The Tech Titans: How Apple, Nvidia, and Microsoft Lead the Market

Apple, Nvidia, and Microsoft are the three largest companies globally, boasting a combined market value of $10 trillion. All three operate within the information technology sector, which plays a crucial role in developing the hardware and software that drive the internet and personal computing.

The S&P 500 saw a return of 23% last year. In contrast, had you invested in the Vanguard Information Technology ETF (NYSEMKT: VGT), you would have enjoyed a gain of 29% instead.

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This strong performance is not a fluke. Since its launch in 2004, the ETF has consistently outperformed the S&P 500 each year on average. Given the current momentum, it seems likely this trend will continue into 2025.

Image source: Getty Images.

Significant Holdings: 44% in Tech Giants

The Vanguard ETF categorizes the information technology sector into 12 segments, including semiconductors, systems software, technology hardware, and application software. Semiconductors represent the most significant segment, comprising 27% of the ETF’s total value.

Since the beginning of 2023, Nvidia has added over $3 trillion to its market capitalization, largely due to increased demand for its artificial intelligence (AI) data center chips. Meanwhile, chipmaker Broadcom joined the trillion-dollar market cap club last year, thanks to its impressive stock surge.

Despite encompassing 316 different stocks, Apple, Nvidia, and Microsoft collectively make up 44% of the Vanguard ETF’s total value. Among its top ten holdings are notable AI leaders:

Data source: Vanguard. Portfolio weightings are accurate as of Jan. 31, 2025, subject to change. ETF = exchange-traded fund.

The top ten stocks mentioned above produced an average return of 50.8% during 2024. This stellar performance largely contributed to the Vanguard ETF’s outpacing of the S&P 500.

NVDA data by YCharts.

Recently, Apple launched its Apple Intelligence software across its new iPhones, iPads, and Mac computers, introducing AI capabilities that enhance user interaction with notifications and content creation. Integration with OpenAI’s ChatGPT also improved Apple’s Siri voice assistant functionalities.

Prominent Apple analyst Ming-Chi Kuo suggests the company could be developing a humanoid robot, presenting a significant opportunity as robotics becomes a valuable subsegment of the AI sector.

Meanwhile, Nvidia continues to dominate the AI hardware market with its GPUs designed for data centers. This year, the company is expected to ship its top-of-the-line Blackwell GPUs, which are in high demand from companies like Microsoft and Oracle, all of which operate centralized data centers rented to AI developers.

Vanguard is recognized for its competitively priced ETFs, with a very low expense ratio of just 0.09%. This means that for a $10,000 investment in the Vanguard Information Technology ETF, the annual fee would only be $9—a remarkable deal considering its high-quality holdings and impressive returns.

Expect Strong Performance: Vanguard ETF’s Future

Historically, the Vanguard ETF has excelled in beating the S&P 500. It has achieved a compound annual return of 13.6% since its inception in 2004, outperforming the S&P 500’s average annual gain of 10.4% during the same timeframe.

The benefits of compounding can lead to significant financial outcomes. Here’s how the returns have played out in dollar terms:

Calculations by author.

The ongoing AI development is likely to drive future growth for some of the Vanguard ETF’s top holdings. Major players like Microsoft, Amazon, Meta Platforms, and Alphabet are set to invest hundreds of billions of dollars in AI infrastructure and chips throughout 2025, which will benefit companies like Nvidia and Broadcom.

Additionally, both Microsoft and Oracle are facing increasing demand for their AI data centers, boosting their cloud revenue and enhancing their earnings growth prospects.

As new Apple Intelligence features are rolled out, they could stimulate an upgrade cycle for Apple devices in 2025, potentially revitalizing the company’s growth after a period of stagnation.

While the future looks promising for the Vanguard ETF, investing should always be approached with caution. Diversifying between this ETF and other stocks or funds is recommended, despite its strong prospects for outperforming the S&P 500 once again in 2025.

Should You Invest $1,000 in Vanguard Information Technology ETF Now?

Before purchasing shares in the Vanguard Information Technology ETF, keep the following in mind:

The Motley Fool Stock Advisor team has recently highlighted what they consider the 10 best stocks to hold right now, and the Vanguard ETF did not make the list. These top ten stocks may generate significant returns in the near future.

Consider this: a recommendation for Nvidia on April 15, 2005, turned a $1,000 investment into $823,858 today!

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*Stock Advisor returns as of February 21, 2025

John Mackey, former CEO of Whole Foods Market (an Amazon subsidiary), participates on The Motley Fool’s board of directors. Randi Zuckerberg, a former Facebook market development director, who is related to Meta Platforms CEO Mark Zuckerberg, is also on the board. Suzanne Frey, an executive at Alphabet, serves on the board as well. Anthony Di Pizio holds no positions in any of the mentioned stocks. The Motley Fool holds positions in and recommends Accenture Plc, Alphabet, Amazon, Apple, Cisco Systems, International Business Machines, Meta Platforms, Microsoft, Nvidia, Oracle, Salesforce, and ServiceNow, and also recommends Broadcom.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.