The artificial intelligence (AI) boom has started and Wall Street is very bullish. bank of america and RBC Capital Markets recently raised their year-end price targets. S&P500 (SNPINDEX: ^GSPC)and goldman sachs It’s called the undervalued index. All three financial institutions mentioned AI when discussing their decisions.
But the most bullish is Capital Economics. The company recently raised its 2025 S&P 500 stock price target to 6,500. This means he will be up 46% over the next 18 months. Growing demand for AI was the driving force behind that upgrade.
One logical way for investors to take advantage of this trend is to buy an S&P 500 index fund.
Broad blue chip exposure
of Vanguard S&P 500 ETF (VOO -0.23%) tracks the performance of hundreds of America’s blue-chip companies, many of which use some form of artificial intelligence (AI). In fact, a record 110 S&P 500 companies mentioned AI in their latest earnings call. It includes five stocks, described below, which together account for approximately 16% of the Vanguard S&P 500 ETF’s weighted exposure.
microsoft (MSFT -1.19%) uses AI across its broad portfolio of enterprise software. For example, Microsoft 365 uses AI to generate text in Word, analyze data in Excel, and create slides in PowerPoint. Microsoft Defender uses AI to detect and prevent cyberattacks. Microsoft Dynamics 365 also uses AI to avoid supply chain disruptions and improve efficiency across sales, marketing, and customer service.
Microsoft Azure is also OpenAI’s exclusive cloud provider. This partnership is beneficial for two reasons. First, Microsoft could indirectly monetize ChatGPT and other products OpenAI develops in the future. Next, Microsoft will provide direct access to OpenAI’s models, allowing developers to build generative AI applications.
alphabet (GOOG -0.65%) (Google -0.53%) uses AI across its digital advertising business to great effect. For example, AI makes Google search results more relevant, makes YouTube content recommendations more personal, and improves ad campaign performance. Alphabet is the world’s largest ad tech company, and popular web properties like Google Search and YouTube are a major reason for its success.
Alphabet is leveraging AI across its cloud computing business to great effect. Industry experts recognize Google Cloud Platform as a leader in AI infrastructure, conversational AI platforms, and AI-powered document analysis, and the company recently introduced a set of generative AI capabilities.
Amazon (AMZN 1.11%) Use AI to predict retail sales, optimize supply chains, provide product recommendations to shoppers, and streamline logistics with fulfillment robots and delivery drones. And the company’s cloud computing business, Amazon Web Services (AWS), is the center of his AI innovation at the company.
AWS offers a broader and deeper portfolio of AI and machine learning services and consulting than any other cloud provider. Gartner The company was recently recognized as a leader in cloud AI developer services. However, AWS recently launched two of his new products designed to capitalize on the growing demand for generative AI software. The first is Amazon Bedrock, a service that helps clients build generative AI applications. The second is Amazon CodeWhisperer, a service that uses generative AI to automate parts of the coding process to streamline software development.
Nvidia (NVDA 0.95%) Graphics processing units (GPUs) are the gold standard for AI infrastructure, but the company offers a complete AI computing platform that is truly formidable. Since inventing the GPU, Nvidia has delved deeper into data center hardware, adding high-performance networking solutions and central processing units to its portfolio. The company is also branching out into AI cloud services and subscription software. In short, Nvidia is a one-stop shop for AI computing.
Tesla (TSLA -0.76%) is a frontrunner in the race to develop fully autonomous vehicles. It has more self-driving-capable cars on the road than any other automaker, and it has more self-driving data than its competitors. Since data is the foundation of AI, this advantage suggests more advanced software.
Tesla also has an edge in AI hardware. According to CEO Elon Musk, an in-vehicle supercomputer running fully self-driving software is “the most efficient reasoning computer in the world.”
The S&P 500 has been a reliable investment throughout history
While many Wall Street analysts believe AI stocks will drive the S&P 500 index higher in the coming months, there are even more compelling reasons for patient investors to buy an S&P 500 index fund like the Vanguard S&P500 ETF. There is Since its inception in 1957, the index has produced positive returns in all 20-year time periods, recording a combined return of 1,690%, or nearly 10.1% per year, over the last 30 years.
In short, the S&P 500 has been a reliable moneymaker throughout history and there’s no reason to change it in the future.
John McKee, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Bank of America is an advertising partner of The Motley Fool’s Ascent. Alphabet executive Suzanne Fry is a member of the Motley Fool’s board of directors. Trevor Jennewine holds positions in the Amazon.com, Nvidia, Tesla, and Vanguard S&P 500 ETFs. The Motley Fool holds positions in and recommends Alphabet, Amazon.com, Bank of America, Goldman Sachs Group, Microsoft, Nvidia, Tesla, and Vanguard S&P 500 ETFs. The Motley Fool recommends his Gartner. The Motley Fool has a disclosure policy.
