The benchmark S&P 500 index returned 16.4% during 2025, far outpacing its average annual gain of 10.6% dating back to its inception in 1957. However, had investors bought the Vanguard Information Technology ETF (VGT 1.96%) at the start of last year instead, they would have earned a much higher return of 21.2%.
This Vanguard exchange-traded fund (ETF) exclusively invests in companies from the information technology sector, which includes many of the artificial intelligence (AI) powerhouses that have propelled the broader market higher over the last few years.
The Vanguard ETF has beaten the S&P 500 every year since it was established in 2004, so its outperformance last year certainly wasn't a one-off. Here's why I think it will crush the market again in 2026.
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Hundreds of leading tech stocks packed into one ETF
The Vanguard Information Technology ETF holds 320 stocks from 12 different subsegments of the technology industry. The semiconductor subsegment is the largest by far, representing 32.4% of the value of the ETF's entire portfolio. That shouldn't come as a surprise considering top AI chipmakers like Nvidia, Broadcom, Micron Technology, and Advanced Micro Devices have a combined value of $7 trillion.
Systems software is the second largest subsegment in the Vanguard ETF, with a 17.7% portfolio weighting. It features companies like Microsoft and Palantir Technologies, which sell AI software primarily to enterprise customers. It also includes Oracle, which is a hybrid software and AI infrastructure company, in addition to AI cybersecurity powerhouses like Palo Alto Networks and CrowdStrike.
As you can tell, the Vanguard ETF offers exposure to the entire AI space, from hardware suppliers to software developers. But it doesn't stop there, because it also invests in consulting companies, application developers, internet service providers, and suppliers of equipment and components other than chips specifically, all of which are also playing a key role in the AI revolution.
I mentioned nine stocks above by name. Since the AI boom started gathering momentum at the beginning of 2023, each one of them has at least doubled, with an average return of 655% (and a median return of 353%). The S&P 500 climbed by 81% over the same period, so having such a high exposure to those stocks is a key reason for the Vanguard ETF's consistent outperformance.
The Vanguard ETF can beat the S&P 500 again in 2026
The Vanguard Information Technology ETF has produced a compound annual return of 14.1% since its inception in 2004, so it has outperformed the S&P 500, which climbed by an average of 10.6% annually over the same period.
AI stocks are likely to drive another strong return for the Vanguard ETF during 2026. Semiconductor fabricators and equipment suppliers like Taiwan Semiconductor Manufacturing, Texas Instruments, and ASML Holding each reported their latest quarterly operating results over the last couple of weeks, and they revealed a continued surge in demand.
This implies chip suppliers like Nvidia, AMD, Broadcom, and Micron are experiencing significant demand from major data center operators like Microsoft, so the entire AI value chain continues to fire on all cylinders.
NYSEMKT: VGT
Key Data Points
Before AI burst onto the scene, the Vanguard ETF sourced its incredible returns from other tech revolutions like the dawn of the smartphone, cloud computing, and enterprise software. And like every technology that came before it, AI will eventually take a back seat to make way for the next big thing, with quantum computing, autonomous vehicles, and robotics being the obvious candidates right now.
Simply put, the technology sector is extremely versatile, which is why the Vanguard Information Technology ETF could be a great addition to a diversified portfolio. All signs point to another outperformance relative to the S&P 500 in 2026, so investors who lack exposure to the tech sector might want to consider making a move.
