2 Vanguard Index Funds to Buy to Beat the S&P 500 in the Next Year, According to Wall Street

FactSet consensus projects the S&P 500 to rise 22% to 9,252 by September 2027, while technology and industrials are expected to return 28% and 26%, respectively. Vanguard Information Technology ETF trades at 22x forward earnings with sector earnings forecast to grow 42% annually through 2027, but has substantial concentration in Nvidia, Apple, and Microsoft, which comprise 45.0% of assets. Vanguard Industrials ETF trades at 25x forward earnings against projected 14% annual earnings growth; AI-driven infrastructure demand may support the sector, though the article favors a broad S&P 500 fund over the relatively expensive industrials ETF.

Analysis

The useful signal is not a sector call but a dispersion setup: VGT is effectively a concentrated mega-cap AI/platform basket, while VIS is a higher-multiple collection of heterogeneous cyclical, defense, and electrification exposures. A broad technology allocation remains vulnerable to a single disappointment in hyperscaler capex or NVDA supply-chain digestion; however, the AI spending chain is likely to rotate from compute into power, cooling, grid equipment, and construction as data-center projects move from chip procurement to physical deployment over the next 6-18 months.

GEV is the cleaner listed beneficiary of this second leg because grid bottlenecks can defer data-center revenue recognition even when GPU demand remains intact. CAT and DE offer less direct AI exposure and remain more sensitive to rates, construction activity, and farm income; VIS therefore dilutes the electrification thesis with economically cyclical exposures. RTX and GE Aerospace provide defense/aerospace backlog support, but their valuation outcomes depend more on supply-chain execution than incremental AI infrastructure spending.

Consensus earnings estimates embed unusually strong technology growth, leaving little tolerance for a deceleration in cloud capex, enterprise AI monetization, or memory pricing. In the near term, passive flows into sector ETFs could reinforce momentum, but that is not a fundamental catalyst. The contrarian view is that the best risk-adjusted AI-infrastructure expression is no longer the broad semiconductor complex: power availability and interconnection queues, rather than chips, are the binding constraint.

Falsify the rotation thesis if hyperscalers cut 2027 capex guidance, GEV reports backlog conversion delays or margin pressure, or data-center power-project timelines extend materially. For the broad tech thesis, a meaningful downward revision to NVDA/MSFT capex-linked revenue guidance would likely drive VGT downside disproportionate to its apparent diversification.

Key Decisions for Investors

• Prefer a 6-12 month long GEV / short VGT pair, sized beta-neutral: GEV captures the power-grid bottleneck while the VGT short hedges AI-capex sentiment and mega-cap duration risk. Reassess if GEV backlog conversion or service-margin guidance weakens.
• Avoid initiating a broad VIS overweight at current relative valuation; use targeted GEV exposure rather than accepting CAT/DE cyclical exposure. Add only following evidence of accelerating grid orders, project awards, or improved free-cash-flow conversion.
• For existing NVDA, AVGO, MSFT, and MU longs, reduce gross exposure ahead of the next hyperscaler capex-guidance cycle or hedge with VGT puts dated 3-6 months. The relevant risk is estimate compression, not necessarily an outright collapse in AI demand.
• Monitor data-center interconnection timelines, utility capital plans, and hyperscaler power procurement as a watchlist catalyst. Confirmed project delays would be bearish for near-term GPU/server deployments but potentially supportive for grid-equipment order visibility once projects are re-phased.