Can AI ETFs Sustain Their 2025 Outperformance in 2026?

The artificial intelligence (AI) ETF space has been one of the most dynamic corners of the investment universe in 2025, with both active and passive strategies delivering strong returns. However, as the calendar flips to 2026, investors are increasingly asking: Can this outperformance endure? The answer hinges on a nuanced interplay of market dynamics, technological evolution, and the structural advantages of passive versus active strategies.

Passive Dominance in 2025: A Tale of Mega-Cap Exposure

Passive AI ETFs, particularly those tracking broad ESG or technology indices, have outperformed their active counterparts in 2025. Funds like the Vanguard FTSE Social Index and iShares ESG Aware MSCI USA ETF returned 16.7% and 15.1%, respectively, closely mirroring or exceeding the S&P 500's performance. This success stems from their full exposure to market-leading stocks such as Nvidia, Microsoft, and Apple- companies that have driven the AI boom. By design, passive strategies avoid the pitfalls of active managers who may underweight these leaders, as seen in underperforming funds like Brown Advisory Sustainable Growth.

The cost efficiency of passive ETFs also plays a role. With expense ratios typically below 0.7%, these funds minimize drag, allowing investors to capture the full upside of AI-driven growth without sacrificing returns to management fees.

Active Strategies: Agility vs. Volatility

Active AI ETFs, however, have shown flashes of brilliance. The Roundhill Generative AI & Technology ETF (CHAT), for instance, surged 47% year-to-date in 2025, outpacing passive peers like the Global X Artificial Intelligence & Technology ETF (AIQ), which returned 28%. CHAT's success is attributed to its concentrated holdings in AI leaders and its ability to rebalance quickly in response to sector shifts.

Yet active strategies come with inherent risks. Higher volatility and the potential for misjudged bets- such as overexposure to niche sectors like renewable energy-can erode returns. For example, the ARKQ fund, while delivering double-digit gains, remains a high-risk proposition due to its focus on disruptive technologies.

2026 Outlook: Passive Momentum vs. Active Adaptability

Looking ahead, experts suggest passive ETFs may retain their edge in 2026, particularly in large-cap U.S. equities. Fidelity International and the BlackRock Investment Institute highlight AI's potential to outperform traditional macroeconomic factors, but they also note that low-cost passive strategies are better positioned to capitalize on the broad-based growth of mega-cap tech stocks.

However, the AI sector's rapid evolution complicates this narrative. Breakthroughs in generative AI, quantum computing, and edge computing could create new opportunities that passive indices lag in capturing. Active managers, with their ability to pivot quickly, may gain an advantage in these scenarios.

Sustainability and the Energy Equation

A critical factor in sustaining AI ETF performance is the sector's environmental footprint. Data centers, which underpin AI infrastructure, are grappling with rising energy demands. While this poses a challenge, it also creates opportunities for ESG-focused investors. Passive ETFs with integrated ESG criteria are already aligning with renewable energy trends, while active managers may leverage their discretion to invest in green infrastructure or energy-efficient technologies.

Conclusion: Balancing the Scales

The sustainability of AI ETF outperformance in 2026 will likely depend on a hybrid approach. Passive strategies offer cost efficiency and broad exposure to the sector's leaders, while active strategies provide agility in navigating its uncertainties. Investors seeking resilience may benefit from a diversified portfolio that combines both, hedging against volatility while staying attuned to AI's transformative potential.

As the sector matures, the line between active and passive will blur further. The key will be maintaining thematic purity-ensuring AI ETFs remain genuinely invested in the sector-while balancing risk through diversification and sustainability-focused allocations.