Prediction: Nvidia Will Join the Vanguard Russell 1000 Value ETF Before the End of the Year. Here's Why the ETF Is an Excellent Buy Now.

As of July 31, the Vanguard Russell 1000 Growth ETF (NASDAQ: VONG) has a whopping 14.6% weighting in Nvidia (NASDAQ: NVDA) -- far ahead of the 7.6% weighing in the Vanguard S&P 500 ETF (NYSEMKT: VOO). The Vanguard Russell 1000 Growth ETF is based on the Russell 1000 Growth Index, which uses unique methodologies that overweight stocks it deems pure-play growth names (like Nvidia). But that classification may not last.

Here's the surprising reason Nvidia is evolving into a dividend growth stock, which could land it a spot in the Vanguard Russell 1000 Value ETF (NASDAQ: VONV), and why the ETF is one of the best buys for value investors.

Image source: Nvidia.

Not your typical value index

The London Stock Exchange Group (LSEG) runs the Russell 1000 index, which is the 1,000 largest U.S.-listed stocks by market cap. Earlier this year, the firm shifted its reconstitution period from annual to semiannual. The next index shake-up will take effect in December. I expect Nvidia's weighting to be split between the Vanguard Russell 1000 Growth Index and the Vanguard Russell 1000 Value Index, rather than being solely in the Vanguard Russell 1000 Growth Index.

Like the S&P 500 (SNPINDEX: ^GSPC), the Russell 1000's market cap is heavily concentrated in growth stocks. But LSEG aims to split the Russell 1000 evenly between the Growth Index and Value Index. To compensate for growth stocks being collectively more valuable than value stocks, the index allocates the market cap of stocks like Apple and Microsoft between the two indexes rather than solely to the Growth Index.

For comparison, popular low-cost ETFs like the Vanguard Morningstar Growth ETF (NYSEMKT: VUG) and the Vanguard Morningstar Value ETF (NYSEMKT: VTV) use an all-or-nothing approach. The Vanguard Growth ETF holds Nvidia, Alphabet, Apple, Microsoft, Amazon, Broadcom, Tesla, Meta Platforms, and Micron Technology, while the Vanguard Value ETF doesn't hold any of those stocks. Whereas the Vanguard Russell 1000 Growth ETF and the Vanguard Russell 1000 Value ETF have more crossover.

This crossover can be seen by the number of components in both ETFs. Instead of the combined ETFs having 1,000 components as you may expect -- the Vanguard Russell 1000 Growth ETF has 370 companies compared to 872 in the Vanguard Russell 1000 Value ETF -- showcasing the significant overlap with a combined 1,242 components.

Nvidia has evolved into a cash cow

Apple and Microsoft are the top five components in both the Vanguard Russell 1000 Growth ETF and the Vanguard Russell 1000 Value ETF. I expect Nvidia to secure a similar allocation as the company transitions from a cyclical semiconductor company, highly reliant on one-off hardware sales, to the key provider of foundational artificial intelligence (AI) infrastructure.

Nvidia is broadening its customer base beyond hyperscalers to include AI labs, AI start-ups, AI clouds, and other enterprises that need computing power. Its recently announced $500 billion AI capital financing deal with six major institutions aims to make computing more affordable and to grow Nvidia's customer base. The more companies that depend on Nvidia's hardware and software for computing power, the more ingrained it will become in global infrastructure.

Widespread adoption of generative, agentic, and physical AI (such as robotics and self-driving cars) will gradually increase computing demand, allowing Nvidia to swap out racks in old data centers with its latest tech. On its Aug. 26 second-quarter fiscal 2027 earnings call, Nvidia forecasted 70% revenue growth in fiscal 2028 and noted that its latest Vera Rubin platform, which just began shipments in August, is already expected to account for 20% of data center revenue in its upcoming third quarter.

The pace of Vera Rubin adoption, paired with a growing customer base, sets the stage for sustained high-margin growth and gobs of free cash flow generation. In its latest quarter, Nvidia returned a record $26 billion to shareholders through buybacks and its dividend, which it increased by 2,400% earlier this year.

Over time, I expect Nvidia to diversify its customer base by partnering with financial institutions that are willing to help fund the AI infrastructure build-out. The more Nvidia broadens its customer base, the less it will depend on a boom in hyperscaler capital expenditures from a handful of key customers.

An AI stock for growth and value investors alike

Nvidia is no longer a company in hypergrowth mode with hopes of being highly profitable in the future. It is now an incredibly profitable company that is generating tons of FCF. Nvidia plans to return at least 50% of that FCF to shareholders through dividends and buybacks, and has exceeded that target so far this fiscal year with 60% of FCF returned to shareholders.

As Nvidia matures, I could see it being viewed essentially as a foundational AI value stock in the semiconductor industry, with more staying power than, say, a memory stock like Micron Technology, which isn't as vertically integrated in the AI value chain and is booming largely on a cyclical upswing. And at 23.4 times forward earnings, Nvidia is priced fairly reasonably compared to the S&P 500's forward price-to-earnings ratio of 20.

All told, the Vanguard Russell 1000 Value ETF is a great buy for investors seeking an ETF that offers a modern twist on traditional growth-versus-value paradigms, rather than classifying a stock as purely growth or value.

Daniel Foelber has positions in Broadcom and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Meta Platforms, Micron Technology, Microsoft, Nvidia, Tesla, Vanguard Morningstar Growth ETF, Vanguard Morningstar Value ETF, and Vanguard S&P 500 ETF. The Motley Fool recommends London Stock Exchange Group Plc. The Motley Fool has a disclosure policy.