The Vanguard Information Technology Index Fund ETF (VGT) returned 27 percent this year, outperforming the S&P 500 by a wide margin. The fund has beaten the broader index every year since 2023—a four-year run driven entirely by concentration in semiconductor infrastructure.
Nvidia anchors VGT at 17 percent of assets, with Broadcom, Micron, and Advanced Micro Devices filling positions four through six. Combined, semiconductors and semiconductor equipment exceed 60 percent of the fund's holdings. That's not diversification—it's a direct bet on the AI capex cycle.
The thesis is straightforward: hyperscaler data center spending on GPU and training infrastructure will sustain for years. Both Nvidia and Broadcom have issued multi-year guidance signaling continued revenue compounding from AI. Micron and AMD benefit from the same tailwind. Grand View Research projects 30.6 percent compound annual growth for the AI sector through 2033.
The numbers validate the bet. Since early 2023, VGT has more than tripled in value while the S&P 500 roughly doubled. Over a decade, VGT has posted a 24.4 percent annualized return versus the market's low-single-digit average.
VGT's 0.09 percent expense ratio matters for long-term compounding. Investors gain exposure to the AI infrastructure theme with minimal fee drag.
The risks are concentrated. If hyperscaler AI capex slows—whether due to margin pressure, model efficiency gains, or spending discipline—VGT's heavyweights face significant downside. The fund's semiconductor weighting leaves little room for rotation into defensive or non-AI names.
