ETFs
Is the Vanguard S&P 500 ETF still a buy?
The US stock market has seen a remarkable rise since October 2022, with the popular Vanguard S&P 500 ETF (NYSEMKT: VOO) gaining a staggering 53.6% over this period. This long-running rally, initially sparked by attractive valuations following Federal Reserve interest rate hikes, has been fueled by generally positive earnings and the transformative potential of the artificial intelligence (AI) revolution.
However, some skeptics worry about the sustainability of this aging bull market. THE S&P500the cyclically adjusted price/earnings ratio (CAPE ratio) currently stands at around 34, more than double its historical average of around 16. This high valuation has led some investors to wonder whether the market is overheated and due to a correction.
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Investing in a world in transition
This superficial analysis fails to capture the profound impact that AI is poised to have on the global economy. By 2027, AI is expected to usher in a new era of advanced robotics, autonomous vehicles, and countless other revolutionary innovations. Moreover, the pace of development could be further accelerated by the advent of autonomous AI researchers in just a few years.
As a result, the world of 2030 will likely be a fundamentally different place, and relying on historical precedent to guide investment decisions in this rapidly changing landscape could prove costly. AI is expected to add at least $17 trillion to the global economy, with more optimistic estimates putting it at over $100 trillion.
This transformative potential arises from AI’s ability to open previously inaccessible markets across sectors and industries while simultaneously creating new market opportunities. The disruptive nature of AI is set to reshape the fabric of our economy, reducing the usefulness of traditional valuation measures.
Want proof that AI is not a fad train?
A recent development that highlights the rapid pace of AI innovation is the US Air Force’s plan to field AI-armed and powered F-16 jets by 2030, as announced Secretary of State Frank Kendall. Beyond ethical considerations, the US military’s decision to fully embrace AI is a testament to the breakneck speed at which this field is progressing.
American companies will likely follow suit. After all, businesses that don’t integrate AI into their workflow risk falling behind their competitors. In more direct terms, this transformative technology will become necessary for the survival of most businesses.
Key takeaways
The Vanguard S&P 500 ETF is in a strange place. On the surface, it appears fundamentally overvalued, especially in an era of high interest rates, persistent inflation, and a shortage of skilled labor in the United States.
The story continues
However, AI will likely render most of these headwinds moot. A Gutenberg moment awaits us with the advent of general artificial intelligence, which could happen much sooner than expected. As such, you may want to rethink your time away.
Yes, volatility will likely soon become a major factor, as AI-related disruptions take hold and society struggles to adapt. But staying invested in a leading large-cap-focused fund like the Vanguard S&P 500 stands to pay off big over the next 20 years, thanks to the next AI-fueled innovation boom.
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George Budwell has positions in the Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends the Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
Is the Vanguard S&P 500 ETF still a buy? was originally published by The Motley Fool