Vanguard’s 2026 Outlook Is Here. You Might Want to Get Used to Smaller Stock Returns.

Artificial intelligence could completely change the way the world works. It still may not do much for stock portfolios.

Vanguard said AI stands to be a transformative technology and boost the U.S. economy, but the asset manager still forecasts long-term returns—single-digits over the next decade—that might represent a wake-up call for investors accustomed to the historically unusual powerhouse gains seen in the S&P 500.

In its 2026 outlook report, the shop known for its index funds ran through various scenarios in which AI proves out and in which it disappoints. The bull case for AI is that it eventually boosts the U.S. economy: Vanguard sees GDP growth hitting 3% on average between 2028 and 2035.

But what’s good for the economy isn’t necessarily good for stocks. Vanguard’s expectations for the U.S. market stem largely from its risk-return assessment of large-cap shares, a useful reminder that the S&P 500’s double-digit returns of the past are not guaranteed to continue.

Vanguard’s base case suggests U.S. stock returns of around 4% to 5% annually over the next five to 10 years. If AI shoots the lights out, 10-year stock return projections improve to a range of 8% to 10%. And if AI disappoints, return forecasts fall to negative 2% to 2%. (Vanguard puts the probability of the bull case 10% and the bear at 30%.)

Vanguard is not dismissing AI as a transformative technology, but its outlook strongly suggests investors temper their expectations. In Vanguard’s bear scenario for AI, the U.S. economy could experience “anemic growth reminiscent of the decade following the 2008 global financial crisis,” the report said.

High-quality U.S. fixed income, U.S. value stocks, and non-U.S. developed market stocks offer stronger opportunities than the growth-heavy names that have dominated the benchmark index in recent years, according to the firm. Because AI expectations haven’t been priced into U.S. value stocks, in the event that wider adoption of the technology leads to productivity gains, that group stands to outperform growth-oriented tech stocks that have been bid up by the AI trade lately.

Aligning with other investment professionals that have started to grow wary of Big Tech, Vanguard’s expectations for smaller long-term U.S. stock returns is underpinned by the chance that the market isn’t pricing in the potential for disappointment, especially given the “arms-race dynamics” and the capital required. The risk for Big Tech is being overextended after the AI development phase and unable to deliver the profits that the market expects.

U.S. technology stocks could maintain their momentum in the short run, with earnings growth and faster-than-expected uptake of AI supporting double-digit returns through 2026. However, expectations are already high, and the market continues to underestimate the force of “creative destruction”—when new entrants erode legacy businesses’ moats and displace them. That raises the likelihood of disappointment, according to Vanguard.

It’s an open question whether the Magnificent Seven—Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), Meta Platforms (META), and Tesla (TSLA)—or the thousands of private AI startups end up leading the AI revolution. Most of the hyperscalers were unknown or nonexistent during the dot-com boom, Vanguard notes, and “early leaders in tech revolutions rarely maintain their dominance indefinitely.”