Key Points
The Vanguard Information Technology Index Fund ETF (NYSEMKT: VGT) has significantly outperformed the S&P 500 this year, delivering a 27% return. Many investors hesitate to buy after a strong run, but a closer examination of this technology ETF’s top holdings suggests its year-to-date performance is driven by durable fundamentals rather than short-term momentum alone.
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Significant exposure to the AI trade
The Vanguard Information Technology Index Fund ETF is heavily weighted toward chipmakers. Nvidia (NASDAQ: NVDA) is the largest holding, accounting for 17% of the fund’s total assets. Broadcom (NASDAQ: AVGO), Micron (NASDAQ: MU), and Advanced Micro Devices (NASDAQ: AMD) occupy the next several top positions, collectively representing 11% of total assets.
Hyperscale cloud providers depend on these chips to build out their artificial intelligence infrastructure, and as long as cloud platforms and other enterprises benefit from AI, demand should remain robust. Both Nvidia and Broadcom have issued forward guidance implying that AI revenue will continue to compound at a high rate.
The largest positions in the portfolio appear well-positioned to deliver exceptional fundamental growth during the AI expansion. This dynamic could support continued gains for the Vanguard Information Technology Index Fund ETF.
A pure-play technology portfolio
The technology sector has historically been one of the most effective ways to outperform the S&P 500 over the long term, and this ETF exemplifies that trend. The tech-focused Vanguard fund has generated an annualized return of 24.4% over the past decade.
A deeper look at the fund’s composition reveals a substantial allocation to semiconductors and tech hardware, which together account for more than 60% of total assets, including semiconductor equipment.
The fund also maintains exposure to other technology opportunities, such as e-commerce and online advertising. While these segments can outperform the S&P 500, artificial intelligence represents the most compelling growth driver at present.
Grand View Research projects a 30.6% compound annual growth rate (CAGR) for the artificial intelligence industry through 2033. While individual results will vary, chipmakers have emerged as the clear market leaders. Nvidia, Micron, Broadcom, and Advanced Micro Devices are all posting revenue growth rates significantly above the average S&P 500 company, and multi-year contracts suggest this trajectory will continue.
The Vanguard Information Technology Index Fund ETF has a long track record of outperforming the market and charges a minimal 0.09% expense ratio. This provides investors with a cost-effective, well-diversified portfolio of technology companies poised to capitalize on sustained AI demand.
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.