Picking the right artificial intelligence (AI) stock is hard, and the past week made that especially clear. Chip stocks tumbled in early June, dragging the Nasdaq Composite down about 4% on June 5 for its worst session since the tariff turmoil of early 2025. Names that had carried the market higher for months — Advanced Micro Devices, Intel, and others tied to AI hardware — gave back chunks of enormous gains in a matter of days. And some AI stocks fell far more sharply than others.
For an investor trying to decide which single AI name to own, that kind of move is unsettling. Buy the wrong one at the wrong moment, and a year of patience can unwind in an afternoon.
There is another way to play the theme, though, and it doesn't require getting any one stock right. The Vanguard Information Technology ETF (VGT 1.93%) gives investors a single purchase that gives them a stake in more than 300 technology companies, at a cost hard to beat. For investors nervous about concentration but unwilling to sit out the AI build-out entirely, it deserves a close look — with eyes open to what it actually holds.
Image source: Getty Images.
Start with the fee, because it is the easiest thing to get right. The fund carries an expense ratio of just 0.09%, which works out to about $9 a year on every $10,000 invested. That is a fraction of what most actively managed technology funds charge, and over a multidecade holding period, the gap compounds into a material cost advantage.
The fund tracks an index of large, midsize, and small U.S. technology companies, holding more than 300 names in roughly the proportions they carry in that index. So rather than choosing between, say, a chipmaker and a software company, an investor owns both — along with the equipment makers, networking firms, and payment processors that round out the sector. When one corner of technology stumbles, another may hold up. The fund, in other words, absorbs the swing in a way a single stock never could.
Vanguard recently split the fund 8-for-1, effective in late April, which dropped the share price from the high triple digits to a far more accessible level near $115 as of this writing. The split changed nothing about what the fund owns or what it costs. But it does make it easier to buy a few shares at a time, which suits investors adding money on a regular schedule.
It is also worth noting how the fund has performed through stretches exactly like the current one. Over the past decade, it has delivered an annualized return north of 24% — a figure that includes plenty of volatility along the way, including sharp drawdowns that tested anyone holding through them. Of course, it's worth noting that returns like this are unlikely going forward. Still, the performance has been impressive.
Here is the part that deserves the most attention before buying.
The fund holds hundreds of stocks. But it is weighted by market value, which means the biggest companies dominate. As of the end of March, for instance, Nvidia alone made up about 19% of the fund, Apple about 16%, and Microsoft about 10%. Those three names together account for nearly 45% of the entire portfolio. And the top ten holdings make up close to 60%.
This concentration, of course, can help when the top stocks do well. But it can be painful when they do poorly. The early June pressure on chip stocks, for instance, rippled straight through most of the fund's largest positions.
So, the diversification is real, but partial. You are spreading bets across the technology sector, not across the whole market. A downturn that hits big tech broadly — the kind of mood shift that surfaced this month — would still sting.
That is the trade-off at the center of this fund. It removes the risk of picking the wrong AI stock, but not the risk of the AI trade as a whole. For an investor who believes technology will keep driving the economy over the next decade and simply wants exposure without the burden of choosing winners, that may be a trade-off worth making. The rock-bottom fee and the breadth of holdings make it one of the more sensible ways to own the theme.
But anyone buying it should understand what they are actually buying: a concentrated bet on the largest technology companies, wrapped in a low-cost, broadly held package. On balance, for the right long-term investor, that still looks like a reasonable place to put money to work — as long as the expectations going in are kept in check.
Daniel Sparks and his clients have positions in Apple. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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One fund hands you the biggest names in the artificial intelligence build-out for next to nothing in fees. But that convenience comes with a catch.
