Had You Bought This Magnificent Vanguard ETF at the Start of January, You'd Be Crushing the S&P 500 in 2026

Despite some recent volatility, the benchmark S&P 500 has returned 10.3% so far in 2026. But had an investor bought the Vanguard Information Technology ETF (NYSEMKT: VGT) on Jan. 1 instead, they would be sitting on a much bigger gain of 23.3%.

The exchange-traded fund (ETF) invests exclusively in stocks from the information technology sector, which is home to several trillion-dollar giants at the center of the artificial intelligence (AI) boom. Many of those stocks have consistently outperformed the broader market over the last few years, fueling blistering returns in this Vanguard ETF.

Will the strong returns continue, or are prospective investors now late to the party?

Image source: Getty Images.

This ETF has over half of its assets parked in five trillion-dollar stocks

There are currently 12 American companies valued at $1 trillion or more, and five of them are in the information technology sector:

1. Nvidia (NASDAQ: NVDA): $5.1 trillion.
2. Apple (NASDAQ: AAPL): $4.7 trillion.
3. Microsoft (NASDAQ: MSFT): $2.9 trillion.
4. Broadcom (NASDAQ: AVGO): $1.9 trillion.
5. Micron Technology (NASDAQ: MU): $1.05 trillion.

The Vanguard Information Technology ETF holds 323 stocks, but the five above alone account for a whopping 50.6% of its portfolio value, so they have a major influence on its performance.

Data source: Vanguard. Portfolio weightings are accurate as of May 31, 2026, and are subject to change.

Four of those five stocks have outperformed the S&P 500 this year, which helps explain why the Vanguard ETF is beating the index.

MU data by YCharts

Nvidia, Broadcom, and Micron are likely to continue performing well as demand still significantly outweighs supply for data center chips and components critical to developing AI models. Microsoft is a leader in AI software and AI cloud services, and while its stock is lagging the pack right now, it's so attractively valued that I think a recovery is only a matter of time.

But I also want to shine a light on some of the stocks sitting just outside the Vanguard ETF's top-five holdings. Advanced Micro Devices, Intel, and Lam Research are also central to the AI infrastructure boom, and their respective stocks have each more than doubled this year.

Data by YCharts.

Should investors still buy the Vanguard Information Technology ETF?

This Vanguard ETF has a stellar track record against the broader market. It has delivered a compound annual return of 14.9% since it was established in 2004, beating the S&P 500, which returned 10.9% per year over the same period. That 4 percentage-point difference might not sound like much at face value, but it would've had an incredible impact in dollar terms because of the magic of compounding.

Data source: Calculations by author.

From that perspective, buying the Vanguard ETF seems like a no-brainer for long-term investors. But there are some near-term risks worth considering, centered on the sustainability of the AI infrastructure spending boom. While most tech giants are moving full steam ahead with their planned capital expenditures, the rising cost of chips and components has forced some AI providers to implement passive price increases for their models and software products.

This is causing some angst among their customers. Uber Technologies, for example, recently burned through its entire 2026 AI budget in just four months by using Anthropic's Claude Code. Uber's chief operating officer said it's becoming harder to justify that kind of spending.

Alphabet CEO Sundar Pichai said he's fielding similar complaints from many of Google's enterprise AI customers. A recent survey by UBS Group suggests 60% of businesses are now curbing some of their AI spending by using cheaper models that use less computing power, which could spell trouble for semiconductor demand in the near future.

Investors can smooth out this noise by adopting a time horizon of five years or more, because AI is likely here to stay despite any short-term teething problems. Plus, a number of other technologies are in the pipeline that could deliver spectacular long-term returns for the Vanguard ETF, such as robotics, autonomous vehicles, and quantum computing.

As a result, investors who don't have much exposure to information technology stocks already might want to consider adding this ETF to their portfolio.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Broadcom, Intel, Lam Research, Micron Technology, Microsoft, Nvidia, and Uber Technologies. The Motley Fool has a disclosure policy.