Prediction: This Unstoppable Vanguard ETF Will Beat the S&P 500 Yet Again in 2025
The S&P 500 (^GSPC 1.12%) index is made up of 500 of the highest-quality companies listed on U.S. stock exchanges. To qualify for inclusion, companies must have a market capitalization of at least $20.5 billion, and they must be profitable over the most recent 12-month period.
But then there is the S&P 500 Growth index, which exclusively holds 208 of the best-performing growth stocks from the regular S&P 500. Last year, it delivered a return of 36.1%, which crushed the 25% gain in the S&P 500 (including dividends).
The Vanguard S&P 500 Growth ETF (VOOG 1.39%) is an exchange-traded fund (ETF) that tracks the performance of the Growth index, and it has beaten the S&P 500 every year, on average, since it was established in 2010. Here’s why I predict it will outperform again in 2025.
Image source: Getty Images.
Large holdings in soaring technology stocks
The S&P 500 Growth index selects stocks based on factors like their momentum, and the sales growth of the underlying companies. Many technology stocks like Nvidia have both of those qualities in spades, which is why the information technology sector has a 37.3% weighting in this index (compared to 30.7% in the regular S&P 500).
In fact, the Vanguard S&P 500 Growth ETF assigns a much higher weighting to some of the world’s largest (and often best-performing) growth stocks than does the S&P 500:
|
Stock |
Vanguard ETF Portfolio Weighting |
S&P 500 Weighting |
|---|---|---|
|
1. Nvidia |
11.08% |
5.75% |
|
2. Apple |
6.17% |
6.96% |
|
3. Microsoft |
6.03% |
6.02% |
|
4. Meta Platforms |
5.65% |
2.93% |
|
5. Amazon |
4.85% |
4.34% |
Data source: Vanguard. Portfolio weightings are accurate as of Jan. 31, 2025, and are subject to change.
These five stocks generated an average return of 64.6% last year, so they were big contributors to the outperformance in the Vanguard ETF relative to the S&P 500:
Each of them is playing a key role in the artificial intelligence (AI) industry, which has been the main source of their strong returns of late. Nvidia, for example, delivered a record $130.5 billion in revenue during its fiscal year 2025 (ended Jan. 26), a whopping 114% increase compared to fiscal 2024. Most of the growth was attributable to its data center business, where it sells the most powerful graphics processing units (GPUs) in the world for developing AI models.
Microsoft and Amazon are two of Nvidia’s largest customers. They operate the biggest cloud computing platforms in the world, where developers can access state-of-the-art data center infrastructure and ready-made large language models (LLMs), two of the key ingredients they need to create AI software.
Meta Platforms is also a big buyer of Nvidia’s chips, except it uses them to further improve its own Llama family of LLMs, which have become the most popular open-source AI models in the world, with over 600 million downloads. Meta is also embedding AI into the recommendation engines on its Facebook and Instagram social networks, to show users the most relevant content so they stay online for longer periods of time.
Finally, Apple continues to roll out its Apple Intelligence software for the latest iPhones, iPads, and Mac computers, which offer users a suite of powerful new tools to help them create and consume content, manage their notifications, and more.
Although it seems AI stocks dominate the Vanguard ETF, it is relatively diversified. It holds a stake in retail giants like Costco Wholesale, Walmart, and Home Depot, in addition to titans of the financial sector like JPMorgan Chase and American Express. The ETF even has a stake in Warren Buffett’s Berkshire Hathaway holding company.
The Vanguard ETF can beat the S&P 500 again in 2025
The Vanguard ETF has delivered a compound annual return of 16.1% since its inception in 2010, comfortably beating the average annual gain of 13.8% in the S&P 500 over the same period. Therefore, it’s clear 2024 was no fluke, and the largest holdings in the ETF could be the key to outperforming the index yet again in 2025.
In a conference call with investors last week, Nvidia CEO Jensen Huang said new AI models that are capable of reasoning (or “thinking”) can consume 100 times more computing power than typical LLMs. Microsoft and Amazon are already experiencing more demand for their data center infrastructure than they can supply right now, and Meta also needs more capacity to support Llama 4, which will be a reasoning model.
As a result, Microsoft, Amazon, and Meta plan to spend over $250 billion combined on data center infrastructure and chips during 2025, so it appears the AI boom is not only alive and well, but is still expanding rapidly.
Historically speaking, investing in growth stocks over value stocks (which are popular for their dividends) has been a winning strategy in the long run. Value stocks can outperform during periods of stock market volatility or in the event of an economic shock, because investors flock to the perceived safety of income-producing assets in those scenarios.
But since we are currently in a raging bull market driven by AI, I think there is a high chance the Vanguard ETF beats the S&P 500 yet again in 2025.
American Express is an advertising partner of Motley Fool Money. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of Motley Fool Money. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Berkshire Hathaway, Costco Wholesale, Home Depot, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.