1 Unstoppable Vanguard ETF to Buy During the S&P 500 Bull Market – The Motley Fool

of S&P500 (^GSPC -0.21%) continues to set new records, extending the bull market that began when the index bottomed in October 2022. The technology sector is leading this extraordinary performance thanks to strong revenue growth and innovation in areas such as artificial intelligence (AI).

The S&P 500 is weighted by market capitalization, so the largest companies in the index have more influence over performance than the smallest companies. The year-to-date increase is 20%, which is significantly higher than the 12% increase seen in the previous year. S&P 500 Equal Weight Index (assigns the same weighting to all stocks regardless of size).

This difference can be explained by the average return of the top five S&P 500 stocks this year, an impressive 53.2%. apple, microsoft, Nvidia, Amazonand meta platform.

The AI ​​revolution is still in its early stages, so the technology sector will likely continue to drive the S&P 500's rise. Therefore, an exchange-traded fund (ETF) with a focus on technology stocks can be a great addition to your portfolio. Here's why: Vanguard Information Technology ETF (VGT 0.09%) It may be the perfect choice for investors looking for growth.

All your favorite tech stocks in one ETF

The Vanguard Information Technology ETF holds 317 stocks across 12 segments of the tech sector. The semiconductor sector has the highest weighting in the ETF at 28.9%, which is not surprising given the rapid growth of companies like Nvidia over the past year driven by demand for AI chips.

Despite holding a large number of different stocks, the top five ETFs account for 50.3% of the total portfolio value. Also, each of those stocks substantially Higher specific gravity than S&P 500:

Data source: Vanguard. Portfolio weightings are accurate as of August 31, 2024 and are subject to change.

All five companies mentioned above have implemented some form of AI. Apple is deploying Apple Intelligence software on the latest iPhone, iPad, and Mac devices. It will change how users consume and produce content such as texts and emails. And since it's powered by OpenAI, the Siri voice assistant will immediately have all the knowledge and capabilities of ChatGPT. With over 2.2 billion active devices worldwide, Apple could soon become the largest distributor of AI to consumers.

Nvidia designs the most powerful graphics processing units (GPUs) for data centers, which developers use to build AI models. The company is expanding shipments of its latest Blackwell-based GPUs, which offer up to 30x better performance than its flagship H100, which set industry benchmarks last year. Broadcom also operates in the AI ​​hardware space. The company manufactures chips and other data center equipment, including industry-leading networking solutions.

Microsoft and Adobe are quickly becoming AI software powerhouses. Microsoft has developed an AI virtual assistant called Copilot and is also a leading provider of AI services to enterprises through its Azure cloud platform. Adobe is integrating AI into its flagship products like Photoshop to unlock new features and automate workflows.

Beyond the top five, Vanguard ETF also owns several other major AI stocks, including: advanced micro device, oracle, micron technologyetc.

Vanguard ETF crushes S&P 500 comeback

Since its inception in 2004, the Vanguard ETF has delivered a compound annual total return of 13.5%, comfortably outperforming the S&P 500, which rose 10.1% annually over the same period.

But thanks to the proliferation of technologies such as enterprise software, cloud computing and AI, the Vanguard ETF has soared an average of 20.7% annually over the past decade. This further widened the gap with the S&P 500 Index, which grew at an annual rate of 13.2% during that time.

It is unsustainable for any fund to return more than 20% per year over a long period of time. But NVIDIA CEO Jensen Huang believes data center operators will spend $1 trillion over the next five years building out AI infrastructure, which will be a big tailwind for the semiconductor sector. This is the largest component of the Vanguard ETF, so this trend could yield significant gains for the foreseeable future.

Additionally, some Wall Street forecasts suggest that AI will add trillions of dollars to the global economy over the next decade. This suggests that tech stocks will continue to lead the S&P 500's rise, making the Vanguard ETF a great investment.

But even if the ETF returns closer to its historical average of 13.5%, it should still perform well enough to match or outperform the S&P 500 over the long term.