Biotech sector gains 33-35% in 2025, boosted by AI, M&A, and expected rate cuts in 2026.

The biotech sector has gained 33-35% over the past year, driven by advances in AI for drug discovery, increased mergers and acquisitions (M&A), and anticipated interest rate cuts in 2026. Analysts highlight that lower borrowing costs will help biotech firms finance clinical trials, while Big Pharma's need to replenish pipelines fuels M&A activity, especially in oncology and immunology. Two key ETFs for broad biotech exposure are the equally weighted XBI, which favors smaller companies and has gained over 40%, and the market-cap weighted IBB, dominated by large firms like Gilead and Amgen, with a 22% gain. Investors seeking stability might prefer IBB, while those seeking growth potential in smaller players might choose XBI.