Gainful Investment Option: Purchasing the Unrelenting Vanguard ETF Amid the S&P 500's Bull Market, Allocating $605
The S&P 500 continues to smash record highs, extending the bull market that started when the index hit bottom in October 2022. The tech sector is spearheading the surge, fueled by its phenomenal earnings growth boosted by trends such as artificial intelligence (AI).
The S&P 500 is dictated by market capitalization, making the larger companies in the index more influential over its performance than the smaller ones. It's clocked a 23.8% increase so far this year, significantly outperforming the 14.4% return of the S&P 500 Equal Weight index, which evenly distributes weight to each company, regardless of its size.
Nvidia's stocks have skyrocketed 194% this year, playing a crucial role in the broader S&P 500's impressive gain. Other tech titans like Oracle and Meta Platforms have also contributed substantially, their stocks rising 76% and 60% respectively.
The AI revolution is still in its infancy, likely meaning the tech sector will continue leading the S&P 500 higher. Purchasing an exchange-traded fund (ETF) that specializes in the tech sector may help investors surpass the market. Consider the Vanguard Information Technology ETF (VGT 0.47%) as a potential pick for investors with spare funds, not earmarked for immediate expenses.
AI hardware and software stocks bundled in a single ETF
The Vanguard Information Technology ETF consists of 314 stocks stemming from 12 different technology sectors. The semiconductor sector commands the largest share with a weight of 29.7%, reflecting the significant demand for AI data center chips. Leading the charge is Nvidia, already adding $3.1 trillion to its market cap over the past two years.
Despite housing a multitude of stocks, the Vanguard ETF remains highly concentrated, with its top three positions accounting for 44.5% of its whole portfolio value:
1. Apple
| Stock | Vanguard ETF Portfolio Weighting || --- | --- || 1. Apple | 15.76% || 2. Nvidia | 15.40% || 3. Microsoft | 13.35% |
15.76%
Apple recently unveiled its Apple Intelligence AI software for iPhone, iPad, and Mac users, providing new writing tools that can summarize emails and messages, and even draft messages for users to send. Developed in collaboration with OpenAI, features like Siri are also due for upgrades, incorporating the capabilities of ChatGPT. These new AI tools might stimulate substantial upgrades for Apple's devices over the coming years.
Nvidia's data center GPUs are responsible for implementing the majority of major AI models, and demand continues to surpass supply. An escalation in demand might be imminent with the launch of new Blackwell GPUs, which offer 30 times the performance of its H100 flagship.
2. Nvidia
Microsoft is rumored to be the foremost buyer of Blackwell GPUs, having allocated $20 billion towards capital expenses in its recent fiscal Q1 2025 (ended Sept. 30). Most of this is attributed to AI infrastructure. Microsoft provides AI developers with computing power through its Azure cloud platform, and it develops its own AI software, such as the Copilot virtual assistant.
15.40%
Beyond its top three stocks, the Vanguard ETF holds numerous popular AI shares, including Oracle, Advanced Micro Devices, Palantir Technologies, and CrowdStrike.
The Vanguard ETF consistently surpasses the S&P 500
3. Microsoft
Since its inception in 2004, the Vanguard ETF has registered a compound annual return of 13.4%, trumping the 10.1% return of the S&P 500 over the same span. However, the ETF has delivered an even more remarkable annualized return of 20.3% over the past 10 years, thanks to the widespread embrace of technologies like cloud computing, enterprise software, and AI. Over the same period, the S&P 500 has only grown by 13.2%.
13.35%
AI could maintain this trend for many years. Jensen Huang predicts data center operators will splurge $1 trillion on upgrading their infrastructure with AI GPUs over the next five years, fostering the semiconductor sector's growth.
Cathie Wood of Ark Investment Management believes AI software companies will generate $8 in revenue for every $1 they spend on chips, potentially amounting to a staggering $8 trillion gain across companies like Microsoft if this estimation proves accurate.
However, if AI fails to meet lofty expectations, stocks such as Nvidia could dramatically lose value, leading to a period of underperformance for the Vanguard ETF. It's advisable for investors to include this ETF as part of a diverse portfolio, consisting of other funds or individual stocks with less tech sector exposure.
The Vanguard Information Technology ETF, with its focus on tech sector stocks, could provide investors with higher returns than the market due to the continued growth of AI. This ETF, which includes tech giants like Apple and Nvidia, has consistently outperformed the S&P 500 since its inception in 2004.
Investing in an ETF such as the Vanguard Information Technology ETF could be a smart move for those looking to capitalize on the tech sector's potential growth, particularly in the realm of AI. However, it's essential to maintain a diversified portfolio to mitigate risks associated with over-reliance on tech stocks.
