Why the Vanguard Information Technology ETF Is One of the Best Ways to Invest in Artificial Intelligence (AI)


Nvidia and Microsoft are two of the ETF’s largest holdings.

If you are looking to invest in technology stocks, and in particular some of the tech companies most set to benefit from artificial intelligence (AI), the Vanguard Information Technology ETF (VGT 0.20%) is a strong option to consider.

The exchange-traded fund (ETF) tracks the MSCI U.S. Investable Market Information Technology 25/50 Index, which includes companies involved in cloud computing, semiconductors, data centers, and communication equipment such as smartphones and computers, among other areas.

A strong track record

The Information Technology ETF has a strong track record with an average annual return of 20.3% over the past decade, as of the end of May. That equates to a cumulative return of nearly 535% during that stretch. As such, a $10,000 investment made 10 years ago would now be worth nearly $63,500.

Returns have been even stronger more recently, with an annual average return of 23.5% over the last five years and 29.1% over the past year.

The ETF also comes with a scant 0.10% expense ratio. This means that the management fees on that $10,000 investment would be only $10. 

A top-heavy portfolio

The Vanguard ETF is heavily weighted in its top three holdings, all of which look poised to be among the biggest long-term beneficiaries of AI.

At the end of May, Nvidia (NVDA -1.91%) was the ETF’s third-largest holding at 14% of its portfolio. With the company taking over the spot as the largest company in the world recently, though, I wouldn’t be surprised if it has become its top holding given the stock’s recent performance.

Nvidia has been the biggest beneficiary of the AI boom thus far, with the company’s graphic processing units (GPUs) the backbone of the AI infrastructure buildout. As companies race to build out new AI models, its chips are essential for training large language models (LLMs) and inference.

The company has been able to create a wide moat with its Compute Unified Device Architecture (CUDA), the software platform on which most developers have been taught to program GPU chips.

Its incredible growth should slow due to the law of large numbers, but Nvidia still looks poised to continue to be an AI winner given that its technology has become the de facto standard in the industry.

The ETF’s second-largest holding at the end of May was Apple (AAPL 0.40%), at 15.9% of its portfolio. It has struggled to grow revenue over the past year, but the company looks set to start benefiting from AI soon.

Apple is typically not a business on the leading edge of technology, but while it might not be the first to market with its devices, they often end up being among the best.

The iPhone maker recently introduced a number of AI features to run on its new Apple Intelligence platform that will be coming to the operating systems of its smartphones, tablets, and computers. These advances, which need newer technology to run on, should help lead to a hardware upgrade cycle that will power the company and its stock.

The top holding in the ETF at the end of May was Microsoft (MSFT 0.15%), at 16.7%. It was one of the first megacap tech companies to embrace AI through its large investment in OpenAI.

The company’s cloud computing unit, Azure, has been the biggest beneficiary of this move thus far, as customers build their own AI applications using its platform. Its consumption-based model helped lead to 31% growth in the segment last quarter.

It has also seen other areas of its business start to benefit from its AI assistant Copilot, which has powered growth for its developer platform GitHub and Microsoft 365.

Artist rendering of AI chip.

Image source: Getty Images.

Is it time to buy this ETF?

For investors looking to start investing in AI, the Vanguard Information Technology ETF is a great option. Nvidia, Microsoft, and Apple combined made up 46.6% of the ETF’s holding as of the end of last month. As those three stocks move, so will the ETF — and they all look set to continue benefiting from AI.

And they are not the only stocks among the ETF’s top holdings that can make that claim. Broadcom, Advanced Micro Devices, Qualcomm, and Adobe are also in that group.

With AI still in its early innings, now looks like a good time to add the Vanguard Information Technology ETF to your portfolio.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Advanced Micro Devices, Apple, Microsoft, Nvidia, and Qualcomm. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.


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