CashNews.co
Investing in tech and semiconductor stocks has generated exceptional returns for investors in recent years. As companies are investing heavily into artificial intelligence (AI) and upgrading their existing infrastructure, demand for a wide range of tech-related products and services has been soaring.
For investors, however, the challenge is determining which tech stocks to own. Valuations are high for some promising stocks while others may not be profitable or generating high levels of growth just yet. One way to balance those growth opportunities out while also keeping your risk relatively low is by investing in an exchange-traded fund (ETF). An option that may be ideal for long-term investors is the Vanguard Information Technology ETF (NYSEMKT: VGT).
This Vanguard fund has outperformed the S&P 500 over the past five years
Given the excitement surrounding tech, it may not come as much of a surprise that the tech-heavy Vanguard Information Technology ETF has generated better returns for investors than simply mirroring the S&P 500. Its total returns (which include dividends) of nearly 170% are far higher than what investors would have earned with the broader index.
^SPX data by YCharts
By looking at the top holdings in the Vanguard fund, it’s little wonder why it will have performed better than the S&P 500. Apple, Microsoftand Nvidia are its top three holdings and together they account for 44% of the ETF’s total weight. While the fund is diverse and contains more than 300 stocks in total, with such heavy exposure to just three stocks, how they perform will dictate, in large part, how the fund performs. And with Nvidia generating 2,500% returns in the past five years, that has undoubtedly given the fund a significant boost.
Why it may not be too late to invest in the ETF
Although the Vanguard Information Technology ETF has amassed significant gains in a relatively short period, there is still room for the fund to continue rising in value. And that’s because there’s still likely a lot of AI-related spending to come, which could lead to strong gains for many top tech stocks. Even though Nvidia may not be able to replicate its returns over the next five years, other stocks could pick up the slack and enable the Vanguard fund to climb higher.
Technological research company Gartner projects that worldwide semiconductor revenue will increase by 14% next year, when the market will be worth approximately $716.7 billion. In the long run, estimates from Grand View Research project that the entire AI market, globally, will expand at a compound annual growth rate of 36.6% until the end of the decade.
Forecasts vary but one thing remains clear: Spending on AI is likely only going to increase in the near future. That means the Vanguard Information Technology ETF, which benefits from AI-related spending, may have more room to rise higher despite its already strong gains.
Should you add the Vanguard Information Technology ETF to your portfolio today?
If you want exposure to top tech stocks, the Vanguard Information Technology ETF can provide you with a good mix of investments while charging a fairly low expense ratio of 0.10%. The caveat, however, is that you need to be comfortable with the fund’s heavy exposure to the three largest and most valuable stocks in the world, which could potentially be vulnerable to corrections in the near future.
As long as you’re willing to hang on to the fund for multiple years, I think it can still make for a good investment to buy and hold. But you should also expect some volatility given the impressive gains tech stocks have accumulated in recent years and the potential for an adjustment in the premiums investors may be willing to pay for them in the future.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
-
Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $23,657!*
-
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,034!*
-
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $429,567!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
See 3 “Double Down” stocks »
*Stock Advisor returns as of November 4, 2024
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends Gartner and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.