Artificial intelligence (AI) is transforming technology investments. Elements like chips, software, and cloud infrastructure are now being evaluated based on their connection to AI. For instance, Nvidia controls a significant share of the semiconductor market, while Microsoft leads in cloud AI offerings. The Vanguard Information Technology ETF (NYSEMKT:VGT) holds all these key players.
Since this year began, the exchange-traded fund (ETF) benchmark has returned 15.6%, compared to a 23% gain for the S&P 500. Currently, the fund features 314 tech stocks and, as of October 29, it boasts the lowest expense ratio. It’s designed to automatically rebalance as top performers emerge. Investors have profited from Nvidia’s rapid growth, often without needing to time their trades precisely.
This is why I’m choosing to increase my investment in the Vanguard Information Technology ETF.
If you look into this fund, you’ll find a lineup of AI heavyweights. Companies like Microsoft and Apple, among the most valuable in the world, are actively integrating AI into their operations. Nvidia plays a crucial role in this shift, but its impact is also evident across the entire semiconductor sector as it adapts to new AI demands.
The true brilliance here lies in seizing the ripple effects AI creates. Broadcom, for example, designs custom AI chips for major cloud providers, while Oracle is reworking databases for this AI-driven era. Palantir adds AI into government processes, and Advanced Micro Devices (AMD) is in direct competition with Nvidia. This ETF encompasses all major chipmakers likely to benefit from rising AI demand, software firms enhancing their offerings with AI, and hardware manufacturers responding to increased data center requirements.
Some experts have pointed out that the tech sector’s weight in the S&P 500 is nearing levels last seen during the dot-com boom, cautioning against potential concentration risks and advocating for diversification. However, I think they might be overlooking something important. The tech sector’s prominence simply reflects a larger truth: over the last two decades, software has transformed various industries, and now AI is beginning to reshape software itself, affecting everything around us.
Let’s think about what this fund intentionally steers clear of. It avoids sectors like utilities with lower returns. While fintech is encroaching on traditional banking, strict regulations confine banks. Retailers are struggling with meager profit margins while cloud platforms thrive with substantial operating profits. Focusing on technology means investing in disruptors while bypassing fading sectors. The fund’s expense ratio, at a mere 0.09%, keeps costs low, allowing for significant compounding over time—potentially leading to six-figure gains in the long run.
Wall Street is still on the lookout for “the next Nvidia,” that one standout stock that could define the AI era. Chasing after that can be precarious. Instead, this Vanguard fund offers a broader approach. By owning an entire sector and leveraging market capitalization to identify future winners, you’re reducing risk. Profits may not come instantaneously, but you can ride the AI growth wave without the volatility tied to individual stocks.
Current frontrunners like Microsoft and Nvidia are leading improvements, but tomorrow’s innovators—perhaps Cisco Systems, as edge computing expands, or Salesforce with its AI-integrating sales agents—are already part of the mix. Should quantum computing take a leap forward, IBM could find its place, too. Historically, this fund has shown that modest investments can yield substantial returns over time.
Technology convergence presents a win-win scenario. Last year, when the sector faced a downturn, this fund lagged behind the S&P 500. With Nvidia being a significant portion of the holdings, and a couple of clients driving much of Nvidia’s revenue, any delays in AI-related investments could strike a serious blow. Moreover, the fund is also priced at a premium, and any holdups in AI monetization could lead to additional pressures. Import restrictions on China are already impacting Nvidia’s performance.
True, the risks are noticeable. Yet, the AI trend is picking up momentum. While investment in AI accelerates, cloud adoption is still in its early stages and new computing avenues are bound to emerge in the coming decade. For patient investors willing to endure short-term fluctuations, the Vanguard Information Technology ETF appears to be a solid way to engage with the AI sector.
I’m investing in this AI-focused fund not merely because it’s economically viable, but due to the inevitability of the AI revolution. The firms driving innovations for the next quarter-century are right here, and it seems prudent to own shares in all of them now.
Before you consider buying shares in the Vanguard Information Technology ETF, keep in mind:
According to Motley Fool Stock Advisor, the analyst team suggests stocks that may yield impressive returns soon—yet the Vanguard Information Technology ETF isn’t among those recommendations. Those 10 stocks hold significant potential for the coming years.
Reflect on Netflix, for instance. Recommendations made on December 17, 2004, would have turned a $1,000 investment into approximately $593,442! Or take Nvidia, where a similar investment recommended on April 15, 2005, transformed to about $1,269,127!
Importantly, the stock advisor’s average return stands at 1,071%—a notable contrast to the S&P 500’s 196%. Don’t overlook the latest Top 10 list from Stock Advisor, fostering a community that’s driven by retail investors.
Stock Advisor will report returns as of October 27, 2025.
George Budwell holds positions in Apple, Microsoft, Nvidia, Palantir Technologies, and Vanguard Information Technology ETFs. The Motley Fool has investments in and recommends Advanced Micro Devices, Apple, Cisco Systems, International Business Machines, Microsoft, Nvidia, Oracle, Palantir Technologies, and Salesforce, among others. The Motley Fool also recommends a long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft.
Here’s why I invest in this AI-heavy Vanguard ETF
