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The AI revolution has arrived, and if you’re overwhelmed by the past couple years’ of momentum or the more recent wave of volatility, it may be best to just go with a tech ETF, especially if you’re not interested in chasing winners or buying into dips that might extend deeper than one would think. Of course, we seem to have entered a bit more of a stock picker’s market, given the growing gap between the haves and have-nots.
Heck, even the Magnificent Seven names are growing apart, at least in recent months. In any case, let’s just dive right into the three very popular tech-focused ETFs to determine which, if any, is the best positioned to ride the AI wave higher as agentic AI and robotics look to spark another batch of big winners. As always, it’s not just the obvious names that will benefit, as the boom benefits some of the names further down the stream.
Vanguard Information Technology Index Fund ETF
Vanguard Information Technology Index Fund ETF (NYSEARCA:VGT) is a popular tech ETF that aims to keep costs at a minimum — that’s Vanguard for you! Behind the curtain, you’re getting a lot more than just a low-cost basket of tech stocks (0.09% expense ratio, by the way).
Having a look at the portfolio composition, you’ll see more than 300 names with an average price-to-earnings (P/E) ratio of 36.8 times. I know what you’re thinking. That’s expensive, even more so than the S&P! What’s more is that some of the components, especially the top-10 holdings, are far pricier than the average P/E of the fund! As they say, high risk, high growth (and excitement). When it comes to the excitement factor, the Vanguard Information Technology Index Fund ETF does not disappoint.
You’re getting a heavy dose of Nvidia (NASDAQ:NVDA | NVDA Price Prediction) with a 18% weighting and Palantir (NASDAQ:PLTR) with 1.6%; not something I’d personally want in my portfolio (especially since Michael Burry is betting against both tech stars), but those who want a good seat to the AI revolution, I can see why one would pound the table on the Vanguard Information Technology Index Fund ETF over more diversified ETFs.
Beyond these stars, you’re getting lots of AI platform plays (agentic titans) as well as semi firms and a bit of software, some of which may be on the receiving end of the AI disruption surge. All considered, it’s a unique mix of tech, though not my favorite.
State Street Technology Select Sector SPDR ETF
State Street Technology Select Sector SPDR ETF (NYSEARCA:XLK) is another popular option if you want tech exposure on the cheap. It’s cheaper than the State Street Technology Select Sector SPDR ETF with a 0.08% gross expense ratio.
Like the Vanguard Information Technology Index Fund ETF, there’s a lot of Nvidia, with a 15% weighting. There’s also a good dose of Palantir and semis. For the most part, the top holdings are quite similar. If you want close to half your exposure from the semis, perhaps this ETF is worth going after, especially since ROI could be a concern for the AI innovators further up the stack!
Like it or not, though, I think this ETF stands to benefit most from the AI boom, especially if it’s the semis that continue to lead the way!
Invesco QQQ Trust
Last but certainly not least, we have the Invesco QQQ Trust (NASDAQ:QQQ). It’s the go-to option for many, and while it’s not a pure-play tech ETF, it is a tech-heavy ETF I prefer most, perhaps because there are some underrated indirect AI winners in the mix as well. You’re probably well familiar with the Nasdaq 100 by now, and if you want single-digit exposure to Nvidia and the rest, I’d argue you can stop at this ETF, which is well-equipped to rise as the AI tide moves higher.
Given its relative lightness in semis, though, it may have the least AI upside of the trio of ETFs in this piece. If you must have AI growth (and risks), perhaps the former two ETFs are a better fit. If you’re more like me and want non-tech as well as more diversification and exposure to the upper layers of the AI stack, I’d stick with the Invesco QQQ Trust, especially as the tech trade gets wobblier.
