Two months ago, I called the Vanguard Information Technology ETF (VGT +0.42%) the best Vanguard fund to buy. Since then, the artificial intelligence (AI) boom has only accelerated -- and this fund has captured nearly every dollar of value created.
Through September 1, the fund has returned 12.1% year to date, beating the S&P 500's 9.8% return. That outperformance might seem modest, but it masks a more important truth: This single exchange-traded fund (ETF) owns virtually every company that matters in the AI revolution.
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The AI winners you already own
Open the hood on this fund and you'll find an AI all-star roster. Nvidia (NVDA +2.59%) is the single largest holding at 18.2% of the fund, reflecting its dominance in GPU infrastructure. Microsoft makes up 15.4%, embedding AI copilots into its software empire. Apple accounts for 12.7%, with AI integration spanning devices and services. Together, these three giants represent nearly half of the fund's total holdings, giving investors concentrated exposure to the companies leading the AI transformation.
But the real genius of owning the broad technology sector is capturing the AI spillover effect. Broadcom (AVGO +4.69%) is designing custom AI chips for hyperscalers. Advanced Micro Devices is Nvidia's only real competitor in AI GPUs. Oracle is retrofitting its entire database empire for the AI era. Salesforce is embedding AI agents into every customer interaction. The fund holds 317 technology stocks in total -- every major semiconductor company benefiting from AI chip demand, every software company racing to add AI features, and every hardware maker seeing increased demand from data center buildouts.
Why sector concentration works
Critics will point out that technology stocks now represent over 30% of the S&P 500, near dot-com bubble peaks. They'll warn about concentration risk and suggest more diversified alternatives. They're missing the point entirely. The technology sector's growing dominance reflects a fundamental truth: Software is eating the world, and AI is accelerating that consumption.
NYSEMKT: VGT
Key Data Points
Consider what's not in this fund: utilities paying 3% dividends while AI companies grow 30%. Banks are constrained by regulation while fintech disrupts their business. Retailers are fighting for single-digit margins while cloud computing generates 30% operating margins. By concentrating in technology, you're avoiding the sectors that AI is disrupting and owning the disruptors themselves.
The 0.09% expense ratio means you're paying just $0.90 annually for every $1,000 invested. Vanguard's passive indexing approach means you automatically rebalance into rising AI stars and away from fading legacy tech. When the next Nvidia emerges, it'll be added to your portfolio without any need for you to lift a finger.
The patient investor's AI strategy
Wall Street is obsessed with finding "the next Nvidia" -- the single stock that will define the AI era. That's not a sustainable way to generate alpha. Even professional investors struggle to identify breakthrough companies before they break through. The Vanguard Information Technology ETF takes a different approach: own them all and let the market sort it out.
Today's AI leaders, like Microsoft and Nvidia, drive returns. Tomorrow's leaders -- perhaps Taiwan Semiconductor Manufacturing as AI shifts to edge computing, or Micron as memory becomes the bottleneck -- are already in your portfolio. The fund has averaged an eye-popping 22.4% annual return over the prior 10-year period, making it one of best best-performing ETFs in the world.
The technology sector is the AI trade
Six months from now, this fund will likely own new AI winners we haven't heard of yet. Companies going public, spinning off, or simply breaking out will automatically join the portfolio as they enter the index. That's a hidden superpower that most investors rarely consider.
The AI revolution won't be won by a single company. It'll be won by having the entire technology ecosystem work together -- chips feeding models, models powering software, software driving chip demand. This Vanguard fund owns that entire virtuous cycle, making it a straightforward way to gain exposure to the AI superbuild.
