Investors have been excited about many different growth areas over the years, but few topics have sparked as much enthusiasm as artificial intelligence (AI). Companies with even modest exposure to that area have soared in the past year, sometimes without even showing how they might capitalize on the AI boom.
Nvidia (NVDA +3.40%) is an exception to that rule. The chipmaker is directly benefiting from intense demand for its graphics processing units, which form the foundation for data centers that are being built by many of the biggest tech giants on the planet. Nvidia's sales were up a blazing 265% last quarter to $22 billion .
The stock's rally, though, has made the stock an incredibly expensive way to gain exposure to the AI boom. Up more than 400% in the past three years, Nvidia shares are now valued at 34 times sales, making it by far the most expensive of the "Magnificent Seven" stocks.
There's a better way to gain exposure to Nvidia and to the wider AI space -- without exposing yourself to ultra-high levels of risk.
Meet the Vanguard Growth ETF
The Vanguard Growth Fund (VUG +0.64%) is an exchange traded fund (ETF) that's focused on the largest, fastest growing stocks on U.S. stock market. It tracks the performance of the CSPR U.S. Large Cap Growth Index by owning roughly 200 stocks. The fund invests in roughly all market sectors, including real estate, energy, and telecommunications. Yet you can see by its top 10 holdings list that the ETF mainly concerns itself with tech giants. Those holdings are:
1. Microsoft, 13%
2. Apple, 10%
3. Nvidia, 9%
4. Amazon, 7%
5. Meta Platforms, 4%
6. Alphabet, 4%
7. Alphabet C, 3%
8. Eli Lily, 3%
9. Tesla, 2%
10. Visa, 2%
These stocks are among the most popular on the market these days, and that helps explain why the Vanguard growth ETF has outperformed so many peers. It has jumped 33% in the past year compared to the 22% rally in the S&P 500.
NYSEMKT: VUG
Key Data Points
Heavily exposed to the tech sector
There's still plenty of risk involved in owning this ETF despite its highly diverse collection of businesses. The tech sector represents nearly 60% of its assets today, and so a downturn in that area would hurt your short-term return, especially if you own a few individual stocks that land in its top holdings list.
Tech giants tends to do well during cyclical upturns like the one investors have seen in the past year but often fall hard when fears are rising about a recession. As a result, this ETF won't provide much protection when markets start heading south. For a more defensive tilt, consider something like the Vanguard High Dividend Yield ETF.
Still, you'll get to own Nvidia along with several other companies that are taking advantage of the AI boom by owning this growth-focused ETF. Costs are extremely low as well, with expenses landing at just $4 per $10,000 invested. Peers in this space charge $100 or more for each $10,000 invested.
It's true that the ETF won't soar as quickly as Nvidia could given its wider focus. Investors can still enjoy above-average returns from this tech-focused fund that includes the chipmaker as a relatively small part of its blockbuster growth portfolio.
