Palantir shares have surged 285% year to date due to encouraging financial results and growing excitement about its position in the artificial intelligence economy. However, the billionaire-run hedge funds below sold Palantir stock in the third quarter, while buying shares of the Vanguard Information Technology ETF (VGT -1.03%).
- Ken Griffin’s Citadel Advisors sold 5.1 million shares of Palantir, slashing its stake by 91%. The hedge fund bought 14,521 shares of the Vanguard Information Technology ETF, increasing its position by 3,178%.
- Israel Englander’s Millennium Management sold 4.4 million shares of Palantir, cutting its stake by 90%. The hedge fund bought 2,388 shares of the Vanguard Information Technology ETF, starting a small position.
- David Shaw’s D.E. Shaw sold 8.7 million shares of Palantir, reducing its stake by 45%. The hedge fund added 12,259 shares of the Vanguard Information Technology ETF, starting a small position.
While Palantir has been a rewarding investment, Wall Street is worried about valuation. Among the 20 analysts following the company, the median target price is $38 per share. That implies 42% downside from its current share price of $66. Even the highest target price of $57 per share implies 14% downside.
That may explain why the fund managers above shifted away from Palantir in the third quarter. Regardless, the Vanguard Information Technology ETF offers exposure to the artificial intelligence boom with (arguably) less risk of a 40%-plus decline.
The technology sector has consistently beat the S&P 500
The S&P 500 is widely considered to be the single best gauge for the overall U.S. stock market. It includes 500 large companies that span all 11 stock market sectors, but a single sector has been responsible for much of its upside in recent years. “The technology sector has generated 32% of global equity returns and 40% of U.S. equity market returns since 2010,” according to Goldman Sachs.
The chart below further illustrates that point. It compares the technology sector’s total return to the S&P 500’s total return over different periods.
|
Total Return |
Technology Sector |
S&P 500 |
|---|---|---|
|
1 Year |
40% |
35% |
|
3 Years |
60% |
40% |
|
5 Years |
205% |
105% |
|
10 Years |
625% |
245% |
Source: YCharts.
Importantly, while valuations are elevated across the technology sector, the constituent companies are on very solid financial footing. “The global tech sector’s earnings per share have risen about 400% from its peak before the great financial crisis, while all other sectors together have risen 25% during that span,” according to Goldman Sachs.
The Vanguard Information Technology ETF provides exposure to artificial intelligence stocks
The Vanguard Information Technology ETF tracks the performance of 314 technology companies that fall into four categories: chipmakers and semiconductor equipment manufacturers, cloud services providers, software vendors, and hardware and equipment manufacturers. The five largest holdings in the index fund are listed by weight below:
- Apple: 15.7%
- Nvidia: 15.4%
- Microsoft: 13.3%
- Broadcom: 4.5%
- Salesforce: 1.8%
Importantly, every company above is benefiting from artificial intelligence (AI). Apple recently debuted Apple Intelligence, a suite of AI features for its iPhones and MacBooks. Nvidia GPUs are the gold standard in data center accelerators. Microsoft has added generative AI copilots to its office software. Broadcom is the leader in custom AI accelerators. Salesforce has also added AI features to its CRM software.
Here’s the bottom line: The Vanguard Information Technology ETF provides diversified exposure to the only stock market sector that has consistently outperformed the broader S&P 500 over the last one, three, five, and 10 years. And that outperformance could continue as the AI boom unfolds in the coming years.
Additionally, the Vanguard Information ETF has a reasonable expense ratio of 0.10%, meaning investors will pay $1 annually on every $1,000 invested in the fund. Comparatively, Vanguard says the average expense ratio on similar funds is 0.95%. Of course, volatility is a hallmark of technology stocks, but investors comfortable with that prospect should consider buying a small position in this index fund today.
Trevor Jennewine has positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Apple, Goldman Sachs Group, Microsoft, Nvidia, Palantir Technologies, and Salesforce. 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.
