Key Points
The Vanguard Information Technology Index Fund ETF (NYSEMKT: VGT) has crushed the S&P 500 this year, with a 27% return. Some investors think they missed out on the rally when a stock or ETF gains momentum, but that may not be the case for this tech ETF. A closer look at the fund’s top holdings indicates that there is more to the strong year-to-date performance than investors may realize.
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This tech ETF offers significant exposure to the AI trade
The Vanguard Information Technology Index Fund ETF is filled with chipmakers. Nvidia (NASDAQ: NVDA) is the largest position, making up 17% of the fund’s total assets. Broadcom (NASDAQ: AVGO), Micron (NASDAQ: MU), and Advanced Micro Devices (NASDAQ: AMD) hold the top four to six positions in the fund and account for a combined 11% of total assets.
Hyperscalers need these chips for their artificial intelligence infrastructure, and as long as cloud platforms and other businesses perform well thanks to AI, those investments will continue. Nvidia and Broadcom both gave multi-year guidance that implies AI revenue will continue to compound.
The largest positions in the portfolio look poised to deliver exceptional fundamental growth amid the AI boom. It’s this type of growth that could help the Vanguard Information Technology Index Fund ETF extend its gains.
It’s all tech
The tech sector has historically been one of the best ways to beat the S&P 500 over the long run, and this ETF serves as an excellent example. The tech-focused Vanguard fund has an annualized return of 24.4% over the past decade.
Looking deeper into the fund reveals a major allocation to semiconductors and tech hardware, which together account for more than 60% of total assets, including semiconductor equipment.
It still has some exposure to other tech opportunities, such as e-commerce and online advertising. While these types of investments could beat the S&P 500, artificial intelligence is the hottest opportunity right now.
Grand View Research projects a 30.6% compound annual growth rate (CAGR) for the artificial intelligence industry through 2033. Some companies will grow faster than others as the rising tide of AI lifts many businesses, but chipmakers have been the market leaders. Nvidia, Micron, Broadcom, and Advanced Micro Devices are all posting revenue growth rates far more impressive than the average S&P 500 company, and multi-year deals suggest that it will continue.
The Vanguard Information Technology Index Fund ETF has a long history of beating the market and charges only a 0.09% expense ratio. It doesn’t cost much to get a well-diversified portfolio of tech companies that should benefit from continued AI demand.
Should you buy stock in Vanguard Information Technology ETF right now?
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Marc Guberti has positions in Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Broadcom, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.
