ETFs
Why the Vanguard Information Technology ETF is one of the best ways to invest in artificial intelligence (AI)
If you’re looking to invest in tech stocks, and particularly some of the tech companies most likely to benefit from artificial intelligence (AI)THE Vanguard Information Technology ETF (NYSEMKT:VGT) is an interesting option to consider.
THE exchange-traded fund (ETF) tracks the MSCI US Investable Market Information Technology 25/50 Index, which includes companies involved in cloud computing, semiconductors, data centers and communications equipment such as smartphones and computers, among other areas.
A solid track record
The information technology ETF has a strong track record with an average annual return of 20.3% over the past decade as of the end of May. This equates to a cumulative return of almost 535% over this period. Thus, an investment of $10,000 made 10 years ago would be worth nearly $63,500 today.
Returns have been even higher recently, with an average annual return of 23.5% over the past five years and 29.1% over the past year.
The ETF also comes with a management expense ratio of just 0.10%, meaning the management fee on that $10,000 investment would be just $10.
A very heavy wallet
The Vanguard ETF is heavily weighted in its top three holdings, all of which appear poised to be among AI’s biggest long-term beneficiaries.
At the end of May, Nvidia (NASDAQ:NVDA) was the ETF’s third-largest holding, accounting for 14% of its portfolio. However, with the company recently becoming the largest company in the world, I wouldn’t be surprised if it becomes its top holding given the stock’s recent performance.
Nvidia has been the biggest beneficiary of the AI boom so far, with the company’s graphics processing units (GPUs) being the backbone of building AI infrastructure. As companies strive to create new AI models, its chips are essential for large language model (LLM) training and inference.
The company has managed to create a wide gap with its Compute Unified Device Architecture (CUDA), the software platform on which most developers learned to program GPU chips.
Its incredible growth is expected to slow due to the law of large numbers, but Nvidia still appears poised to continue being a winner in AI given that its technology has become the de facto industry standard.
At the end of May, the ETF’s second-largest holding was Apple (NASDAQ: AAPL), at 15.9% of its portfolio. The company has struggled to grow revenue over the past year, but it should start benefiting from AI soon.
Apple isn’t typically a tech-savvy company, but while it may not be the first to market with its devices, they often end up being some of the best.
The story continues
The iPhone maker recently introduced a number of AI features to run on its new Apple Intelligence platform that will be integrated into the operating systems of its smartphones, tablets and computers. These advancements, which require newer technology, should help drive a hardware upgrade cycle that will propel the company and its stock forward.
The ETF’s top holding at the end of May was Microsoft (NASDAQ: MSFT), at 16.7%. It was one of the first large-cap technology companies to adopt AI through its significant investment in OpenAI.
The company’s cloud computing division, Azure, has been the biggest beneficiary of the initiative so far, with customers building their own AI applications using its platform. Its consumption-based model contributed to 31% growth in the segment in the last quarter.
Other industries have also started to benefit from its Copilot AI assistant, which has driven growth in its GitHub developer platform and Microsoft 365.
Image source: Getty Images.
Is it time to buy this ETF?
For investors who want to start investing in AI, the Vanguard Information Technology ETF is a great option. Nvidia, Microsoft and Apple together accounted for 46.6% of the ETF’s holdings at the end of last month. As these three stocks evolve, so will the ETF – and they all appear poised to continue to benefit from AI.
And these aren’t the only stocks among the ETF’s top holdings that can make this claim. Broadcom, Advanced microsystems, QualcommAnd Adobe are also part of this group.
With AI still in its infancy, now seems like a good time to add the Vanguard Information Technology ETF to your portfolio.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Adobe, Advanced Micro Devices, Apple, Microsoft, Nvidia and Qualcomm. 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.
Why the Vanguard Information Technology ETF is one of the best ways to invest in artificial intelligence (AI) was originally published by The Motley Fool