Artificial Intelligence (AI) Software Revenue Is Soaring Toward $14 Trillion: 1 Surefire Index Fund to Buy Now and Hold Forever | The Motley Fool (2024)

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Artificial intelligence (AI) promises to boost labor output across most industries. In fact, a study conducted by exchange-traded fund organizer Ark Invest concluded that automation tools could more than double the productivity of the average knowledge worker. That selling point could propel the value of the AI software market to $14 trillion by 2030, up from $1 trillion in 2021.

Investors eager to strike it rich by tapping into the growing demand for AI software should consider the Vanguard S&P 500 ETF (VOO 0.37%), especially as an add-on to a portfolio of stocks. Here's why.

The S&P 500 provides exposure to dozens of AI stocks

The Vanguard S&P 500 ETF tracks the performance of the S&P 500, an index comprising 500 of the largest U.S. companies. Its constituents span the spectrum from value stocks to growth stocks, covering all 11 market sectors. That diversity makes the S&P 500 a good benchmark for the broader U.S. economy, which itself is a compelling investment thesis. The U.S. is objectively the largest economy in the world, and arguably the most innovative.

Building on that, many S&P 500 companies are incorporating artificial intelligence into their products. In fact, the trend is gaining momentum. About one-quarter of the S&P 500 mentioned AI during their March quarter earnings calls, but more than one-third of the S&P 500 discussed AI during June quarter earnings calls. Here are some of the more noteworthy examples:

• Microsoft (MSFT 0.35%) CEO Satya Nadella discussed Microsoft Copilot, a suite of enterprise automation tools that can analyze data, streamline supply chain management, and accelerate software development. He also mentioned Azure OpenAI Service, a product that offers exclusive access to the large language models behind ChatGPT, allowing developers to build their own generative AI applications on the same foundation.
• Alphabet (GOOGL -0.35%) (GOOG -0.26%) CEO Sundar Pichai discussed Duet AI for Google Workspace and Google Cloud, products that lean on generative AI to write code, draft text, and draw insights from data. Pichai also outlined how Alphabet is using AI to strengthen Google Search and Google Ads, reinforcing its leadership in Internet search and ad tech software.
• Amazon (AMZN 1.19%) CEO Andy Jassy mentioned that Amazon Web Services is the leader in many cloud verticals, including machine learning. Jassy also discussed two new AI products: Amazon Bedrock and Amazon CodeWhisperer. The former helps businesses create custom generative AI applications, and the latter automates portions of the coding process.
• Nvidia (NVDA 0.89%) CFO Colette Kress highlighted tremendous demand for Nvidia AI products, including DGX Cloud, NeMo, and Avatar Cloud Engine. DGX Cloud allows businesses to provision Nvidia supercomputing infrastructure and AI software from Azure, Google, and other public clouds. The NeMo platform streamlines large language model development for generative AI applications. Avatar Cloud Engine helps developers build intelligent digital humans for video games, customer service, and other use cases.
• Tesla (TSLA 0.73%) CEO Elon Musk mentioned the staggering amount of autonomous driving data that Tesla possesses, an advantage that implies that it will be able to develop better AI self-driving software. In other words, that comment casts Tesla as a front-runner in the race to build a robotaxi, a product that Musk says will generate "quasi-infinite demand."

The five companies discussed above collectively account for about 18% of the value of the Vanguard S&P 500 ETF, and I would hazard a guess that all five will benefit from the AI boom. But no one knows for sure which companies will be winners and which will be losers, and that uncertainty makes the index fund strategy attractive.

The Vanguard S&P 500 ETF provides exposure to many of the most influential companies in the world, and some of those companies will undoubtedly see their share prices skyrocket amid surging demand for AI software and services. That means shareholders of the Vanguard S&P 500 ETF are guaranteed to benefit from the AI boom on some level.

The S&P 500 has historically been a surefire investment

Growing demand for AI is but a bullet point in the broader investment thesis for the Vanguard S&P 500 ETF. The bigger and more important reason to buy this ETF is something I just mentioned: The index fund offers exposure to many of the most influential companies in the world, and spreading capital across that group of companies has never failed to yield positive returns for patient investors in the past. The S&P 500 has been a profitable investment over every rolling 20-year period since its inception in 1957.