The S&P 500 (^GSPC -3.01%) has only delivered back-to-back annual gains of 25% or more (including dividends) on two occasions in its history dating back to 1957: During the dot-com internet boom in 1997 and 1998, and during the artificial intelligence (AI) boom in 2023 and 2024.
The gains over the last two years have been driven by some of the largest companies in the index, including multitrillion-dollar giants like Nvidia, Amazon, Apple, and Microsoft. They have invested their vast financial resources to develop powerful AI infrastructure and software, propelling their stocks to an average gain of 106% in 2023, and then a further 64% in 2024.
In other words, investors who haven't owned those four stocks over the last two years have probably underperformed the S&P 500 by a wide margin. However, there is a simple way to buy them all right now, along with an entire portfolio of America's largest companies.
The Vanguard Mega Cap Growth ETF (MGK -3.41%) is an exchange-traded fund (ETF) that holds 69 large-cap stocks, and 43.2% of its entire portfolio value is occupied by Nvidia, Amazon, Apple, and Microsoft.
Image source: Getty Images.
Practically every AI leader packed into one ETF
Despite holding 69 stocks from nine different economic sectors, the technology sector represents a whopping 59.7% of the total value of the Vanguard Mega Cap Growth ETF's portfolio. That's mainly because all three of its top holdings (Apple, Microsoft, and Nvidia) are from the tech sector, and they happen to be the most valuable companies on Earth with a combined worth of $9 trillion.
The consumer discretionary sector has the second highest weighting at 20.9%, and it's home to Amazon, which is the fourth-largest holding in the ETF:
|
Stock |
Vanguard ETF Portfolio Weighting |
|---|---|
|
1. Apple |
13.92% |
|
2. Microsoft |
11.14% |
|
3. Nvidia |
10.93% |
|
4. Amazon |
7.24% |
Data source: Vanguard. Portfolio weightings are accurate as of Feb. 28, 2025, and are subject to change.
All four of the above companies are now laser-focused on AI. Not only are they developing new AI products, but they are also using the technology to supercharge their legacy products. Apple, for instance, recently launched its Apple Intelligence software, which enhances existing apps on iPhones, iPads, and Mac computers. With a single tap, it can summarize texts and emails, and even generate replies, but that's just the tip of the iceberg.
Microsoft and Amazon operate the two largest cloud computing platforms in the world, which have become primary access points for businesses and developers seeking the tools they need to create their own AI software. That includes powerful data center infrastructure, and ready-made large language models (LLMs).
Microsoft and Amazon have also created their own AI assistants, which are embedded into their legacy products. Microsoft's Copilot is accessible in Windows and 365, for example, and Amazon's Rufus helps customers make more informed purchases on Amazon.com.
Finally, none of the above would be possible without Nvidia, which supplies graphics processing units (GPUs) for data centers. Its latest Blackwell GPUs are the most advanced chips for developing AI in the world, and CEO Jensen Huang believes the company is on the cusp of a trillion-dollar revenue opportunity as the infrastructure spending boom ramps up.
Beyond the above four positions, the Vanguard ETF also holds other AI leaders like Meta Platforms, Tesla, Alphabet, Broadcom, and Advanced Micro Devices, just to name a few.
NASDAQ: NVDA
Key Data Points
The Vanguard ETF can supercharge a diversified portfolio
The Vanguard ETF has generated a compound annual return of 13.1% since it was established in 2007, comfortably outperforming the average annual return of 10.4% in the S&P 500 over the same period. The 2.7-percentage-point difference per year might not sound like much, but it can translate into significantly higher returns in dollar terms thanks to the magic of compounding:
|
Starting Balance In 2007 |
Compound Annual Return |
Balance at the end of 2024 |
|---|---|---|
|
$10,000 |
13.1% (Vanguard ETF) |
$81,070 |
|
$10,000 |
10.4% (S&P 500) |
$53,761 |
Calculations by author.
I'm not suggesting investors should put all of their eggs in one basket, because the Vanguard ETF is highly concentrated. While the AI boom is still in its early stages with trillions of dollars in potential value still to come, if the industry fails to live up to expectations, many of the stocks in this ETF could underperform.
As a result, it's important to own this ETF as part of a balanced portfolio. Per the above table, an investment of $10,000 in the S&P 500 in 2007 would be worth $53,761 today. However, had you invested $5,000 in the S&P 500 and the other $5,000 in the Vanguard ETF, that $10,000 would be worth $67,415 instead.
Therefore, maintaining some diversification can still supercharge your portfolio, while keeping your risk in check in case large-cap technology stocks hit a rough patch.
