Vanguard's Exceptional ETF is on Target to Outperform the S&P 500 once more in 2025
In the rapidly evolving world of technology, the Vanguard Information Technology ETF (VGT) has proven to be a powerhouse, outperforming the S&P 500 every year since its establishment in 2004. With a compound annual return of 13.7%, the ETF has generated impressive growth, significantly outpacing the S&P 500's average return of 10.1% over the same period.
The ETF, which invests exclusively in information technology stocks, holds 319 stocks from 12 information technology subsegments. The semiconductor segment is the largest, accounting for 30.4% of the portfolio value. Some of the top 10 holdings in the VGT, representing 58.8% of its portfolio value, are actively participating in the AI race.
Microsoft, with a weight of 14.89%, is a significant player in the AI race. The tech giant has become a leader in AI software, integrating its Copilot virtual assistant into each of its most popular products. Microsoft's biggest customers, including Oracle and Nvidia, operate data centers fitted with thousands of AI chips.
Nvidia, with a weight of 16.74% in the VGT, is another AI powerhouse. The company provides GPUs essential for AI model training and large-scale computations, making it the largest AI beneficiary in the fund. Nvidia's stock has surged amid the AI boom, reflecting its central role in AI hardware.
Apple, with a weight of 13.03%, is leveraging AI for competitive advantage. The tech giant incorporates AI-driven features in devices and software, such as machine learning in Siri, computational photography, and other user experience enhancements.
Broadcom, with a weight of 4.57%, is a semiconductor supplier that provides chips crucial for AI applications and data center technologies, supporting the hardware backbone of AI systems.
Oracle, with a weight of 2.05%, contributes to the AI ecosystem primarily through cloud infrastructure and AI-enhanced enterprise software, enabling businesses to deploy AI solutions at scale.
These top holdings in the VGT represent companies with significant capital, talent, and market presence to drive AI innovation in hardware, cloud infrastructure, software, and consumer products. An investor who split their initial $20,000 investment equally between the S&P 500 and the VGT in 2004 would have $264,800 today, compared to $167,000 if they invested only in the S&P 500.
The VGT also offers indirect but strong exposure to the AI revolution via these industry leaders. With an expense ratio of just 0.09%, the ETF is significantly cheaper than competing funds in the industry. As of market close on July 18, 2025, the VGT generated a year-to-date gain of 10.3%, outperforming the S&P 500's 7.3% gain.
Meanwhile, Nvidia's market capitalization recently topped $4.2 trillion due to the enormous demand for its data center chips. Analyst Dan Ives from Wedbush Securities predicts Palantir's valuation could soar by 177% to reach $1 trillion within the next three years.
The Information Technology sector is the largest in the S&P 500, with a weighting of 33.9%. Nvidia, Microsoft, and Apple are the world's three most valuable companies, collectively having a market capitalization of $11 trillion. The VGT's focus on information technology stocks positions it well to continue capitalizing on the growth of the sector and the AI revolution.
Palantir, another AI software powerhouse, operates three core platforms: Gotham, Foundry, and AIP. The VGT holds AI cybersecurity giants Palo Alto Networks and CrowdStrike, among other AI software stocks, further enhancing its exposure to the AI revolution.
In conclusion, the Vanguard Information Technology ETF offers a diversified and cost-effective way for investors to capitalize on the growth of the information technology sector and the AI revolution. With its top holdings actively participating in the AI race, the ETF is well-positioned to continue outperforming the market in the years to come.
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