Where Will This Vanguard ETF, Loaded With Nvidia and Broadcom, Be in 10 Years?
Key Points
The Vanguard Information Technology ETF has benefited from its high allocations to Nvidia and Broadcom.
They could drive continued strong returns for the ETF over the next 10 years.
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The Vanguard Information Technology ETF (NYSEMKT: VGT) has delivered a monster 24% annualized return over the last decade. If the fund maintains its pace over the next 10 years, it would grow from today's price of around $120 a share to more than $1,000 per share.
The fund's past performance doesn't guarantee similar returns in the future. However, the Vanguard Information Technology ETF's heavy allocation to AI semiconductor giants Nvidia and Broadcom bodes well for its future return potential.
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Loaded with growth
VGT has been a strong performer since its inception in 2004 with a 14.6% annualized return. Its performance has been really strong over the past decade, including one-, three-, and five-year annualized returns ranging from 17.8% to 31.7%. That's due in large part to the robust performance of semiconductor stocks, which are crucial for AI. For example, Broadcom and Nvidia have delivered eye-popping annualized returns of 35.5% and 63.8%, respectively, over the past decade, helping drive this fund's robust performance.
They should continue to be major contributors to its future success. Nvidia is the fund's top holding, with a large 17.2% allocation. Meanwhile, Broadcom currently ranks fourth at 4.2%. The fund has meaningful allocations to all the top tech and AI stocks.
That's worth noting because most analysts believe we're still just in the early stages of the AI infrastructure build-out. According to a Deloitte outlook, global semiconductor sales alone are expected to more than double from $975 billion this year to $2 trillion by 2036. That should drive continued robust growth for Nvidia and Broadcom. That's just one catalyst for this fund.
While VGT has robust return potential over the next decade, it's not without risks. There's growing competition in the AI semiconductor space, which could compress profit margins over the next decade. Additionally, there is a risk that AI might not deliver the productivity gains many envision, which could lead to slower spending.
That caveat aside, the Vanguard Information Technology ETF offers the opportunity to passively invest in one of the biggest megatrends in history. If AI comes even close to delivering on the promise many see in the technology, the fund could easily top $1,000 per share by 2036.
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Matt DiLallo has positions in Broadcom. The Motley Fool has positions in and recommends Broadcom and Nvidia. The Motley Fool has a disclosure policy.
