Top 3 Vanguard ETFs to Invest in for Leading AI Stocks

Top 3 Vanguard ETFs Loaded with Leading AI   Stocks

Key Points

- Vanguard does not have AI-specific ETFs but offers funds with significant AI stock holdings.

- These ETFs feature low expense ratios and impressive returns.

- Ideal for investors seeking to benefit from AI without selecting individual stocks.

Investing in AI Through Vanguard ETFs

Looking to invest in artificial intelligence (AI) without the hassle of picking individual stocks? Consider exchange-traded funds (ETFs) that focus on companies leading the AI revolution. Vanguard, known for its low-cost funds, provides three excellent ETFs that are heavily invested in top AI stocks.

1. Vanguard Information Technology Index Fund ETF (VGT)

The Vanguard Information Technology Index Fund ETF (VGT) is one of the closest options to an AI-focused fund. It primarily targets information technology stocks, holding 321 U.S. tech companies. Notably, five AI giants—Microsoft, Apple, Nvidia, Broadcom, and Advanced Micro Devices—comprise nearly 53% of its portfolio.

With an annual expense ratio of just 0.1%, well below the industry average of 0.97%, VGT is cost-effective. Over the past five years, it has delivered an average annual return of 23.5%, and since its inception in January 2004, it boasts an average annual return of 13.25%.

The primary concern with VGT is its valuation, with an average price-to-earnings (P/E) ratio of 35.6. However, these companies have shown an average annual earnings growth of 23% over the past five years, indicating strong growth potential that could mitigate valuation concerns.

2. Vanguard Mega Cap Growth Index Fund ETF (MGK)

The Vanguard Mega Cap Growth Index Fund ETF (MGK) focuses on the largest U.S. growth stocks, including several leading AI companies. Its top holdings feature AI leaders like Microsoft, Apple, Nvidia, Amazon, Meta, Alphabet (both Class A and Class C), Broadcom, and Tesla, which together make up 57.5% of the portfolio.

This fund also features a low annual expense ratio of 0.1%, significantly lower than the average of 0.95% for similar funds. MGK has delivered an average annual return of 16.59% over the last five years and 15.72% since its inception in September 2010. It has been the top-performing ETF in the Vanguard family in 2024 so far.

The main drawback, like with VGT, is its valuation. However, with a P/E ratio of 33.9, it is slightly cheaper. If the AI sector continues to thrive, MGK could maintain its impressive performance.

3. Vanguard S&P 500 Growth Index Fund ETF (VOOG)

For those seeking AI exposure within a broader growth framework, the Vanguard S&P 500 Growth Index Fund ETF (VOOG) is an excellent choice. This ETF includes growth stocks from the S&P 500 index, holding 229 stocks with a median market cap of $1.2 trillion. Its top holdings, heavily weighted towards AI, include Microsoft, Apple, Nvidia, Amazon, Meta, Alphabet (Class A and Class C), Broadcom, and Tesla.

VOOG has an annual expense ratio of 0.1%, much lower than the average of 0.95% for similar funds. It has delivered an average annual return of 16.59% over the past five years and 15.72% since its inception in September 2010, making it the best-performing ETF in the Vanguard lineup so far in 2024.

The primary concern with VOOG, like the other two ETFs, is its valuation. However, with a P/E ratio of 33.9, it is slightly less expensive. If the AI boom continues, this ETF is well-positioned to benefit.

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