Nvidia (NASDAQ: NVDA) stock is surging once again, passing Microsoft (NASDAQ: MSFT) to become the second most valuable U.S.-based company behind Apple (NASDAQ: AAPL). Nvidia's new Blackwell graphics processing unit architecture could deliver significant performance improvements and cost efficiency, which would be a win for Nvidia and its customers.

Folks looking to invest in artificial intelligence (AI) could simply buy Nvidia stock as a catch-all way to play a rise in computing power demand. But there are also exchange-traded funds (ETFs) to consider.

With a more than 20% stake in Nvidia, Broadcom (NASDAQ: AVGO), and Advanced Micro Devices (NASDAQ: AMD), here's why the Vanguard Information Technology ETF (NYSEMKT: VGT) stands out as an excellent way to invest in the semiconductor industry without racking up high fees.

The tech sector has evolved

The technology sector is, by far, the largest sector in the S&P 500 (SNPINDEX: ^GSPC) -- making up 31.7% of the index. One look at its top holdings and it is easy to see why.

Data source: Vanguard.

Apple, Nvidia, Microsoft, and Broadcom have a combined market cap of over $10.5 trillion -- making the sector very top-heavy.

And while the tech sector used to be dominated by software and hardware companies, semiconductors are now the largest industry within the sector, making up 28.9% of the Vanguard Information Technology ETF.

So, while investors could turn to pure-play semiconductor funds like the iShares Semiconductor ETF (NASDAQ: SOXX), the Vanguard Information Technology ETF may be a better long-term investment. For starters, the iShares Semiconductor ETF has a 0.35% expense ratio compared to just 0.1% for the Vanguard Information Technology ETF.

The semiconductor industry is also highly cyclical, making an ETF that focuses only on chip stocks volatile.

With the Vanguard Information Technology ETF, an investor gains access to the infrastructure and processing might that is powering AI, as well as AI-driven tools like those deployed by software companies Microsoft, Adobe, or Apple phones with AI chips.

Factors to consider before buying the Vanguard Information Technology ETF

The Vanguard Information Technology ETF is a great way to invest in today's top tech companies. However, its greatest drawbacks are that it offers little exposure to smaller companies (given the size of the largest tech companies), and it leaves out some important names that you may think are in the tech sector.

Amazon (NASDAQ: AMZN) and Tesla are in the consumer discretionary sector. Meta Platforms (NASDAQ: META) and Google's parent company, Alphabet, are in the communications sector. So you won't find these four names in the Vanguard Information Technology ETF.

Amazon Web Services is the undisputed leader in cloud infrastructure -- which is critical for running global AI models. Meanwhile, Meta Platforms has arguably been the single best example of a company investing heavily in AI (and buying a lot of Nvidia chips) and showing why those investments are paying off.

Vanguard offers a low-cost mega-cap growth fund that targets top growth stocks regardless of their sector. The Vanguard Mega Cap Growth ETF (NYSEMKT: MGK) may be a better fit for investors who want less exposure to tech stocks and better coverage of the largest growth stocks by market cap.

Let ETFs work for you

Nvidia has captured the spotlight as the leader in AI innovation in the semiconductor space. Still, some investors may prefer AMD as an underdog that could take market share from Nvidia over time.

Meanwhile, Broadcom offers a nice blend of value, growth, and income, given its diversified business and growing dividend.

The fact that the tech sector has a 20% weighting in these three stocks alone shows how valuable these companies have become. Buying the Vanguard Information Technology ETF is a simple way to add to your exposure to these three names and the rest of the semiconductor industry. It's also an excellent way to avoid the risks of betting on a single company to invest in AI or another trend.

The best way to approach individual stocks and ETFs is to use them to suit your interests, investment objectives, and risk tolerance. Investors who closely follow the sector may prefer to build their tech portfolio around chip stocks and leave out the big software names. But folks looking for a low-cost passive approach may prefer the hands-off nature of simply buying the Vanguard Information Technology ETF and resting easy knowing it is chock-full of semiconductor stocks -- so they won't miss out if the industry continues to soar higher.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. 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. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Accenture Plc, Adobe, Advanced Micro Devices, Alphabet, Amazon, Apple, Cisco Systems, Meta Platforms, Microsoft, Nvidia, Oracle, Salesforce, Tesla, and iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2025 $290 calls on Accenture Plc, long January 2026 $395 calls on Microsoft, short January 2025 $310 calls on Accenture Plc, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Meet The Low-Cost Vanguard ETF That Has 20% Of Its Holdings in Nvidia, Broadcom, and AMD was originally published by The Motley Fool