The S&P 500 (^GSPC -0.77%) closed higher for nine consecutive trading days from April 21 to May 2. It marked the first nine-day winning streak since 2004.
The market rebound came as investors digested strong earnings reports from top tech-focused companies and positive trade talks, and grew hopeful of easing tariff tensions.
Exchange-traded funds (ETFs) with outsized exposure to growth stocks have been surging. The Vanguard Growth ETF (VUG -0.72%), one of the largest growth-focused ETFs by net assets, rose a staggering 13.7% during the nine-day streak. Here’s why the low-cost ETF stands out as an excellent buy now for risk-tolerant investors looking for exposure to mega-cap growth stocks.
Image source: Getty Images.
Betting Big on the “Magnificent Seven”
The Vanguard Growth ETF takes the S&P 500 and doubles down on growth stocks — leaving 166 holdings compared to 505 in the Vanguard S&P 500 ETF (NYSEMKT: VOO).
By eliminating value stocks, the fund can concentrate its efforts on leading growth-focused companies like the “Magnificent Seven” — a group of seven mega-cap growth stocks that includes Apple (NASDAQ: AAPL), Microsoft (MSFT -0.33%), Nvidia (NVDA -0.02%), Amazon (NASDAQ: AMZN), Alphabet (GOOG -0.34%) (GOOGL -0.42%), Meta Platforms (META -1.84%), and Tesla (TSLA -1.52%). Here’s a look at the top 10 weightings in the Vanguard Growth ETF compared to the Vanguard S&P 500 ETF.
Company | Vanguard Growth ETF | Vanguard S&P 500 ETF |
|---|---|---|
Apple | 12.4% | 7% |
Microsoft | 10.3% | 5.9% |
Nvidia | 9.2% | 5.6% |
Amazon | 6.5% | 3.8% |
Alphabet | 5.8% | 3.5% |
Meta Platforms | 4.3% | 2.7% |
Broadcom | 3.1% | 1.7% |
Tesla | 2.8% | 1.5% |
Eli Lilly | 2.8% | 1.4% |
Visa | 2.3% | 1.3% |
Data source: Vanguard.
As the table shows, these 10 companies already have high weightings in the S&P 500 — making up 34.4% of the index. But the Vanguard Growth ETF has an even higher concentration, with a staggering 59.5% of the fund invested in just 10 companies.
These names led the market higher in recent years, but they can also drag the major indexes lower during a correction or bear market. Just a couple of weeks ago, all Magnificent Seven companies were underperforming the S&P 500. Now they are leading the market higher.
As you can see in the following chart, every Magnificent Seven stock except for Apple beat the S&P 500 during the nine-day win streak — with especially outsized gains from Tesla, Meta, Microsoft, and Nvidia.
Making sense of big tech’s rapid recovery
A change in sentiment and tariff resolutions have fueled the rebound. But arguably, the bigger catalyst has been strong earnings results.
Year to date, Tesla had been one of the worst-performing components in the S&P 500 before its recent rally. Tesla’s earnings were poor, with first-quarter deliveries reaching three-year lows. But news that CEO Elon Musk would step back from his government involvement to focus more on Tesla, the opportunity of lower-cost Tesla models, and the long-term upside of self-driving robotaxis has fueled a rally, with investors willing to look past brand deterioration and slowing growth.
Microsoft delivered exceptional revenue growth and strong margins across its core software business and cloud. Artificial intelligence (AI) investments continue to pay off for the Microsoft 365 suite, GitHub, Azure AI, and more. Microsoft’s record capital expenditures (capex) will support the build-out of data centers and AI services to support customer workloads. Microsoft also gave strong guidance for its next quarter. The company reiterated that operations margins should be slightly higher for the full fiscal year, which is particularly impressive given macro challenges and Microsoft’s higher spending.
Meta Platforms delivered high-margin growth across its family of apps, including Instagram, Facebook, and WhatsApp. Meta’s AI investments are driving higher engagement and supporting better ad performance for its customers, which is allowing Meta to raise prices.
Meta lowered its full-year total spending guidance but raised full-year capex expectations — an optimistic signal that near-term headwinds aren’t so bad that they will derail Meta’s long-term plans. To quote CEO Mark Zuckerberg on the earnings call:
And if we deliver on this vision, then over the coming years I think that the increased productivity from AI will make advertising a meaningfully larger share of global GDP than it is today. In just the last quarter, we’re testing a new ads recommendation model for Reels, which has already increased conversion rates by 5%. And we’re seeing 30% more advertisers are using AI creative tools in the last quarter as well.
In sum, AI has improved Meta’s product offering and strengthened its business. AI’s long-term upside goes beyond the threat of a cyclical slowdown, which is why Meta continues to ramp up capex.
Alphabet hasn’t popped as much as Microsoft or Meta in recent weeks. However, it also produced exceptional results thanks to high-margin growth from services like Google Search and YouTube. Alphabet is supporting aggressive spending on Google Cloud and AI.
Going into earnings season, one of the biggest concerns was whether hyperscalers like Microsoft, Meta, and Alphabet would maintain their high capex budgets amid tariff turmoil. But management commentary and guidance on the latest earnings season proved that spending remains robust — which is great news for Nvidia.
Hyperscalers are top Nvidia customers. More AI spending means more Nvidia graphics processing units (GPUs) to handle higher volumes of increasingly sophisticated AI workflows.
Nvidia doesn’t report earnings until May 28. But the stock price has been soaring in lockstep with other mega-cap growth stocks, likely because of spending forecasts. Easing tariff tensions has also helped. Nvidia stock got hammered in late April when the company announced it would take up to a $5.5 billion charge in its first quarter due to import restrictions to China. Since then, new temporary tariff exemptions and Nvidia’s announced plans to move some of its manufacturing to the U.S. have eased investor fears that tariffs could substantially derail Nvidia’s growth trajectory.
Nvidia is still very vulnerable to tariffs, and the stock price could swing wildly in reaction to policy changes and global economic growth. But if AI investments continue to grow over time, Nvidia should still be a long-term winner.
A beautifully simple way to invest in a winning ETF
With a mere 0.04% expense ratio and a minimum investment of just $1, the Vanguard Growth ETF is a simple and low-cost way to get exposure to leading growth stocks.
As April proved, the fund can underperform the S&P 500 when growth stocks are selling off, but outperform the index when growth stocks are doing well. Over time, the fund has outpaced the S&P 500 because betting on big tech has been a winning strategy.
The ETF is a great buy for investors interested in a catch-all way to gain exposure to themes such as AI, cloud computing, digital advertising, hardware, software automation, and more.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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. Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard Index Funds-Vanguard Growth ETF, Vanguard S&P 500 ETF, and Visa. The Motley Fool recommends Broadcom and 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.
