Here's Why I'm Loading Up on This AI-Heavy Vanguard ETF

The artificial intelligence (AI) revolution is reshaping technology investing. Chips, software, cloud infrastructure -- everything is getting repriced based on AI exposure. Nvidia dominates semiconductors. Microsoft leads cloud AI. Palantir Technologies powers enterprise applications. The Vanguard Information Technology ETF (NYSEMKT: VGT) owns all of them.

Year-to-date, this exchange-traded fund (ETF) has returned 23% compared to 15.6% for the benchmark S&P 500. The fund holds 314 tech stocks as of this writing on Oct. 29, charges a rock-bottom expense ratio, and rebalances automatically as winners emerge. When Nvidia exploded over the past few years, investors captured the gains without timing anything.

Image source: Getty Images.

Here's why I'm loading up on the Vanguard Information Technology ETF.

The AI winners you already own

Open this fund and you'll find an AI all-star roster. Microsoft and Apple combine for roughly a quarter of holdings -- two of the most valuable companies on Earth, both racing to embed AI into everything they touch. Nvidia represents a significant chunk, though its influence ripples through every semiconductor holding as the entire industry pivots to AI workloads.

The real genius lies in capturing AI's spillover effects. Broadcom designs custom AI chips for cloud giants. Oracle retrofits databases for the AI era. Palantir embeds AI into government workflows. Advanced Micro Devices (AMD) competes directly with Nvidia. The fund holds every major chip company benefiting from AI demand, every software company adding AI features, and every hardware maker seeing data center buildout demand.

Why sector concentration works

Some folks point out that technology's massive S&P 500 weighting presently matches dot-com bubble peaks. They warn about concentration risk and suggest diversification. They're missing the point entirely. The technology sector's dominance reflects a fundamental truth: Software ate retail, transportation, and media over the past two decades. Now AI is eating software, and by extension, the world.

Consider what this fund avoids: utilities with tiny payouts; banks boxed in by regulation while fintech erodes their moat; retailers scraping by on single-digit margins while cloud platforms post fat operating profits. By focusing on technology, you skip the sectors being disrupted and own the disruptors. The expense ratio of 0.09% is rock bottom, so costs barely matter. Over decades, that edge can compound into six-figure extra returns.

The patient investor's AI strategy

Wall Street keeps hunting for "the next Nvidia," the one stock that will define the AI era. That chase is a sucker's game. This Vanguard fund takes a different path. It owns the whole field and lets market-cap weighting sort the winners from the rest. You won't get life-changing gains overnight, but you can ride the AI wave without taking on outsize single-stock risk.

Today's leaders like Microsoft and Nvidia drive returns. Tomorrow's leaders -- perhaps Cisco Systems as edge computing explodes, or Salesforce as AI agents automate sales -- already sit in your portfolio. When quantum computing breaks through, IBM positions you for that shift. The fund's long-term track record speaks for itself, turning modest investments into substantial wealth over time.

Why I'm loading up

Tech concentration cuts both ways. When the sector sold off in 2022, this fund fell more than the S&P 500. Nvidia is a large holding, and two customers make up a big share of Nvidia's revenue. If big tech slows AI capital expenditures, you get hit twice. The fund also trades at a premium. If AI monetization lags, tech could stay under pressure. Export controls on China already weigh on Nvidia.

The risks are real. The trend is stronger. AI spending is accelerating and cloud adoption still has a long runway. Quantum and other compute frontiers could open new markets next decade. For patient investors who can handle sharp drawdowns, the Vanguard Information Technology ETF looks like the most efficient way to own the AI buildout.

I am not buying this AI-heavy fund because it is cheap, but because the AI revolution is inevitable. These are the companies shaping the next 25 years, and owning the full slate of leaders is probably the smartest move right now.

George Budwell has positions in Apple, Microsoft, Nvidia, Palantir Technologies, and Vanguard Information Technology ETF. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Cisco Systems, International Business Machines, Microsoft, Nvidia, Oracle, Palantir Technologies, and Salesforce. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.