Composite, which is now up by about 1% year-to-date as of this writing.

It is worth noting that the Nasdaq also dropped significantly in the first four months of 2025 and was close to entering bear market territory on account of President Donald Trump's tariff-fueled trade war. Warnings by tech giants such as Nvidia (NASDAQ: NVDA) about the potential impact of the tariffs sent investors into panic mode last year.

However, investors soon looked past those challenges, and tech stocks started soaring once again. The Nasdaq Composite hit its lowest level of last year on April 8. It then soared by an impressive 52% through the end of 2025, driven by solid earnings growth among tech companies benefiting from the proliferation of artificial intelligence (AI). For the year, it was up by about 20%.

Could something similar unfold in 2026?

Image source: Getty Images.

Similar patterns suggest that the Nasdaq could rally once again

The hefty import taxes imposed by Trump last year pinched U.S. consumers' budgets. According to one report, those tariffs increased retail prices of goods imported into the U.S. by 7 percentage points before the Supreme Court intervened and ruled many of them unlawful.

Trump, however, soon announced that he would seek other avenues to reimpose tariffs, rather than the specific ones that the court has blocked.

Regardless, though, the tariffs didn't do much to dent the outstanding earnings growth that tech companies were clocking. Nasdaq-100 components reported average year-over-year net income growth of 36% in the second quarter of 2025, followed by a 17% increase in Q3 and an estimated 16% jump in Q4.

Their earnings growth easily outpaced the broader S&P 500's growth, and AI was a key driver of that. Massive investments in AI infrastructure enabled chip leaders such as Nvidia and Broadcom to report earnings growth of 60% and 40%, respectively, in their latest fiscal years.

Even AI-focused software specialists such as Palantir Technologies (NASDAQ: PLTR) and Snowflake reported earnings growth of 83% and 51%, respectively. And the strong appetite for both AI hardware and software isn't surprising given the productivity gains the technology is delivering to adopters.

And now, there are signs of a de-escalation in the U.S.-Iran conflict, with both countries reportedly agreeing to a two-week conditional ceasefire and peace talks. The situation is fluid, but if the de-escalation continues, there is a solid chance the Nasdaq will fly higher for the rest of the year.

Strong tech earnings could push the index higher in 2026

According to FactSet data, the average earnings of the Nasdaq-100 components grew by an estimated 20% in Q1 2026, nearly double the S&P 500's average. That's not surprising, as major components of the Nasdaq are forecasting an acceleration in growth.

Nvidia, for instance, is expected to deliver a 74% surge in earnings this year, which would be an improvement over its performance in the previous fiscal year. What's more, the company has said that it could generate a whopping $1 trillion in sales from its Blackwell and Vera Rubin processors in 2026 and 2027. The likes of Broadcom and memory specialist Micron Technology are also anticipating significant increases in sales, driven by massive demand for AI-capable chips.

Palantir Technologies, meanwhile, is reaping the benefits of helping its customers derive productivity growth from AI. The company reported $4.48 billion in revenue in 2025, an increase of 56% over 2024. Its guidance for this year is for a growth acceleration to 61% to bring its top line to roughly $7.2 billion, though I won't be surprised if it exceeds that.

I say this because Palantir's remaining deal value -- the total value of signed contracts yet to be fulfilled -- rose by 105% year over year in Q4 2025 to $11.2 billion. This robust pipeline is the result of both an expansion in Palantir's customer base and increased spending by its established customers. Analysts are forecasting a solid 76% increase in Palantir's earnings this year.

All this suggests that AI stocks could once again step on the gas later in 2026. Top-performing AI companies have been under pressure as of late despite clocking healthy growth, and a de-escalation of the Middle East crisis, coupled with strong financial performances from tech companies, could help them regain their mojo.

So, don't be surprised to see the Nasdaq Composite going on a bull run this year, just like it did last year. And you might want to consider buying some top tech names before it does.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology, Nvidia, Palantir Technologies, and Snowflake. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.