Over the past three years, the artificial intelligence (AI) trade has mostly been about hype and potential. Investors bid up the share prices of the theme's biggest influencers, including Nvidia, Microsoft, and Alphabet, in anticipation of what might be when the infrastructure gets built.
Now we're at the point where AI development is yielding financial results. Stock prices aren't rising on hope anymore. They're being driven by strong revenue and earnings growth. That means tech companies have a sustainable catalyst for a further rally higher.
That makes the Vanguard Information Technology ETF (VGT +2.32%) one of the best potential trades right now for investors with $1,000 (or any amount, really) available to buy shares.
Image source: Getty Images.
How AI is driving big revenue and earnings numbers
The S&P 500 (^GSPC +1.18%) is on pace to produce its best quarter in terms of earnings in nearly five years. As it stands, year-over-year Q1 earnings growth is expected to come in around 28%. Revenue growth is likely to come in around 11%, its best performance since 2022.
All this is being driven by the AI boom. Earnings and revenue growth figures for the tech sector alone are currently 51% and 29%, respectively.
What's perhaps more optimistic for the tech sector is what's yet to come. It's expected to deliver the biggest earnings growth rate among the S&P 500 sectors in both 2026 and 2027. Since the AI revolution is still in its early innings, this momentum could carry share prices higher for the foreseeable future.
NYSEMKT: VGT
Key Data Points
VGT: Performance and key metrics
| Metric | VGT |
|---|---|
| Expense ratio | 0.09% |
| Assets under management | $138 billion |
| One-year total return | 50.8% |
| 10-year annualized total return | 25.1% |
| Number of holdings | 317 |
| Forward price/earnings (P/E) ratio | 24.5 |
Data source: Vanguard.
For those worried about valuations, you shouldn't be. Because the current rally has been driven by earnings growth rather than multiple expansion, the sector's forward-looking P/E ratio has actually fallen considerably. The current 24.5 multiple is still above its long-term average, but it's entirely justifiable, given the earnings growth rates the group is experiencing right now. You could actually argue that tech shares might even be cheap.
If you have $1,000 sitting on the sidelines waiting to be put to use, the Vanguard Information Technology ETF still looks like the best place to put it. A modest pullback in share prices from time to time should be expected, given how far the sector has come over the past few years.
But earnings growth is what powers share prices in the long term. Right now, the tech sector is the best place to find that.
