I've written in the past that the Vanguard Information Technology ETF (VGT 1.49%) is one of the best ways to play the sector. It provides more than adequate exposure to the industry's biggest names without overweighting them in a way that some similar ETFs do.
Despite the huge rally we've seen in tech over the past several weeks, the case for owning it right now is stronger than it's been in a while. And it has everything to do with what's happening inside the companies that make up its portfolio.
What makes VGT so appealing in today's market
The biggest driver of this fund's near-term appeal is the sector's earnings outlook. Over the past few years, a lot of tech returns were the result of multiple expansions. That can work in the near term, but it's usually unsustainable over the long term.
Image source: Getty Images.
In 2026, it's been a different story. Returns are being driven primarily by earnings growth, not multiple expansion. That's actually helped pull valuations back down to more reasonable levels and set up the sector for a more sustainable move higher.
The Vanguard Information Technology ETF still trades at about 25 times the next 12 months' earnings. But consider the fact that the tech sector is currently reporting a 50% year-over-year increase in earnings. Even if you take out the two biggest contributors, Nvidia and Micron Technology, the growth rate is 28%.
NYSEMKT: VGT
Key Data Points
High valuations are more justifiable if there's earnings growth to back it up. Considering that earnings are forecast to increase by 40% in 2026 and another 26% in 2027, you could make the argument that a forward price/earnings (P/E) ratio of 25 is actually cheap.
Why VGT is built for the future
The artificial intelligence (AI) revolution has been the clear catalyst for the growth we're seeing right now in both earnings and revenue. But it's far from over.
The fund's top mega-cap holdings, including Nvidia, Apple, Microsoft, Broadcom, and others, are at the center of one of the biggest capital investment cycles in modern corporate history. Hundreds of billions of dollars have either been spent or committed to AI development. This is all being done to try to keep up with demand.
Not only are these companies making the investments, but they're also monetizing them at accelerating rates. That combination dynamic is the setup that's driving current earnings growth rates. That's what ultimately drives share prices higher, and this cycle isn't ending anytime soon.
The Vanguard Information Technology ETF is one of the best and simplest ways to play this theme both now and in the years to come.
