ETFs
1 Unstoppable Vanguard ETF to Buy with $600 During the S&P 500 Bull Market
Nvidia (NASDAQ:NVDA) has soared 181% so far in 2024, and its current market cap of $3.3 trillion now represents 7% of the stock’s total value. S&P500. As a result, Nvidia alone is responsible for a third of the index’s 15.7% rise this year.
Simply put, investors who have no exposure to the biggest U.S. tech stocks — particularly those developing artificial intelligence (AI) — have missed out on significant returns in 2024. Considering Nvidia and its peers are worth trillions of dollars generate revenue and profit growth to justify Due to the surge in stock prices, the technology sector will likely continue to lead the S&P 500 higher.
Purchasing an exchange-traded fund (ETF) is a great way for investors to expose their portfolios to this trend without having to select individual stocks, and the Vanguard Information Technology ETF (NYSEMKT:VGT) is a great option. It’s issued by one of the largest ETF operators in the world, it’s very cheap to own compared to its peers, and it holds the most popular AI stocks.
Image source: Getty Images.
The Vanguard ETF Holds Every Tech Stock Investors Could Want
This ETFs holds 321 stocks from different segments of the technology industry. While this seems diversified, it is heavily weighted toward its top five holdings, which represent 52.6% of its total portfolio value. However, this top five includes some of the most elite AI stocks investors could want:
|
1.Microsoft |
16.71% |
|
2. Apple |
15.85% |
|
3.Nvidia |
14.02% |
|
4. Broadcom |
4.17% |
|
5. Advanced Micro Devices |
1.92% |
Data source: Vanguard. Portfolio weightings are accurate as of May 31, 2024 and are subject to change.
Microsoft has risen to the top of the AI software industry. It invested another $10 billion in ChatGPT creator OpenAI early last year, and used the startup’s latest GPT-4 models to create an AI assistant called Copilot, now integrated to its most popular products like Windows and 365. Additionally, Microsoft’s Azure cloud platform has become an access point for thousands of companies looking to develop their own AI applications.
Apple, on the other hand, could become the world’s largest distributor of AI to consumers. It recently unveiled Apple Intelligence (in partnership with OpenAI), which will soon bring AI to its 2.2 billion active devices worldwide, headlined by the flagship iPhone.
But no tech ETF would be complete without Nvidia. The development of the most advanced AI models would not be possible without its graphics processing units (GPUs) for the data center. The company recently unveiled its new Blackwell GPU architecture, paving the way for chips like the GB200, which will be five times faster than Nvidia’s H100 that already dominates the industry.
The story continues
Broadcom And Advanced microsystems are there two other sets of AI hardware; Broadcom sells networking hardware for data centers, and AMD recently launched a series of GPUs to compete with Nvidia. Additionally, it dominates another key segment of the AI computing space.
Outside of its top five, the Vanguard ETF holds a number of other important AI infrastructure stocks like Oracle And Micron technology. However, it also owns shares in successful companies that are now applying AI to improve their existing operations, like Crowd strike And Data Dog.
The Vanguard ETF is crushing the S&P 500, but watch out for concentration risk
The Vanguard Information Technology ETF is incredibly cheap to own. Its expense ratio is just 0.1%, which is the portion of the fund deducted each year to cover management fees. Comparable funds can cost almost 10 times more, significantly impacting long-term returns.
Speaking of which, the ETF has generated a compound annual return of 13.2% since its inception in 2004, which is much better than the S&P 500’s average annual gain of 9.9% over the same period.
But thanks to the proliferation of technologies like cloud computing, enterprise software and AI, the ETF has generated a compound annual return of 20.3% over the past 10 years. That dwarfs the S&P 500’s 12.7% annual return over the same period, and the difference is staggering in dollar terms:
|
$10,000 |
20.3% for the Vanguard ETF |
$63,482 |
|
$10,000 |
12.7% for the S&P 500 |
$33,055 |
Data source: Author’s calculations.
If AI stocks continue to lead the S&P 500 higher, this ETF will almost certainly continue to outperform the index. International consultancy PwC estimates that AI will add $15.7 trillion to the global economy by 2030, so there could still be a significant amount of value to be unlocked.
However, if AI fails to live up to the hype for whatever reason, stocks like Nvidia, Microsoft, and Apple could erase some of their incredible gains from last year, leading to a period of underperformance for the ETF. This is called concentration risk, and it’s something any investor should consider before purchasing an ETF that is so heavily weighted to just a few stocks.
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Anthony DiPizio has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Apple, CrowdStrike, Datadog, Microsoft, Nvidia and Oracle. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.
1 Unstoppable Vanguard ETF to Buy with $600 During the S&P 500 Bull Market was originally published by The Motley Fool