The biggest investment theme of 2025 had to be artificial intelligence. Tech companies have been throwing billions and billions of dollars at AI development, while many more figure out ways to implement it into their business plans.
While hype is still strong, the AI story is going to take years to play out. Even though tech, semiconductor, and growth stocks have been big winners lately, it's entirely possible that the rally isn't done.
There may be no bigger economic catalyst for the foreseeable future. That's why growth stocks, even with just a modest $1,000 investment, remain the biggest opportunity in the market today.
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Why the Vanguard Growth ETF (VUG) is the smartest buy right now
While the gut reaction may be to target a tech exchange-traded fund (ETF), my preference is the Vanguard Growth ETF (VUG 1.30%).
The reason for this is its breadth of coverage. Yes, technology accounts for more than 60% of the portfolio right now, but AI is likely to spread far beyond tech companies.
We've already seen disruption in the retail space with how people shop and how companies manage supply chains and logistics. The consumer discretionary sector accounts for roughly 17% of the fund's portfolio. Applications in medicine, aerospace, and defense? The fund has allocations to the healthcare and industrial sectors as well.
Besides, much of the market's gains up to this point have largely been contained to the big tech companies. As AI develops and its use becomes more widespread, we could see "second level beneficiaries" begin to outperform the market.
The Vanguard Growth ETF is likely to carry many of those names. A tech ETF may not.
NYSEMKT: VUG
Key Data Points
The economic backdrop is still favorable
It would be easy to point to the recent strong gains and high valuations of growth stocks and think there might be a bit of a bubble brewing. I don't think that's the case yet. A lot of the recent returns from the big tech/growth companies have come from earnings growth, not valuation expansion.
Right now, the "Magnificent Seven" stocks collectively trade at a price-to-earnings (P/E) ratio of about 29. That's down considerably from their peak in the upper 30s back in 2020.
The current P/E ratio of the Invesco QQQ ETF, which tracks the Nasdaq-100 index, is 43. Right before the tech bubble burst in 2000, that multiple was in the 70s.
These stocks are expensive by historical standards. I don't think there's any question about that. But they're not nearly as high as what we saw during previous bubble periods. If companies can keep growing earnings (and so far they've been able to), there's reason to believe that the growth rally can continue.
Other factors working in the Vanguard Growth ETF's favor
Interest rates trended modestly lower in 2025, but they may not be done. The Fed is still expected to trim rates further in 2026. If inflation can remain under control or move closer to the Fed's 2% target, it would add support to the case for lower rates. Faster-growing companies don't necessarily need lower rates to be successful, but anything that helps lower borrowing costs is certainly beneficial.
Along the same lines, on Dec. 1, 2025, the Fed ended its program of quantitative tightening. This process, which is designed to pull liquidity out of the system in order to help bring inflation back under control, can potentially have an adverse effect on economic growth because there's less money for investment and growth initiatives. Taking that off the table could provide an added boost for corporations in general.
The easiest edge that investors can get is keeping expenses as low as possible. Vanguard, of course, does a great job of this. This fund's expense ratio of just 0.04% means that investors pay almost nothing to own this portfolio.
The Vanguard Growth ETF is still the smartest buy
While growth stocks have dominated the U.S. market since 2022, the backdrop is still favorable for further gains ahead.
The economy is growing at a healthy rate. The Fed is no longer taking liquidity out of the system. Earnings growth is solid. Rates look to be coming down. The Vanguard Growth ETF is one of the best ways to capture the continuation of this trend.
