Apple, Nvidia, and Microsoft are the world’s three largest firms, with a mixed worth of $10 trillion. Every operates within the data know-how sector, which is accountable for creating the {hardware} and software program that powers every little thing from the web to non-public computer systems.
The S&P 500 delivered a return of 23% final 12 months. Had you invested within the Vanguard Data Expertise ETF (NYSEMKT: VGT), you’ll have earned a acquire of 29% as a substitute.
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However final 12 months wasn’t a one-off. The exchange-traded fund (ETF) has outperformed the S&P 500 on common yearly since its institution in 2004. Here is why I predict it should crush the index but once more in 2025.
Picture supply: Getty Photos.
44% of this ETF is invested in Apple, Nvidia, and Microsoft
The Vanguard ETF breaks the data know-how sector down into 12 segments, together with semiconductors, techniques software program, know-how {hardware}, and software software program. The semiconductor section is the biggest, representing 27% of the entire worth of the ETF.
That’s unsurprising, on condition that because the begin of 2023, Nvidia has added over $3 trillion to its market capitalization on the again of surging demand for its artificial intelligence (AI) knowledge middle chips. Chipmaker Broadcom additionally entered the trillion-dollar membership final 12 months because of a triple-digit proportion acquire in its inventory.
Regardless of holding 316 completely different shares, Apple, Nvidia, and Microsoft account for 44% of the whole worth of the Vanguard ETF. Furthermore, its high 10 holdings characteristic among the largest names within the AI area proper now:
|
Inventory |
Vanguard ETF Portfolio Weighting |
|---|---|
|
1. Apple |
16.82% |
|
2. Nvidia |
13.88% |
|
3. Microsoft |
13.33% |
|
4. Broadcom |
4.23% |
|
5. Salesforce |
1.97% |
|
6. Oracle |
1.71% |
|
7. Cisco Methods |
1.48% |
|
8. Accenture |
1.47% |
|
9. Worldwide Enterprise Machines |
1.45% |
|
10. ServiceNow |
1.29% |
Information supply: Vanguard. Portfolio weightings are correct as of Jan. 31, 2025, and are topic to vary. ETF = exchange-traded fund.
The above 10 shares generated a mean return of fifty.8% throughout 2024, which is a giant motive the Vanguard ETF outperformed the S&P 500 so comfortably:
Apple lately launched its Apple Intelligence software program for all new iPhones, iPads, and Mac computer systems. It launched a number of AI-powered options that remodel how customers handle their notifications and even create and eat content material. Plus, because of an integration with OpenAI’s ChatGPT software, Apple’s Siri voice assistant is now extra highly effective than ever.
In line with a report by veteran Apple analyst Ming-Chi Kuo, the corporate may also be engaged on a humanoid robotic. It could be an enormous opportunity as robotics is slated to grow to be a particularly useful subsegment of the AI business.
For now, Nvidia remains the AI hardware king because of its graphics processing units (GPUs) for the info middle. The corporate is gearing as much as ship business portions of its newest Blackwell GPUs this 12 months, that are finest in school for AI growth. Microsoft and Oracle might be among the many largest consumers of these chips, as they each function centralized knowledge facilities they lease to AI builders.
Vanguard is understood for providing the most cost effective ETFs within the business. This one has only a 0.09% expense ratio, which is the portion of the fund deducted annually to cowl administration prices. Which means an funding of $10,000 within the Vanguard Data Expertise ETF would incur an annual payment of simply $9. That appears like an ideal deal, contemplating its high quality holdings and robust returns.
The Vanguard ETF can beat the S&P 500 once more in 2025
As I discussed on the high, the Vanguard ETF is not any stranger to beating the S&P 500. It has delivered a compound annual return of 13.6% since its inception in 2004, comfortably outperforming the common annual acquire of 10.4% within the index over the identical interval.
The magic of compounding is extremely highly effective, so here is what that distinction means in greenback phrases:
|
Beginning Stability (2004) |
Compound Annual Return |
Stability (Finish of 2024) |
|---|---|---|
|
$100,000 |
13.6% (Vanguard ETF) |
$1,281,051 |
|
$100,000 |
10.4% (S&P 500) |
$723,404 |
Calculations by creator.
AI will probably drive additional upside in among the largest holdings within the Vanguard ETF. For instance, Microsoft, Amazon, Meta Platforms, and Alphabet have dedicated to spending a whole bunch of billions of {dollars} (mixed) on AI knowledge middle infrastructure and chips throughout 2025, and quite a lot of that cash will flow to companies like Nvidia and Broadcom.
Furthermore, Microsoft and Oracle are each experiencing more demand for their AI data centers than they will presumably provide proper now, which ought to proceed to buoy their cloud income and earnings progress.
Lastly, as new Apple Intelligence options proceed to roll out, the software program may drive a serious improve cycle for the iPhone and different Apple units in 2025. It is perhaps what the corporate must reignite its income progress, which has been sluggish over the previous couple of years.
With all that mentioned, the AI revolution remains to be in its very early phases. It is by no means a good suggestion for traders to place all their eggs in a single basket, so despite the fact that this Vanguard ETF has an ideal likelihood to beat the S&P 500 but once more in 2025, they need to purchase it solely as a part of a diversified portfolio of different funds or particular person shares.
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- Nvidia: for those who invested $1,000 once we doubled down in 2009, you’d have $348,579!*
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*Inventory Advisor returns as of February 21, 2025
John Mackey, former CEO of Entire Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. Randi Zuckerberg, a former director of market growth and spokeswoman for Fb and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of administrators. Suzanne Frey, an government at Alphabet, is a member of The Motley Idiot’s board of administrators. Anthony Di Pizio has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Accenture Plc, Alphabet, Amazon, Apple, Cisco Methods, Worldwide Enterprise Machines, Meta Platforms, Microsoft, Nvidia, Oracle, Salesforce, and ServiceNow. The Motley Idiot recommends Broadcom and recommends the next choices: lengthy January 2026 $395 calls on Microsoft and brief January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially replicate these of Nasdaq, Inc.
