When the 2024 stock market story is penned, Nvidia (NVDA +3.75%) will undoubtedly take center stage. The chipmaker powering the artificial intelligence (AI) revolution has achieved a staggering 165% gain in the first half of the year.
Furthermore, it's responsible for a significant portion of the S&P 500's nearly 16% gain at the midpoint of 2024. Nvidia's high-powered graphics processing units (GPUs) have experienced surging demand this year, driven by the ongoing AI superbuild.
Image source: Getty Images.
This incredible growth story does have an important caveat, however. Nvidia's shares now trade at a lofty 77 times trailing earnings, a valuation that raises eyebrows by any standard. While a compelling case can be made that the company merits this premium valuation and its bull run is still in its early stages, prudence may be advisable at this juncture.
Here's an overview of three popular Vanguard exchange-traded funds (ETFs) that can provide substantial exposure to Nvidia and a degree of safety through the power of diversification.
1. Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (VOO +1.21%) tracks the performance of the S&P 500 index, providing broad exposure to large-cap U.S. stocks. As of the latest data, Nvidia comprises approximately 6.1% of the fund's holdings, making it a significant contributor to the ETF's performance. Nvidia is also the fund's third-largest holding, as of this writing.
NYSEMKT: VOO
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Why else is the Vanguard S&P 500 worth considering? The fund comes with an ultra-low expense ratio of 0.03%, it provides broad diversification across 500 of the largest U.S. companies, and automatic rebalancing. Most importantly, this ETF offers investors a way to capture Nvidia's eye-popping growth while spreading risk across the entire S&P 500 index.
2. Vanguard Growth Index Fund ETF Shares
The Vanguard Growth Index Fund ETF Shares (VUG +2.00%) focuses on large-cap U.S. growth stocks, which typically include technology and consumer discretionary companies. Nvidia is the fund's third-largest holding, accounting for a whopping 10.6% of its portfolio at the time of this writing.
NYSEMKT: VUG
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In addition to its significant stake in Nvidia, the Vanguard Growth Index Fund has an extremely low expense ratio of 0.04%, built-in exposure to companies with above-average growth potential, and a higher concentration in tech stocks, compared to the Vanguard S&P 500 ETF. This ETF provides a focused approach to growth stocks, potentially offering higher returns but with increased volatility, compared to the broader market.
3. Vanguard Information Technology Index Fund ETF Shares
For investors seeking maximum exposure to Nvidia and the tech sector more broadly, the Vanguard Information Technology Index Fund ETF Shares (VGT +1.55%) is an excellent option. This ETF tracks the performance of the MSCI US Investable Market Information Technology 25/50 index, with Nvidia representing approximately 14% of the fund's holdings.
Additionally, the Vanguard Information Technology Index Fund ETF Shares sports an acceptable expense ratio of 0.10%, concentrated exposure to the information technology sector, and the potential for higher returns on capital than either the Vanguard S&P 500 ETF or the Vanguard Growth Index Fund ETF.
From a big-picture perspective, this ETF offers the highest concentration of Nvidia among the three options but also comes with increased sector-specific risk. The informational technology sector is widely anticipated to be a central pillar of global economic growth in the years to come, but nothing in this life is a sure thing. Goldman Sachs, after all, recently released a stinging criticism of the AI-fueled stock rally, calling the long-term sustainability of the trend into question.
