Biotech Stocks Are Up About 35% in the Past Year and Analysts Say the Biggest Gains Are Still Ahead

The bulk of coverage towards the top gaining stock sectors over the past year has focused understandably on technology, which has made huge strides, with semiconductors exceeding +60%. However, the biotech sector has gained +33-35% in the same period – and many predict things are just getting started. 

For those seeking a broad biotech exposure, an index tracking ETF is the most convenient and diversity risk mitigated avenue to take. Two worth consideration are:

• State Street SPDR S&P Biotech ETF (NYSE: XBI | XBI Price Prediction)
• iShares Biotechnology ETF (NASDAQ: IBB)

Why Analysts Are Bullish on Biotech

Analysts are bullish on biotech for 2026 due to projected interest rate cuts, increased M&A activity and the expansion of AI for drug discovery processes.

The biotech sector has been surprisingly resilient, especially in light of the disclosures made over the past year by HHS Secretary Kennedy on Big Pharma abuses during the pandemic and others. The following three reasons have analysts projecting sizable gains for biotech over the next 12 months:

1. Now that Jerome Powell’s term at the Federal Reserve Chair is fast drawing to a close and Kevin Warsh has been nominated to the post, the odds of a long overdue interest rate cut have increased substantially. One of the biggest expenses for biotech companies is borrowing costs for financing ongoing FDA clinical trials. Cutting interest rates are anticipated to boost biotech prospects accordingly.
2. The lower financing costs are also fueling an upsurge in biotech M&A, being driven by these factors:

• Big Pharma companies like Eli Lilly, GSK and Gilead are desperately seeking pipeline replacement to make up for revenue losses in 2025. 
• Oncology, Metabolic disorders, radiopharmaceuticals, and I&I (Inflammation and Immunology) are all key sectors of strong M&A interest. 
• Value Focus – increased investor sophistication now exhibits greater skepticism over greenfield hype and increased interest in companies who are already in Phase II or Phase III trials. Conservative estimates range in 15% M&A growth  projections for the sector.

       3. Companies with A.I. applications for drug discovery and the MedTech sector are assiduously being sought and reviewed as acquisition candidate              targets. A.I. has been shown to possess the capacity to compress a decade of drug discovery work into just 2-3 years.

State Street SPDR S&P Biotech ETF

XBI equally weights its stocks, so smaller biotech companies that generate strong buying volume due to breaktrhoughs or other news events will drive the stock as much as a Gilead or Amgen.

An ETF designed to track the S&P Biotechnology Select Industry Index, XBI has gained +40.32% in the past year. With an average daily volume of 9.3 million shares, liquidity is not a concern. At $8 billion net assets, it’s one of the largest Healthcare sector ETFs in the market at present. 

While it tracks the S&P Biotechnology Select Industry Index, XBI has a twist to its composition: it equally weights its roughly 145 stocks. This gives a stronger tilt towards smaller companies that may exhibit surges of buying activity due to new breakthroughs, FDA trial approvals, M&A announcements, or other events that would not register in a market-cap weighted ETF.

TipRanks has a 55% “strong buy” consensus rating for XBI. 

iShares Biotechnology ETF

AS IBB is marketcap weighted, biotech titan Gilead comprises nearly 10% of the IBB stock holdings.

BlackRock’s iShares Biotechnology ETF tracks the ICE Biotechnology Index.  It has a 12-month trailing gain of +22.20%. It’s somewhat larger than XBI with $8.7 billion in net assets, although it trades less daily volume at 1.8 million shares. IBB saw over $670 million in new inflows during 2025. It carries a Bronze rating from Morningstar. 

Like most other index ETFs, IBB is market cap weighted. As a result, Gilead, Vertex and Amgen already account for over 25% of its holdings. The top 10 largest companies comprise half of its holdings. As a result, the big biotech companies dominate the ETF’s direction, much like the way the Magnificent 7 A.I. tech stocks (Apple, Amazon, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla) dictate the direction of the S&P 500. 

Salveen Richter of Goldman Sachs and Jared Holz of Mizuho are just two of the analysts who have projected continued strong growth in the biotech sector. Investors who want exposure to the sector in 2026 through an ETF might prefer IBB for greater stability and the comfort of big name companies dictating the sector’s direction. For those investors who want some upside action on some of the more obscure players with strong potential, and don’t mind the commensurate volatility, XBI may be more to their liking.