How do you invest in artificial intelligence (AI) without picking specific AI stocks? The answer is simple: buy an exchange-traded fund (ETF) that focuses on AI stocks.
Vanguard has long been a favorite of investors for its low-cost funds. The investment firm doesn't have an ETF that's purely focused on AI. But here are three great Vanguard ETFs to buy that are packed with top AI stocks.
1. Vanguard Information Technology Index Fund ETF
Perhaps the closest thing Vanguard has to a pure AI fund is Vanguard Information Technology Index Fund ETF (NYSE:MKT:VGT)As the name suggests, this ETF focuses on information technology (IT) stocks.
The Vanguard Information Technology Index Fund ETF currently holds 321 U.S. tech stocks. Five AI stocks make up about 53% of the fund's portfolio. Microsoft, apple, NVIDIA, Broadcomand Advanced Micro Devices.
You won't have to pay an exorbitant amount for this ETF: The annual expense ratio is just 0.1%, while similar funds not offered by Vanguard have an average expense ratio of 0.97%.
Over the past five years, the Vanguard Information Technology Index Fund ETF has delivered an average annual return of 23.5%. Since its inception in January 2004, the ETF has delivered an average annual return of 13.25%.
The main drawback to buying this ETF is its valuation. The average stock in the fund has a trailing year price-to-earnings (P/E) ratio of 35.6. But there's some good news: the stocks held by this Vanguard ETF have delivered average annual earnings growth of 23% over the past five years. Many of them are poised for continued high growth, making the ETF's valuation not so scary.
2. Vanguard Mega Cap Growth Index Fund ETF
The market capitalization of AI-related stocks is soaring. Vanguard Mega Cap Growth Index Fund ETF (NYSE: MKT: MGK) It focuses on the largest US growth stocks and owns a number of AI leaders.
The Vanguard Mega-Cap Growth Index Fund ETF holds 79 stocks with a median market capitalization of $1.8 trillion. Eight of the top 10 stocks are AI-related, including Microsoft, Apple, Nvidia, and Amazon, Meta Platform, alphabet Class A, Alphabet Class C, and TeslaThese stocks make up about 60% of the ETF portfolio.
This Vanguard ETF also has a low annual expense ratio of 0.07%, well below the 0.95% average of similar funds. It has delivered an average annual return of 20.03% over the past five years and 12.73% since the fund's inception in December 2007.
But like the Vanguard Information Technology Index Fund ETF, the Vanguard Mega-Cap Growth Index Fund ETF also boasts a strong valuation. The average P/E ratio of the mega-cap stocks in the portfolio is 38.
3. Vanguard S&P 500 Growth Index Fund ETF
Investors who want to invest in AI Vanguard S&P 500 Growth Index Fund ETF (NYSE:MKT:VOG)This ETF is S&P 500 index.
This Vanguard ETF holds 229 stocks with a median market capitalization of $1.2 trillion. Nine of the top 10 stocks are AI stocks: Microsoft, Apple, Nvidia, Amazon, Meta, Alphabet Class A, Alphabet Class C, Broadcom, and Tesla. These nine stocks make up 57.5% of the fund's total portfolio.
The Vanguard S&P 500 Growth Index Fund ETF has an annual expense ratio of 0.1%, which is much lower than the average expense ratio of similar funds of 0.95%. The ETF has returned an average of 16.59% annually over the past five years and 15.72% since its inception in September 2010. It is also the best-performing ETF in the Vanguard family so far in 2024.
You've probably guessed the main drawback of this Vanguard ETF: it's the same as the other two ETFs on this list: valuation. However, the Vanguard S&P 500 Growth Index Fund ETF is a bit cheaper, with a P/E ratio of 33.9. If the AI boom continues, this ETF should keep up its momentum.
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Randi Zuckerberg, former director of market development and public relations 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 Amazon subsidiary Whole Foods Market, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keith Speights has invested in and recommends Alphabet, Amazon, Apple, Meta Platforms, and Microsoft. The Motley Fool has invested in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla. The Motley Fool recommends Broadcom and recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The post 3 Great Vanguard ETFs to Buy, Packed with Top Artificial Intelligence (AI) Stocks was originally published by The Motley Fool
