Aside from a brief sell-off in spring 2025, the tech sector went on a virtually uninterrupted run in the three-year period from 2023 to the end of 2025 -- gaining 131%.
Here's why the tech sector is under pressure in 2026, why pockets of the sector are doing very well while others are doing poorly, and a low-cost exchange-traded fund (ETF) that could be worth a closer look.
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Volatilty is heating up in the tech sector
The Vanguard Information Technology ETF (VGT 1.96%) has a staggering $130.3 billion in net assets, making it by far the largest U.S. sector ETF. With a mere 0.09% expense ratio, the fund offers a low-cost way for investors to get exposure to tech stocks.
At first glance, tech stocks are holding up fairly well, with the Vanguard Information Technology ETF down just 3.6% year to date compared to a roughly flat S&P 500. But dig deeper, and there's a divide that has become impossible to ignore.
BlackRock's iShares Semiconductor ETF (SOXX 3.48%), which closely tracks the semiconductor industry, is up a staggering 18.6% year to date. Notable holdings include chip designers like Micron Technology, Nvidia, Advanced Micro Devices, and Broadcom -- and semiconductor equipment companies like Applied Materials, Lam Research, and ASML Holding.
Meanwhile, another BlackRock ETF, the iShares Expanded Tech Software ETF (IGV 0.88%) -- which tracks the software industry -- is down 27.2% year to date. Its top holdings include Microsoft, Palantir Technologies, Oracle, Salesforce, and other enterprise software companies that are undergoing huge sell-offs due to artificial intelligence (AI) disruption fears.
Here's a look at the performance of the top 10 holdings in the ETF.
Because the Vanguard Information Technology ETF has exposure to the whole tech sector, the large gains from semiconductor stocks have essentially offset the sell-off in software stocks.
It's also worth noting that Nvidia, Apple, and Microsoft make up a combined 43.3% of the ETF. So for the sector to undergo a steep sell-off, there would have to be major declines from all three of those top holdings, as well as cracks in key industries like semiconductors.
A balanced way to buy tech stocks
The advantages of buying a sector ETF are on full display in 2026. It wasn't long ago that software was instrumental in powering the tech sector to new heights. But AI models challenge the value proposition of established enterprise software tools. However, there are plenty of quality software stocks that are arguably oversold and worth buying and holding.
Meanwhile, chip stocks are benefiting from increased demand for compute, networking, and storage. But the semiconductor industry is cyclical. So owning only chip stocks and leaving out the rest of the sector would be a mistake.
The best reason not to buy a sectorwide ETF would be if you already own your maximum desired allocation of a key holding, like Nvidia, Apple, or Microsoft. In that case, buying the ETF would double down on already large positions instead of providing true diversification. If that's not the case, then the Vanguard Information Technology ETF is well worth considering.
