This earnings season has been chock-full of volatility. Amazon (AMZN +4.58%) and Microsoft (MSFT +4.93%) added a combined $1.04 trillion in market cap between July 29 and July 31, while Apple (AAPL -1.78%) and Meta Platforms (META +6.02%) shed a combined $510 billion.
Here's why megacap stock prices are all over the place, as well as a straightforward way for investors to filter through the noise with a low-cost exchange-traded fund (ETF).
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Wall Street turns from sour to sweet on Microsoft and Amazon
Going into earnings, Microsoft and Amazon were badly underperforming the S&P 500 (^GSPC +1.48%) and Nasdaq Composite (^IXIC +2.13%) this year as investors questioned the payoff from capital expenditure (capex) on artificial intelligence (AI). Investors were gravitating toward Apple because of its high free cash flow (FCF) and limited capex spending. AI tools, from enterprise software to chatbots, ultimately operate on consumer electronics, and Apple has an unmatched integrated ecosystem of devices.
But Apple fell after reporting earnings because memory chip costs could continue eating into its profit margins. And Meta Platforms' FCF is evaporating due to surging AI capex and operating expenses.
Meanwhile, Amazon stock popped because Amazon Web Services (AWS) achieved its fastest growth in 18 quarters, and its retail business is booming. Similarly, Microsoft, which is the No. 2 player in cloud infrastructure behind AWS, saw Azure revenue top $100 billion for the first time in a full fiscal year.
NYSEMKT: MGK
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Cut through market noise with a low-cost ETF
Earnings drive stock prices over the long term. But in the near term, narratives and investor sentiment have significant influence. So, if you're left scratching your head as to why Amazon and Microsoft were so badly undervalued that they could gain more than $1 trillion combined in just two days or why Apple and Meta underwent steep sell-offs -- then you're not alone.
The Vanguard Mega Cap Growth ETF (MGK +2.22%) offers the simplest way to bet on sustained AI innovation from today's market leaders without having to fixate on why some stocks are in or out of favor.
The fund is essentially an even more concentrated version of the popular Vanguard Growth ETF. And unlike index-specific ETFs, such as the Invesco QQQ Trust, which tracks the Nasdaq-100, the Vanguard Mega Cap Growth ETF holds stocks like Eli Lilly and Oracle that are on the New York Stock Exchange rather than the Nasdaq.
With a staggering 67% weighting in just 10 holdings -- Nvidia, Apple, Alphabet, Microsoft, Amazon, Broadcom, Meta Platforms, Tesla, Eli Lilly, and Advanced Micro Devices -- the fund is essentially a concentrated bet that today's market leaders will continue driving outsize gains for years to come. That bet has paid off, as the Vanguard Mega Cap Growth ETF has outperformed the S&P 500 during the past decade.
MGK Total Return Level data by YCharts.
A catch-all bet on today's market-leading growth stocks
The Vanguard Mega Cap Growth ETF is a good buy for investors seeking significant exposure to chip leaders, cloud computing giants such as Amazon, Microsoft, and Alphabet, and more. The ETF could be a particularly appealing buy for investors looking for exposure to top growth stocks rather than just one sector.
For example, Nvidia, Apple, Microsoft, and Broadcom lead the tech sector; Amazon and Tesla are in the consumer discretionary sector; Alphabet and Meta dominate the communications sector; and Eli Lilly is a powerhouse growth stock that leads the healthcare sector. And with a mere 0.05% expense ratio, the ETF has just $5 in annual fees for every $10,000 invested. By comparison, the Vanguard Growth ETF and Vanguard S&P 500 ETF have 0.03% expense ratios, which means $3 in annual fees for every $10,000 invested.
The Vanguard Mega Cap Growth ETF is a good buy for investors who want exposure to the top growth stocks across all sectors, with an emphasis on today's industry leaders rather than spreading their allocation among lower-weighted components. Put another way, the Vanguard Mega Cap Growth ETF is a better buy than the Vanguard Growth ETF, a Nasdaq-100-based ETF, or an S&P 500 index fund if you believe that AI capex spending will pay off for hyperscalers like Amazon and Microsoft.
The market sent a clear stamp of approval for Amazon and Microsoft last week, casting out Apple and Meta Platforms. But just a week ago, Apple was significantly outperforming its megacap peers. The Vanguard Mega Cap Growth ETF offers a simple way for long-term investors to bet big on multiple themes rather than getting overly caught up in knee-jerk reactions to earnings reports.
