Why not buy the Dip in Nvidia, Adobe and Salesforce and the Run-Up in Oracle with this Vanguard ETF?

It’s been a volatile time for growth stocks, especially tech stocks, which have seen their valuations tested this earnings season.

Oracle it just reached an all-time high. Nvidia has recovered most of its sales and is now down just 12% from its all-time high. Adobe sold out of earnings but is still rising in recent months. And Salesforce it’s down about 20% from its all-time high, but it’s also recovered from its lows.

This is why exchange-traded funds (ETFs) such as Vanguard Information Technology ETF (VGT -0.05%) may be a great way to lead the rally in Oracle and buy a discount on Nvidia, Adobe and Salesforce.

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A market focused on results

Some people might look at the market growth in 2024, especially from early 2023, and say that valuations are overextended. But overall, growth has been impressive and earnings have been strong enough to support the broader market rally.

Nvidia reported blowout results, but fell due to valuation concerns. Since then, it has accounted for the majority of sales. Adobe’s growth has slowed, and the stock is down year-to-date despite gains in major indexes and the tech sector. The company has developed impressive new applications and artificial intelligence (AI) tools, but has yet to monetize these solutions enough to justify higher costs.

Salesforce has also fallen slightly year-to-date for similar reasons to Adobe. Its results failed to impress Wall Street as enterprise software remains a challenging pocket of the tech sector. Unlike Nvidia, which is benefiting from greater demand for computing power to support AI models, enterprise software companies must justify their AI investments with higher sales and profitability, which has not been smooth sailing for industry leaders like Adobe and Salesforce.

Meanwhile, Oracle is at the top of its game and continues to see growing cloud revenues. The stock is up more than 53% in 2024 on strong results, but it’s starting to look expensive. Enthusiasm could lead to stretched valuations. But good to excellent results from most of the top tech companies mean the rally isn’t just based on euphoria.

Investing in proven winners

Every investor wants a lot of things, but timing the market is ultimately a losing battle. Instead of trying to buy the lowest in a phenomenal company, it’s much more impactful to pick companies that have what it takes to grow in the future.

Apple and Microsoft, the two largest companies by market cap, are perfect examples of why the market is overvalued. Both companies have been known winners for decades. However, five years ago, Apple and Microsoft had a market capitalization of about $1 trillion. Today, each is worth more than $3.2 trillion.

So buying either stock at a record high five years ago would still have tripled the money. And there’s reason to believe both are still good buys now, because they’re allocating capital well and have a clear path to returning shareholder value through core business growth, share buybacks and dividend growth.

Building a diversified basket of technology stocks

Buying a fund like the Vanguard Information Technology ETF is a simple but effective way to invest in the broader technology sector. Instead of focusing excessively on stocks that are sold or in favor, the ETF provides a way to step back and look at the bigger picture.

The technology sector includes a variety of industries, including hardware and software companies, semiconductor designers and manufacturers, electronic component companies, and more. Buying the Vanguard Information Technology ETF is a bet that the sector will continue to outperform the broader market and that technology companies will be able to support their premium valuations with future earnings growth.

The ETF has a price-to-earnings (P/E) ratio of 42.2 and a dividend yield of just 0.6%, so it’s not a good fit if you’re looking for value or passive income. The fund contains 318 stocks, with exposure to top names such as Apple, Microsoft, Nvidia, BroadcomSalesforce, Adobe, Advanced microdevicesOracle, Qualcomm, and more. It has a minimum investment of just $1 and an expense ratio of 0.1% — or $1 for every $1,000 invested.

Approaching the tech sector with the right mindset

The technology sector represents 31% of S&P 500 and has been the driving force behind the bull market for over a decade. Buying tech stocks requires accepting that you’re not getting a good deal based on traditional valuation metrics like the P/E ratio. It also requires patience, a high tolerance for risk and an ability to withstand periods of volatility, as the sector can experience severe downturns within months.

If these factors sound acceptable, then the Vanguard Information Technology ETF could be a great way to buy and hold many top tech stocks and let interesting growth themes play out over the long term.