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

FactSet's 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's technology ETF (VGT) trades at 22x forward earnings against projected 42% annual sector earnings growth through 2027, but its 45% combined weighting in Nvidia, Apple, and Microsoft creates concentration risk. Vanguard's industrials ETF (VIS) trades at a richer 25x forward earnings despite expected 14% annual earnings growth, leading the author to prefer a broad S&P 500 fund over VIS.

Analysis

The useful signal is not the broad sector call but the dispersion it masks. VGT is effectively a concentrated duration-and-AI basket: upside depends on hyperscaler capex translating into sustained GPU, networking, memory and software monetization rather than merely continued infrastructure purchases. That makes NVDA, AVGO and MU the highest-beta beneficiaries over the next 1-3 months, while MSFT is better insulated if enterprise AI revenue realization becomes the market’s next proof point; AAPL provides little direct AI-infrastructure sensitivity and can dilute the basket’s upside.

Industrials are a less efficient way to express the same power-demand theme. CAT and DE require a broader construction/ag-cycle recovery, whereas GEV has more direct exposure to grid bottlenecks, gas generation and electrification capital spending; RTX is principally a defense-budget and execution story. The second-order constraint is transformer, turbine, switchgear and skilled-labor capacity: suppliers with booked capacity should retain pricing, but a broad industrial ETF also embeds economically sensitive transportation and machinery exposures that would rerate lower if PMIs soften.

Consensus sector targets are a weak catalyst because estimates tend to be revised after capex data, not before it. The near-term risk is crowded AI positioning and a capex digestion scare at the large cloud platforms; that would compress VGT disproportionately even if long-run AI demand remains intact. Over 6-18 months, the key differentiation is whether utility interconnection queues and power-equipment orders convert into revenue rather than being delayed by permitting, labor or customer financing constraints.

Key Decisions for Investors

• No directional ETF trade solely on analyst targets; treat this as a positioning alert rather than a new catalyst. Monitor the next hyperscaler earnings cycle for aggregate capex guidance and AI revenue commentary before adding beta.
• Express the infrastructure theme selectively: long GEV versus short VIS in equal-dollar notional over 3-6 months, conditional on continued order/backlog growth and stable power-equipment margins. The thesis fails if GEV guides to backlog conversion delays, margin pressure, or material utility-project cancellations.
• For a higher-beta 1-3 month AI expression, prefer a basket long NVDA/AVGO/MU versus short AAPL in beta-adjusted sizing. This isolates compute and memory demand from handset-cycle exposure; exit if hyperscaler capex guidance is cut or semiconductor inventory indicators turn negative.
• Avoid using CAT or DE as clean AI-power proxies. Add only if North American construction/ag order trends improve independently; otherwise their cyclical earnings risk can overwhelm any data-center spillover benefit.
• Watch relative performance of VGT versus VIS after the next payroll, ISM and CPI releases. A growth slowdown with easing yields favors VGT; a reacceleration in industrial activity and rates remaining elevated would challenge the relative trade.