Is the Vanguard Information Technology ETF a no-brainer option for growth investors?
Investing in technology and semiconductor stocks has delivered exceptional returns for investors in recent years. As companies invest heavily in artificial intelligence (AI) and upgrade their existing infrastructure, demand for a wide range of technology-related products and services has skyrocketed.
For investors, however, the challenge is determining which tech stocks to own. Valuations for some promising stocks are high, while others may not yet be profitable or generating high levels of growth. One way to balance those growth opportunities while keeping your risk relatively low is to invest in an exchange-traded fund (ETF). One option that may be ideal for long-term investors is the Vanguard Information Technology ETF (VGT -0.18%).
This Vanguard fund has outperformed the S&P 500 over the past five years
Given the excitement around technology, it’s perhaps no surprise that the tech-heavy Vanguard Information Technology ETF has generated better returns for investors than simply reflecting the S&P500. The total return (including dividends) of almost 170% is much higher than what investors would have earned with the broader index.
^SPX data Ygraphs
Looking at the top holdings in the Vanguard fund, it’s no wonder it will have outperformed the S&P 500. Apple, MicrosoftAnd Nvidia are the three largest holdings and together they represent 44% of the total weight of the ETF. Although the fund is diverse and contains over 300 stocks in total, with such a large exposure to just three stocks, the performance of these stocks will largely determine how the fund performs. And with Nvidia generating a 2,500% return over the past five years, that’s undoubtedly given the fund a significant boost.
Why it may not be too late to invest in the ETF
While the Vanguard Information Technology ETF has seen significant gains in a relatively short period of time, there is still room for the fund to continue to increase in value. And that’s because there is likely to be a lot of AI-related spending to come, which could lead to strong profits for many top companies. tech stocks. While Nvidia may not be able to match its returns over the next five years, other stocks could catch up and allow the Vanguard fund to climb higher.
Technological research agency Gartner projects that global semiconductor revenues will rise 14% next year, while the market will be worth approximately $716.7 billion. According to estimates from the Grand View Research project, the entire AI market will grow globally at a compound annual growth rate of 36.6% in the long term through the end of the decade.
Predictions vary, but one thing remains clear: AI spending is likely to increase in the near future. That means the Vanguard Information Technology ETF, which benefits from AI-related spending, may have more room to move higher despite its already strong gains.
Should you add the Vanguard Information Technology ETF to your portfolio today?
If you want exposure to top technology stocks, the Vanguard Information Technology ETF can give you a good mix of investments at a fairly low price. expense ratio of 0.10%. The caveat, however, is that you should be comfortable with the fund’s large exposure to the world’s three largest and most valuable stocks, which could be vulnerable to corrections in the near future.
As long as you’re willing to hold on to the fund for several years, I think it can still be a good investment to buy and hold. But you should also expect some volatility, given the impressive gains tech stocks have built in recent years and the potential for an adjustment in the premiums investors may be willing to pay for them in the future.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Apple, Microsoft and Nvidia. The Motley Fool recommends Gartner and recommends the following options: January 2026 long calls of $395 at Microsoft and short January 2026 calls of $405 at Microsoft. The Motley Fool has one disclosure policy.
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