It would be hard to find a topic that has dominated the business and technology worlds over the past few years more than artificial intelligence (AI), which has been more inevitable than Los Angeles traffic jams.
While AI has been around for decades (yes, decades), it has only recently entered the mainstream with the success of generative AI tools like OpenAI's ChatGPT and Google's Gemini (formerly Bard). Before that, AI mostly operated behind the scenes. But these consumer applications are allowing ordinary people to interact with AI directly and get a sense of its potential.
If you're interested in investing in what many consider to be the future of technology and have $1,000 to spare, Vanguard Mega Cap Growth ETF (NYSE: MKT: MGK) A great option to add to your portfolio.
Big tech companies make up the majority of ETFs
This ETF focuses on large companies with big growth opportunities. While “mega-cap” is typically defined as companies with a market capitalization of over $200 billion, this ETF includes companies much lower than that. For reference, the smallest company in the ETF is Lululemon AthleticaThe company's market capitalization is approximately $35 billion.
While this is not a pure AI ETF, it does include many companies that are leading the development and innovation of AI, and most of the companies included are working with AI in some form. The majority of the ETF is devoted to the “Magnificent Seven” stocks (over 57%).
This ETF only includes 71 stocks, making it much smaller than other broad-based ETFs, but its concentration of high-performing companies means more potential for growth.
The role of the Magnificent Seven in the world of AI
Nvidia is arguably the biggest beneficiary of the recent AI boom: Its shares have risen nearly 650% in the past two years. The company's GPUs, essential for running data centers and training AI models, have become one of the most sought-after products in the tech world.
Microsoft, Amazon and Alphabet control three of the world's largest cloud platforms and are using AI to enhance their products, improve efficiency and provide comprehensive tools for businesses to implement technologies such as machine learning and data analytics.
Meta Platforms has a Fundamental AI Research (FAIR) team that is focused on research and development of AI in all areas. Apple recently partnered with OpenAI to integrate ChatGPT into their next generation products. The technology is likely to play a major role in on-device machine learning. Tesla is a pioneer in developing electric cars with AI.
AI has many facets, and investors can invest once in this ETF to gain exposure to all sectors (mainly excluding semiconductors).
Outperforming the market
This ETF has outperformed the market since its launch in December 2007. S&P 500 Returns average more than 13% per year.
This ETF's returns have been even greater over the past decade, with the ETF's annual total return averaging more than 16.5% compared to the S&P 500's annual total return of 13.1% over the same period.
There's no way to predict how this ETF will perform in the future, but considering most of its holdings are also part of the S&P 500, it's poised to continue outperforming the market.
Beware: ETFs are concentrated in top companies
Concentration in an ETF does come with some risk, especially if one of the top three stocks experiences a major correction. For example, Nvidia is clearly overvalued by almost every metric, trading at a price-to-earnings (P/E) ratio of nearly 74. If the company fails to live up to sky-high expectations, investors (many of whom are speculators) could move away from the company and its stock price could plummet.
Microsoft and Apple are also more susceptible to corrections, with price-to-earnings multiples of around 38 and 35, respectively (though I would argue they're nowhere near Nvidia's). That said, if you're looking to invest in leading AI companies, this ETF is a great option.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, former director of market development and communications at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Stephon Walters owns shares of Apple and Microsoft. The Motley Fool owns shares of and recommends Alphabet, Amazon, Apple, Lululemon Athletica, Meta Platforms, Microsoft, NVIDIA, and Tesla. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The article 1 Artificial Intelligence (AI) ETF You Can Buy Right Now for Under $1,000 was originally published by The Motley Fool.
