After three straight years of huge gains, the Nasdaq-100 index has gotten stuck in 2026.
Concerns about how artificial intelligence (AI) could negatively disrupt the global economy and about valuation levels have turned the index from a leader to a laggard. It's traded in a fairly tight range this year, so it hasn't necessarily experienced a pullback, but it's not adding to returns the way it once did.
Things have been a bit better recently, though. From Feb. 27 -- the last market day before the Israel-U.S. war against Iran started -- through market close March 9, the Invesco QQQ ETF (QQQ 1.32%), which tracks the Nasdaq-100, is beating the Vanguard S&P 500 ETF (VOO 1.08%).
We shouldn't draw any major conclusions from just a few trading days. But after 2026's relative struggles for tech stocks, it's worth asking if the Nasdaq-100 rally has run out of steam or if there's still room left to run.
Let's break down the major catalysts for the tech sector right now.
Image source: Getty Images.
Tech still expected to lead in earnings growth
Investments into AI paid off for the "Magnificent Seven" companies in 2025. Both earnings and revenues accelerated even as questions arose about whether all of that spending is ultimately going to be worth it.
But 2025 isn't expected to be the end of it. The tech sector is expected to deliver the biggest earnings and revenue growth of all of the 11 S&P 500 sectors in 2026, according to some estimates. In 2027, the earnings growth rate is expected to slow to "only" 20%, but the sector is again forecast to have the highest revenue growth rate.
Over the long term, earnings growth is perhaps the biggest driver of stock performance, while anything can happen in the shorter term. But as long as the hundreds of billions of dollars being poured into AI development don't turn into a complete waste, the earnings story for tech is still attractive.
AI is still the big longer-term theme
An awful lot has happened since ChatGPT first launched back in late 2022. But it's important to keep in perspective that we're still in the early innings of the AI revolution. Over the coming years and decades, there's very likely to be a lot more incredible advances.
To be fair, there's probably more volatility ahead for the tech sector and U.S. stocks more broadly. A lot of these emerging sectors and themes see their stock prices go through boom/bust cycles at first before settling into a steadier long-term cycle. I think that if investors are willing to ride out some of the potential short-term volatility and downside risk, the rewards over the next decade could be quite good.
Valuations aren't too stretched
U.S. stock valuations are higher than their historical averages. That part isn't in question. But they're not egregiously out of whack.
The forward price-to-earnings (P/E) ratio for the S&P 500 information technology sector is 24.2. That's above its long-term average, but that number was around 31 not too long ago. This sector isn't nearly as expensive as it was even a year ago.
If you consider that number in relation to expected earnings growth over the next year, the valuation in this sector and the Nasdaq-100 actually aren't all that unreasonable. If these companies can deliver on current expectations, stocks might not need to experience a major valuation contraction at all.
Nasdaq-100 vs. S&P 500
If your holding period is a decade or more, I think the Nasdaq-100 is the better play. Now, given how far tech stock prices have risen over the past three years with very few interruptions, I wouldn't be surprised to see the rally take a bit of a breather. So, in that sense, the S&P 500 might still be the better short-term play, especially considering how many non-tech sectors are producing gains right now. But I think a tech index will be stronger in the long run.
For Nasdaq-100 exposure, I wouldn't choose the Invesco QQQ ETF. Instead, I'd go with the Invesco Nasdaq-100 ETF (QQQM 1.32%). It also tracks the Nasdaq-100 but does so with a lower 0.15% expense ratio compared to QQQ's 0.18%. It's a small advantage, but one you might as well take if it's sitting there if this ETF fits your needs.
