Vanguard ETFs Ride the AI Wave: A Gateway to Tech Giants and AGI Potential

Meet the Spectacular Vanguard ETF With 45.1% of Its Portfolio Invested in Nvidia, Apple, Microsoft, and Amazon | The Motley Fool

The S&P 500 (^GSPC 0.35%) index is up by 30% over the past year, and one-fifth of that gain is attributable to a single stock: Nvidia (NVDA -3.22%). The chip giant has delivered a return of 186% over the last 12 months, and with a valuation of $3.6 trillion, it represents 7% of the total value of the S&P 500. But Nvidia isn't alone. It's part of a collection of technology giants dubbed the "Magnificent Seven" which have generated an average return of 56% over the past year. The companies have a combined market capitalization of $16.9 trillion, and represent 32.1% of the entire S&P 500. Simply put, investors who don't have exposure to the above tech stocks have likely underperformed the broader market. But the good news is that they can get that exposure very easily through an appropriate exchange-traded fund (ETF). The Vanguard Mega Cap Growth ETF (MGK 0.01%) has nearly half of its portfolio invested in four of America's largest tech stocks. It consistently outperforms the S&P 500 over the short and long term. Here's why it's a great buy for investors of all experience levels. The Vanguard Mega Cap Growth ETF holds just 71 different stocks. The fund is highly concentrated, with the technology sector representing 61.4% of the value of its portfolio, followed by the consumer discretionary sector at 20.3%. In fact, its top four holdings alone represent 45.1% of its portfolio, but they are among the top artificial intelligence (AI) powerhouses that practically every investor wants to own. Data source: Vanguard. Portfolio weightings are accurate as of Oct. 31, 2024, and are subject to change. Apple just rolled out its Apple Intelligence software, which it developed with OpenAI. It delivers a slate of new AI features for owners of the latest iPhones, iPads, and Mac computers, including powerful writing tools that can summarize and generate text content for emails or messages. Apple has over 2.2 billion active devices worldwide, so it could become the biggest distributor of AI to consumers. Nvidia supplies the most popular data center graphics processing units (GPUs) for developing AI models. The company's data center revenue generated triple-digit percentage growth in each of the last six quarters because demand continues to outstrip supply. That momentum should continue now that Nvidia is shipping its powerful new Blackwell GPUs, with CEO Jensen Huang recently describing demand as "staggering." Microsoft and Amazon are two of Nvidia's top customers. They fill their data centers with GPUs and rent the computing power to businesses and developers to help them deploy AI models in an affordable manner. Plus, both companies have developed their own AI chatbots and virtual assistants, which could become big revenue drivers in the future. Each of the Magnificent Seven stocks are top-10 positions in the Vanguard Mega Cap Growth ETF. But it isn't all about AI. The fund also holds stocks like pharmaceutical giant Eli Lilly, payments powerhouse Visa, retail titan Costco Wholesale, and fast food goliath McDonald's. The Vanguard Mega Cap Growth ETF is incredibly cheap to own. It has an expense ratio of just 0.07%, which is the portion of the fund deducted each year to cover management costs. Comparable funds have an average expense ratio of 0.94% (according to Vanguard), and such a high cost can eat away at investors' returns over the long run. The Vanguard Mega Cap Growth ETF has delivered a compound annual return of 13% since it was established in 2007, which is better than the average annual gain of 10.2% in the S&P 500 over the same period. The ETF has delivered an accelerated compound annual return of 15.9% over the last 10 years, specifically. This aligns with the rapid adoption of technologies like enterprise software, cloud computing, smartphones, and AI. That compares to a 13.2% annual return in the S&P 500 over the past decade. Even though AI isn't the whole story for the Vanguard Mega Cap Growth ETF, this technology will have a massive effect on its returns going forward, given the sheer size of its positions in stocks like Nvidia, Apple, Microsoft, and Amazon. Therefore, if AI lives up to some of Wall Street's forecasts, the ETF should do extremely well from here. Goldman Sachs thinks AI will add $7 trillion to the global economy over the next 10 years, and PwC places that figure at $15.7 trillion by 2030. Those are just two of many multi-trillion-dollar estimates published so far. Conversely, if AI fails to live up to the hype, many stocks in the Magnificent Seven could lose a significant amount of value. That's why investors should consider owning the Vanguard Mega Cap Growth ETF as part of a balanced portfolio that doesn't already have a high degree of exposure to those tech giants.

1 Unstoppable Vanguard ETF to Buy With $605 During the S&P 500 Bull Market | The Motley Fool

The S&P 500 is soaring in 2024, led by blockbuster returns in some of the world's most valuable stocks. The S&P 500 continues to set new record highs, extending the bull market that began when the index bottomed in October 2022. The technology sector is driving the rally thanks to its incredible earnings growth, led by tailwinds like artificial intelligence (AI). The S&P 500 is weighted by market capitalization, so the largest companies in the index have a greater influence over its performance than the smallest. It's up 23.8% so far this year, crushing the 14.4% return of S&P 500 Equal Weight index (which assigns the same weighting to every company, regardless of its size). The difference can be partly explained by Nvidia stock, which has soared 194% this year. Other tech giants have also made a significant contribution to the strong gain in the S&P 500: Oracle stock is up 76%, and Meta Platforms stock has gained 60%. The AI revolution is still in the very early stages, so tech stocks will probably continue leading the S&P 500 higher. Therefore, buying an exchange-traded fund (ETF) that focuses on the tech sector can help investors beat the market. Here's why the Vanguard Information Technology ETF (VGT 0.11%) might be a great choice for investors with a spare $605 (that they don't need for immediate expenses). The Vanguard Information Technology ETF holds 314 stocks from 12 different sectors of the technology industry. The semiconductor sector is the largest with a weighting of 29.7%, which isn't a surprise considering the demand for AI data center chips. Nvidia is the dominant player in that space, and it has added $3.1 trillion to its market capitalization over the past two years. Despite holding hundreds of different stocks, the Vanguard ETF is highly concentrated. Its top three positions alone account for 44.5% of the entire value of its portfolio: Data source: Vanguard. Portfolio values are accurate as of Oct. 31, 2024, and are subject to change. Apple recently launched its Apple Intelligence AI software for customers with the latest iPhone, iPad, and Mac devices. It offers new writing tools that allow users to summarize emails and text messages, and it can even draft content for them to send. The software was developed in partnership with OpenAI, so legacy Apple features like the Siri voice assistant are also being overhauled with the capabilities of ChatGPT. These new AI tools could drive a significant upgrade cycle for Apple's devices over the next few years. Nvidia's graphics processors (GPUs) for the data center are the secret behind almost every major AI model developed to date. Demand continues to outstrip supply, and that disparity could widen with the new Blackwell GPUs, which offer a 30-fold leap in performance compared to its flagship H100. Blackwell hardware just started shipping, and Nvidia CEO Jensen Huang says demand is "insane." Speaking of which, Microsoft is rumored to be the biggest buyer of Blackwell GPUs so far. It allocated $20 billion to capital expenditures in its recent fiscal 2025 first quarter (ended Sept. 30), most of which went toward AI infrastructure. Microsoft rents the computing power to AI developers through its Azure cloud platform, but it also develops its own AI software like the Copilot virtual assistant. Outside its top three positions, the Vanguard ETF holds many other popular AI stocks. They include Oracle, Advanced Micro Devices, Palantir Technologies, CrowdStrike, and more. The Vanguard ETF has delivered a compound annual return of 13.4% since its inception in 2004, which crushes the 10.1% performance of the S&P 500 over the same period. However, the Vanguard ETF has generated an even more impressive annualized return of 20.3% over the last 10 years, thanks to the widespread adoption of technologies like cloud computing, enterprise software, and AI. The S&P 500 is up by a rate of 13.2% over that time frame. AI could drive a continuation of that trend for years to come. Jensen Huang believes data center operators will spend $1 trillion to upgrade their infrastructure with AI GPUs over the next five years, which will buoy the entire semiconductor industry. Plus, Ark Investment Management founder Cathie Wood thinks AI software companies will generate $8 in revenue for every $1 they spend on chips. That could spell a whopping $8 trillion windfall spread across companies like Microsoft if Huang's estimate proves accurate. On the flip side, if AI fails to live up to the hype, stocks like Nvidia could lose an enormous amount of value, which could drive a period of underperformance for the Vanguard ETF. Therefore, it's best for investors to own this ETF as part of a balanced portfolio of other funds or individual stocks with less exposure to the tech sector.

Artificial General Intelligence Is Coming: 1 Unstoppable Vanguard ETF to Buy Now | The Motley Fool

Artificial general intelligence (AGI) -- AI systems capable of performing intellectual tasks at or above human level across all domains -- could arrive sooner than many expect, with some experts projecting development as early as 2026. Unlike today's specialized artificial intelligence (AI) tools that excel at specific tasks like generating text or images, AGI would match or exceed human capabilities across any intellectual challenge. This technological breakthrough could revolutionize human society and unlock an estimated $100 trillion in economic value, according to Nvidia CEO Jensen Huang. The window to position investment portfolios for this seismic shift is narrowing. While current generative AI tools have driven impressive productivity gains of 14% to 56% in specific tasks, AGI represents a fundamental leap forward that could reshape every sector of the global economy. One Vanguard exchange-traded fund (ETF) stands out as a compelling way to gain broad exposure to this transformative trend. Read on to find out more. The Vanguard Information Technology ETF (VGT 0.11%) provides investors with access to 314 technology companies at the forefront of AI development. The fund's top holdings read like a who's who of AI leaders, with Microsoft, Apple, and Nvidia comprising over 44% of the portfolio at present. This concentrated exposure to AI pioneers has helped drive impressive returns. The Vanguard Information Technology ETF has delivered a 27% total return year to date, outpacing the S&P 500's 25.5% gain. More importantly, the fund has averaged a whopping 13.45% annual return since its inception in 2004, trouncing the S&P 500's performance over this 20-year period: The Vanguard Information Technology ETF shines in its cost efficiency. The fund charges just 0.10% annually, dramatically below similar funds' 0.95% average expense ratio. To put this in perspective, a $10,000 investment would incur just $10 in annual fees with this Vanguard ETF, compared to $95 with the average technology fund. Over decades of compounding, this 0.85% cost difference could translate into thousands in additional returns as more money stays invested in the technology companies driving AI innovation. What's more, the fund's portfolio spans the entire AI ecosystem. Beyond software giants, it holds significant positions in semiconductor manufacturers (29.7% of assets) and hardware companies (17.6% of assets). This broad diversification within the technology sector provides exposure to both AI/AGI development and the critical infrastructure enabling this game-changing innovation. While AGI's exact arrival date remains uncertain, the technological groundwork is being laid today. OpenAI CEO Sam Altman predicts humanity is entering an "intelligence age" that will bring unprecedented prosperity. The timeline could be shorter than many expect. Leading AI executives, including Altman, project human-level artificial intelligence should arrive by no later than 2027, with some even suggesting it could come as early as 2025. The Vanguard Information Technology ETF, with its concentrated holdings in AI pioneers, offers investors efficient exposure to this potential transformation. Still, the risks are significant and warrant careful consideration. Technology stocks can be exceedingly volatile, and AGI development faces substantial hurdles. Energy requirements, computational limits, and regulatory challenges could all delay progress. A measured position size in this ETF allows investors to participate in potential upside while acknowledging these uncertainties. The Vanguard Information Technology ETF's balanced exposure across the AI ecosystem -- from software giants developing AI models to semiconductor firms building the computing backbone -- provides a thoughtful approach to this technological revolution. For investors who believe in AGI's transformative potential, this fund offers a well-diversified entry point to computing's next great leap forward.