Apple, Nvidia, and Microsoft, the three largest companies globally, have a combined market value of $10 trillion. These giants are part of the information technology sector, which plays a crucial role in creating the hardware and software that support the internet and personal computers.
In the previous year, the S&P 500 achieved a return of 23%. However, investors in the Vanguard Information Technology ETF (VGT), despite a 2.71% drop, experienced a 29% gain, surpassing the S&P 500’s performance. This trend is not new; since the ETF’s inception in 2004, it has consistently outperformed the index. This track record suggests it is poised to outperform again in 2025.
A significant 44% of this ETF’s holdings are allocated in Apple, Nvidia, and Microsoft. The Vanguard Information Technology ETF divides the tech sector into 12 segments, such as semiconductors, systems software, and technology hardware, with semiconductors making up 27% of the ETF’s value. Nvidia’s market capitalization has surged over $3 trillion due to rising demand for its AI-oriented chips. Broadcom also surpassed the trillion-dollar valuation milestone last year, fueled by significant stock gains.
Among the 316 stocks in the ETF, Apple, Nvidia, and Microsoft collectively account for 44% of its value. The top 10 ETF holdings feature prominent names in AI, including Broadcom, Salesforce, Oracle, Cisco Systems, Accenture, International Business Machines, and ServiceNow. In 2024, these key stocks delivered an average return of 50.8%, significantly contributing to the ETF’s superior performance over the S&P 500.
Apple has introduced its Apple Intelligence software across its devices, incorporating AI features that enhance user experience. Additionally, its potential development of a humanoid robot signifies a significant opportunity as the AI segment evolves. Meanwhile, Nvidia continues to dominate AI hardware with its GPUs, which are highly sought after for AI development, while Microsoft and Oracle are anticipated to be significant buyers.
The Vanguard ETF offers competitive management costs, with an expense ratio of just 0.09%, making it an attractive option for investors. Since 2004, the ETF has provided a compound annual return of 13.6%, outstripping the S&P 500’s 10.4% over the same period. Over the long term, this difference in returns translates into substantial financial gains.
Going forward, AI investments are expected to drive growth among the Vanguard ETF’s largest holdings. Companies like Microsoft, Amazon, Meta Platforms, and Alphabet have committed to substantial investments in AI infrastructure, benefiting Nvidia and Broadcom. Microsoft’s and Oracle’s AI data centers are experiencing high demand, promising continued cloud revenue growth. Furthermore, Apple’s ongoing software enhancements could spur an upgrade cycle, potentially reversing its recent slow growth in revenues.
While the AI sector promises significant upsides, investors are reminded of the importance of portfolio diversification. The Vanguard ETF’s solid performance and potential for future gains make it a compelling component of a well-rounded investment strategy.
