Artificial intelligence (AI) is poised to disrupt numerous industries, such as agriculture, healthcare, information technology, education, gaming, and urban development. In turn, the AI market is forecast to grow from a fairly healthy $129 billion space in 2022 into a $2.7 trillion behemoth by 2032, according to a report by the leading market research and analysis firm Grand View Research. That's a blistering compound annual growth rate of 36.8% for those keeping score at home.
With AI projected to be among the fastest-growing segments of the global economy over the next 10 years, the trailblazers at the forefront of this technological revolution have all seen their share prices rally in a big way in 2023. Even so, most of these tech giants could have a lot more room to run in the years ahead.
Image source: Getty Images.
Investing in the AI revolution doesn't have to be complicated, however. Several exchange-traded funds, or ETFs, offer a tax- and cost-efficient way to gain exposure to this powerful growth trend. In fact, roughly 41 ETFs tout AI in their title and/or marketing materials to investors.
The bad news is that the average expense ratio -- the amount a fund charges investors -- of these AI-oriented ETFs is a whopping 0.98%. That translates to $98 in fees for every $10,000 invested. Fortunately, there is a low-cost alternative hiding in plain sight.
This Vanguard ETF is chock-full of AI stocks
Meet the Vanguard Information Technology Index Fund (VGT 1.72%). This tech-heavy ETF comes with a rock-bottom expense ratio of 0.10%, it holds 319 equities spanning multiple AI-related fields, and it offers an annualized yield of 0.78%.
Although the fund's prospectus doesn't even mention the terms "artificial intelligence" or "AI," the Vanguard Information Technology Index Fund does, in fact, hold large positions in several of the field's leading players, such as Apple, Microsoft, Nvidia, Adobe, Arista Networks, Marvell Technology, and Palantir Technologies.
Best of all, this low-cost Vanguard ETF has delivered top-notch returns for stakeholders over its operating history. Keeping with this theme, this passively managed ETF has outperformed many of the bellwether AI ETFs over the past several years.
For example, the Global X Artificial Intelligence & Technology ETF (AIQ 1.43%), which sports an expense ratio of 0.68% and a yield of 0.33%, has produced total returns on capital of 101% since 2018. Meanwhile, the Vanguard Information Technology Index Fund has generated a scorching 143.5% total return on capital over this same period.
Equally as impressive, the Vanguard Information Technology Index Fund has also dramatically outperformed the broader Nasdaq Composite Index over the past 10 years:
VGT Total Return Level data by YCharts.
Key takeaway
Like most Vanguard ETFs, the Vanguard Information Technology Index Fund is low on hype and high on performance. It also offers investors an easy way to own shares of most of the trailblazers in the rapidly emerging AI landscape. So, if you're looking for a way to gain exposure to the long-term tailwind that is AI, this low-cost vehicle should definitely be on your list right now.
