Prediction: The Nasdaq's AI Stocks Will Outperform the S&P 500 Over the Next 12 Months. Here's What to Buy.

Technology stocks are rebounding after a poor start to the year. The tech-laden Nasdaq-100 index, which pulled back by nearly 6% in the first quarter of 2026, has erased its losses and rallied by 11% so far in April.

This impressive turnaround can be attributed in part to the recent developments in the Middle East, as a ceasefire between the warring parties there has boosted investor confidence on Wall Street again. Artificial intelligence (AI) stocks, in particular, are benefiting from the positive geopolitical news. The Global X Artificial Intelligence & Technology ETF has soared by 14% this month.

This exchange-traded fund (ETF) invests in companies involved in the development of AI hardware and software, so its rally suggests that AI stocks have regained their mojo. In fact, it won't be surprising to see AI stocks outperforming the S&P 500 index in the coming year.

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Nasdaq companies are going to deliver stronger earnings growth

The massive investments in AI infrastructure and the growing adoption of AI software solutions, driven by the productivity gains the technology promises, are poised to drive stronger earnings growth for tech companies. A February report from the Nasdaq Index research team noted that the average net income growth of Nasdaq-100 companies in 2025 was well above that of S&P 500 companies.

The report further suggests that this trend is poised to continue in 2026. Analysts expect to hear that the net income of Nasdaq-100 companies increased by 19% year over year in the first quarter, well above the 11% average earnings growth that the S&P 500 companies are estimated to have achieved. Strong AI spending could ensure stronger earnings growth for Nasdaq stocks through the rest of the year.

The five biggest hyperscalers in the U.S. are expected to spend $720 billion on capital expenditures in 2026. In addition, neocloud companies such as CoreWeave (NASDAQ: CRWV) will add to the massive spending on data centers. Moreover, chipmakers and foundries are also increasing their capital outlays as they strive to increase their production capacity so that they can meet the massive demand for data center hardware, including graphics processing units, custom AI processors, memory chips, server racks, and other components.

At the same time, demand for AI software is expected to rise as more enterprises and users continue to adopt the technology in the hopes of unlocking productivity gains.

These AI stocks can outperform the broader market

Earlier, I mentioned CoreWeave: That neocloud company, which builds dedicated AI data centers equipped with Nvidia's graphics processing units, plans to double its capital expenditures in 2026 to a range of $30 billion to $35 billion.

It is easy to see why. The company needs more data centers to fulfill its $90 billion revenue backlog. Importantly, that backlog keeps getting bigger, as more companies queue up to buy cloud computing capacity from it. For instance, trading firm Jane Street recently announced that it will spend $6 billion on CoreWeave's cloud platform to develop, deploy, and scale its AI services.

This latest contract suggests that CoreWeave's actual revenue backlog could be closer to $100 billion. Not surprisingly, the market's revenue forecasts for it have been heading higher.

CRWV Revenue Estimates for Current Fiscal Year data by YCharts.

CoreWeave's booming order book has boosted the stock, with shares gaining 49% in April. The good news for investors is that it can still be bought at 10 times sales, which isn't all that expensive when its red-hot revenue growth expectations are considered.

Tech giant Microsoft (NASDAQ: MSFT), meanwhile, is experiencing remarkable demand for its AI software solutions, notably Copilot, its proprietary AI assistant. The company noted in January this year that the number of Copilot daily users had jumped almost threefold year over year. Its enterprise-focused Microsoft 365 Copilot productivity assistant, which is integrated into applications such as Teams, Outlook, Word, Excel, and PowerPoint, had 15 million paid seats as of Dec. 31, the end of its fiscal 2026 second quarter.

Importantly, Microsoft is witnessing large-scale commercial purchases of Copilot, which isn't surprising given the productivity improvements it delivers. With the AI software market expected to grow from $127 billion in 2024 to almost $440 billion in 2029, per a forecast from market intelligence provider Futurum, Microsoft's AI-focused software offerings could keep growing at a healthy pace.

This probably explains why analysts are forecasting an acceleration in Microsoft's earnings growth.

MSFT EPS Estimates for Current Fiscal Year data by YCharts.

That stronger earnings growth could send the stock higher. Even better, investors can buy it at an attractive 22 times forward earnings right now, a slight discount to the Nasdaq-100's forward earnings multiple of 23.6. Doing so could turn out to be a smart long-term move as Microsoft's presence in multiple AI-related niches, including cloud computing, could continue to be a tailwind for its stock price.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool has a disclosure policy.