Important points
The landscape of technology investment is changing dramatically due to Artificial Intelligence (AI). Everything from chips to software and cloud infrastructure is being valued based on AI involvement. Companies like Nvidia are dominating the semiconductor market, Microsoft is leading in cloud AI, and Palantir Technologies is enhancing enterprise applications. I have investments in these firms, as well as in the Vanguard Information Technology ETF (NYSEMKT:VGT).
Since the start of the year, this Exchange Traded Fund (ETF) has seen a 15.6% return, compared to a 23% return of the S&P 500. As of October 29, the fund comprised 314 tech stocks, which helps maintain a low expense ratio and facilitates automatic rebalancing as top performers emerge. Investors have taken profits as Nvidia surged, often without perfect timing.
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This is why I’m increasing my investment in the Vanguard Information Technology ETF.
AI Winners You Already Own
Looking at this fund, you’ll find a lineup of AI leaders. Companies like Microsoft and Apple are some of the most valuable globally, both actively integrating AI in their offerings. Nvidia plays a significant role in this shift, and as industries transition to AI-focused operations, its impact is evident across many semiconductor companies.
The real strategic advantage is in harnessing the ripple effects of AI. For example, Broadcom is creating custom AI chips for major cloud providers, while Oracle is updating databases for the AI era. Palantir is integrating AI into government processes, and Advanced Micro Devices (AMD) is directly competing with Nvidia. The fund incorporates all the key chipmakers, software companies enhancing AI features, and hardware manufacturers looking to meet the growing demand for data centers.
Why sector concentration works
Concerns have been raised about the heavy technology weighting in the S&P 500, likening it to the dot-com bubble, warning of concentration risks and recommending diversification. However, this viewpoint misses a critical reality: the technology sector’s prominence reflects a larger truth. Over the past two decades, software has transformed retail, transport, and media sectors, and now AI is fundamentally altering software itself.
This fund avoids sectors that are struggling, like utilities and banks facing regulatory hurdles, while fintech begins to disrupt them. Although cloud platforms report solid operating profits, many retailers manage on slim margins. By focusing on technology, investors can bypass dying sectors, investing instead in disruptors. With an expense ratio of just 0.09%, costs become almost negligible, potentially leading to substantial returns over time.
AI strategies for patient investors
Wall Street’s pursuit of finding “the next Nvidia” can often lead to poor decisions. The Vanguard fund offers a different approach: it allows investors to hold shares across the entire field and lets market capitalization dictate success. You might not see rapid, life-altering gains, but you can ride the AI trend without the significant risks associated with a single stock.
Current leaders like Microsoft and Nvidia are pivotal in driving growth, while future leaders might be companies like Cisco Systems or Salesforce, which are already integrating AI into their sales automation processes. As breakthroughs in quantum computing happen, IBM will be prepared for that shift. The long-term performance of this fund stands out, with small investments growing substantially over time.
Why are you investing?
The convergence of technology offers a dual advantage. Although this fund underperformed against the S&P 500 during the 2022 downturn, it still includes a significant position in Nvidia, reliant on a couple of major clients for revenue. If there is a delay in AI capital spending, leading tech companies could face challenges. Furthermore, despite its premium trading price, the sector could feel pressure if AI monetization doesn’t occur as expected. Export restrictions to China are already affecting Nvidia’s operations.
The risks are real, but the momentum is gaining. AI-related spending is on the rise, and the full adoption of cloud technology is still a ways off. With developments in quantum computing likely to create new markets over the next decade, the Vanguard Information Technology ETF could be a sound method for investing in AI growth, especially for investors who can endure market fluctuations.
I’m investing in this AI-focused fund not because it’s inexpensive, but because the AI revolution is set in motion. These companies are poised to shape the next couple of decades, and having all the leaders in one portfolio seems like the wisest choice at this moment.
Should you invest $1,000 in the Vanguard Information Technology ETF right now?
Before buying shares in the Vanguard Information Technology ETF, consider this:
Our analysts at Motley Fool Stock Advisor have pinpointed what they believe to be the Best 10 stocks currently worth your investment. These stocks, while not including the Vanguard ETF, have potential for impressive returns in the near future.
Reflecting on investments like Netflix, which when recommended on December 17, 2004, could have turned a $1,000 investment into $593,442! Or Nvidia, recommended on April 15, 2005, which would have grown a $1,000 investment to $1,269,127!
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*Stock Advisor results as of October 27, 2025
The author has shares in multiple tech companies, including Apple, Microsoft, and Nvidia, among others. Our recommendations span a range of tech entities, and we maintain a clear Disclosure policy.
The perspectives shared reflect the author’s views and do not necessarily align with those of Nasdaq, Inc.
