Is This Growth Stock-Heavy Vanguard ETF Worth Doubling Up on in August?

Key Points

• ETFs allow investors to get exposure to a basket of stocks through one asset.

• Many tech and artificial intelligence (AI) ETFs have performed quite well.

• That's especially true for those owning some of the trillion-dollar-plus stocks.

• 10 stocks we like better than Vanguard Information Technology ETF ›

If you've invested in fast-growing, large-cap stocks in the tech sector, you've likely done pretty well over the past few years. If those tech stocks also happened to be leveraging artificial intelligence (AI), then you've likely done even better.

Investors view AI as the greatest disruption in the world since the internet boom in the early 2000s. They think it has the potential to transform nearly every industry and maximize productivity. Given that its potential looks unlimited right now, investors have been pouring into stocks that they believe will be the biggest beneficiaries of this trade.

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Many of these happen to fall into the Vanguard Information Technology ETF (NYSEMKT: VGT) So is this exchange-traded fund (ETF) worth doubling up on in August? Let's find out.

Essentially a bet on the "Magnificent Seven"

The Vanguard Information Technology ETF, which is passively managed, seeks to mirror the performance of an index that owns many stocks in the information technology sector. Its largest subsectors are semiconductors, systems software, application software, and technology hardware and storage.

Image source: Getty Images.

But the fund is heavily concentrated in highflying AI names and stocks in the "Magnificent Seven." In fact, nearly 45% of VGT is invested in the AI chip king Nvidia and the hyperscalers Apple and Microsoft. The construct of the fund could have to do with the fact that all three of these names have broken away from most of the market and zoomed to multitrillion-dollar market caps.

While Nvidia is seen as the ultimate pick-and-shovel trade for the AI sector, Apple and Microsoft are viewed as some of the largest beneficiaries and are investing intensely in AI-related infrastructure and AI tools for their products and services. VGT is up about 9.3% this year and roughly 142% over the last five years. Mag Seven stocks have had more difficulty this year than in recent years, as President Donald Trump's tariffs and export restrictions on Nvidia's chips to China, which have since been removed, have cast doubt on near-term earnings projections.

MSFT data by YCharts

Still, Nvidia and Microsoft have turned things around since April and are now having strong years, while Apple's outlook is still murky due to uncertainty with tariffs. The company still has most of its supply chain in China and Vietnam. If tariffs end up getting finalized on higher rates, it could prove a significant burden on the company's costs, and relocating its supply chain seems like a non-starter.

Other top holdings in VGT include tech and AI names just outside of the Magnificent Seven like Oracle, Broadcom, and Salesforce. Then there are other high-performing AI stocks like Palantir and Advanced Micro Devices, as well as some more traditional big tech names like IBM and Cisco Systems.

Should you double up?

According to Vanguard, the VGT ETF traded at about 39 times earnings at the end of June 30. Meanwhile, Nvidia, Apple, and Microsoft trade for between 29 times and 39 times forward earnings, which is not that high for them when you look back over the last five years.

MSFT PE Ratio (Forward) data by YCharts

While valuation multiples probably do not look excessive to most investors who have been investing in AI, the bigger underlying questions are about the quality of earnings and whether growth can continue like it has, whether AI capital expenditures will remain as strong as they have, and whether or not some kind of recession or economic downturn could materialize and impact the AI sector. There are also company-specific questions, like the impact of tariffs on Apple's business.

It's hard to know the answers to all of these questions, but with the market at or near all-time highs, and many of these stocks making up a sizable portion of the market, I would not double up on VGT right now. Data suggests that the economy is OK, but that could change on a dime and we still don't know how Trump's current and future tariff rates will impact inflation.

That said, I think long-term investors can keep buying VGT, given the potential of AI and the tech needed to support the sector. But I would recommend dollar-cost averaging because the path is unlikely to be linear and will likely encounter some near-term turbulence, presenting more favorable entry points.

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Bram Berkowitz has no position in any of the stocks mentioned. 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.