AI Stocks Have Soared. Is It Too Late to Buy This Vanguard ETF?

The artificial intelligence (AI) boom has already created some huge wins for investors.

Nvidia (NASDAQ: NVDA) is the biggest company in the world. Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Meta Platforms (NASDAQ: META), and Broadcom (NASDAQ: AVGO) have invested hundreds of billions of dollars into AI infrastructure, data centers, semiconductor chips, and cloud computing. Investors who got in on the trend early have enjoyed huge profits.

The question now becomes whether there's still upside left in these stocks or if it's too late.

The Vanguard Growth ETF (NYSEMKT: VUG) has been and still is invested in many of the companies leading the AI revolution. After nearly doubling during the past three years, investors need to understand what they're getting when they buy this exchange-traded fund (ETF).

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The ETF is making a huge bet on technology

The Vanguard Growth ETF isn't technically an AI ETF. But its selection methodology, which looks at revenue and earnings growth, return on assets, and increased investment, definitely steers it toward that theme.

All of the aforementioned stocks are among the current top 10 holdings. But they all sit at different points in the AI ecosystem.

Nvidia and Broadcom are major semiconductor chip suppliers. Microsoft, Amazon, and Alphabet run the world's biggest cloud platforms. Meta is using AI to expand an already profitable digital advertising business.

This is what makes the Vanguard Growth ETF attractive. It doesn't try to pick winners or rotate into the popular segment of the moment. It's indirectly capturing the entire theme and investing in its largest leaders.

The AI spending boom isn't slowing down

There's reason to believe this opportunity still has a long runway.

Amazon, Microsoft, Alphabet, and Meta alone have planned hundreds of billions of dollars in capital spending during 2026, much of it tied to data centers and AI infrastructure.

Of course, that in and of itself isn't a guarantee of increased profits or better investment returns. In fact, capex spending is arguably one of the biggest risk factors facing these stocks. AI spending is fine as long as it can generate an appropriate return on investment in the end. Companies need to demonstrate revenue and productivity growth to justify it.

But initial signs are encouraging.

Cloud demand remains strong. Revenue and growth results for these megacap companies have been solid. There are still supply constraints in many areas, but AI investment is helping to catch up to demand.

The primary concern isn't about who is doing the spending. It's who is generating the best return on that spending.

The Vanguard Growth ETF works because it doesn't try to identify specific winners. It invests in the trend by simply including all of the biggest players.

There's a price for all that growth

Growth stocks typically come with higher valuations because investors anticipate faster earnings growth. That's fine until that earnings growth peaks or begins to decelerate. That typically causes valuations to shrink and creates the possibility of deeper than average losses.

That's one of the biggest risks of the Vanguard Growth ETF right now. Even though these are great and successful businesses, sometimes their prices become too high. The fund currently trades at about 28 times the next 12 months' earnings. That's lower than its recent peak but above its long-term average.

The ETF also comes with substantial concentration risk. Technology stocks make up 69% of the portfolio, and more than 60% is committed to the top 10 holdings.

If AI spending slows or valuations contract, the fund could easily begin underperforming.

Is it too late to buy Vanguard Growth?

Investors buying the Vanguard Growth ETF today probably shouldn't expect the huge gains of the recent past. A lot of expectations are built in, and valuations already reflect much of the optimism.

But that isn't the same thing as saying that the opportunity is over.

AI infrastructure, cloud computing, and semiconductors could remain major economic growth drivers for the foreseeable future. This fund's investment in those companies could continue capturing profit growth.

Investors with long time horizons should feel comfortable buying the fund today as a complement to a core S&P 500 or total U.S. stock market ETF, as long as they're willing to ride out the volatility.

Even as the AI boom begins to mature, the companies driving the trend should be able to sustainably increase their earnings for years to come.

The upside of the Vanguard Growth ETF may not be over yet.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Meta Platforms, Microsoft, Nvidia, and Vanguard Morningstar Growth ETF. The Motley Fool has a disclosure policy.