This ETF Is Set To Beat the S&P 500 For the Third Year in a Row. Can It Do Again in 2026?
- - This ETF Is Set To Beat the S&P 500 For the Third Year in a Row. Can It Do Again in 2026?
Jeremy Bowman, The Motley FoolDecember 20, 2025 at 1:05 AM
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Key Points -
The S&P 500 is on a roll, but another index fund has nearly doubled it during the AI era.
The QQQ ETF offers exposure to the 100 largest Nasdaq stocks.
The QQQ is trading at a modest premium to the S&P 500.
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An S&P 500 (SNPINDEX: ^GSPC) ETF might be the gold standard of investing. Even the world's most successful investors like Warren Buffett swear by it, and plenty of hedge funds keep S&P 500 ETFs in their portfolios.
The index tracks 500 of the top U.S. stocks, as chosen by S&P Global, and the index manager updates the membership quarterly, ensuring that chronic underperformers are removed from the index and that rising stars are added.
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Over its history, the S&P 500 has returned an annual average of 9% with dividends included, making it a reliable way to grow wealth over the long term. However, in recent years and even through the entire 2000s, the S&P 500 has been bested by another index fund. That's the Invesco QQQ Trust (NASDAQ: QQQ), which tracks the Nasdaq-100, an index that holds the 100 most valuable non-financial companies on the Nasdaq.
The Invesco QQQ ETF also has a stellar track record, and it's on its way to outperforming the S&P 500 for the third year in a row.
The table shows how the two investments have done since the end of 2022.
Year
S&P 500 gains
QQQ gains
2023
24.2%
54.9%
2024
23.3%
25.6%
2025 (YTD)
14.3%
21.6%
As you can see, the QQQ got out to a blistering start in the AI era, bouncing back from a 33% decline in 2022. Since the start of 2023, the ETF has jumped 130%, compared to just a 77% gain for the S&P 500.
But what does that mean for 2026? Will QQQ's winning ways continue, or is it on track for a correction?
The word "ETF" against an iridescent background.
Image source: Getty Images.
A history of outperformance
The QQQ hasn't just been a winner over the last three years. It's also been a top investment this century.
Dating back to 2000, a period that includes the dot-com bust, the QQQ has still outperformed the S&P 500. As you can see from the chart below, the ETF passed the S&P 500 in 2019 and hasn't looked back since, significantly extending its lead over the last three years.
QQQ Chart
QQQ data by YCharts
The recovery and surge in the QQQ over the last decade are a reflection of the emergence of the tech sector, which should continue to take up a greater share of the stock market's value over the long term as technology advances in ways we haven't even imagined.
The Nasdaq-100 isn't exclusively to tech stocks, but the sector does make up 64% of the fund, with consumer discretionary as the next largest segment at 18.3%. Its top five holdings include Nvidia, Apple, Microsoft, Alphabet, and Broadcom. Those are similar to the top holdings of the S&P 500, but the QQQ has an even larger concentration in those stocks than the S&P 500.
Can it outperform in 2026?
Whether the QQQ can outperform again in 2026 likely depends on the broader market trends, including whether AI stocks keep gaining.
However, the fund's valuation still looks reasonable at a price-to-earnings ratio of 33.7, which compares to the S&P 500 at 27.4.
The volatility of the tech sector can swing both ways. The Nasdaq-100 has fallen further than the S&P 500 during times like the dot-com bust, 2008, and 2022, but during bull markets, it has a history of outperforming.
For long-term investors, buying some shares of the QQQ makes sense, even at a time when it might seem to have a premium valuation. Tech stocks like the "Magnificent Seven" and the semiconductor sector are growing rapidly and look poised to deliver more gains in 2026.
Overall, the QQQ looks more likely than not to beat the S&P 500 next year.
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Jeremy Bowman has positions in Broadcom and Nvidia. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, Nvidia, and S&P Global. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Source: “AOL Money”
