The Smartest Vanguard ETF to Buy With $1,000 Right Now

Shares of Nvidia (NASDAQ: NVDA) have rocketed higher by 28,890% over the past decade. It seems to just keep going up, too, with the market cap of the company recently passing $5 trillion, the first company ever to reach that milestone. Nvidia alone makes up nearly 8% of the S&P 500 index. It is the poster child for investing in artificial intelligence (AI), but it isn't the only way to invest in the theme.

Here's an exchange-traded fund (ETF) that could be a smarter choice for more conservative investors.

AI is changing the world, but who's going to be the winner?

When the internet was the hot new technology, a company called Yahoo! was the king of search engines. Until it was displaced by Google, which is now just one part of Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). The key takeaway here is that being an industry leader today isn't a guarantee that a company will remain an industry leader tomorrow.

Image source: Getty Images.

Then there's chip maker Nvidia's shocking price appreciation. There's an old saying on Wall Street that trees don't grow to the sky, which basically means that stocks can't rise forever. While it may look as if Nvidia has nowhere to go but up as artificial intelligence grows in importance, there are also worries that the market is in the middle of an AI bubble. When a bubble bursts, the pain can be extreme, with the leaders on the way up often the leaders on the way back down, too.

That said, AI is a very real technology that is likely to have long-term implications. One of those implications is being felt in the utility sector, because AI needs electricity to operate. Even if AI stocks crash back to earth, demand for electricity will likely remain robust for years to come. By some estimates, AI (and the data centers in which it lives), coupled with electric vehicles, will push electricity demand up by 55% between 2020 and 2040. That compares to an increase of just 9% between 2000 and 2020.

Buy the sector, not a single utility

But what utility do you buy to take advantage of the step change in electricity demand? The best answer is probably buying a diversified index like Vanguard Utilities ETF (NYSEMKT: VPU). The reason for this is that regulated utilities are given the equivalent of monopolies in the regions they serve, but must subject their businesses to government regulation of their capital investment plans and rate increases. If you pick just one utility, you will need to be very certain that it is well-situated geographically. If you buy a diversified portfolio of utilities, you'll benefit as the entire utility sector benefits.

Vanguard Utilities ETF tracks the MSCI US Investable Market Utilities 25/50 Index. That sounds fancy, but it really isn't. The 25 in the name means that no single stock can make up more than 25% of assets. The 50 in the name means that all of the stocks that make up at least 5% of assets can, as a group, account for no more than 50% of the ETF's assets. In essence, Vanguard Utilities ETF is specifically designed to be diversified.

Vanguard Utilities ETF owns 69 stocks. Electricity is a key part of the businesses of roughly 90% of the portfolio. It has a low expense ratio of just 0.09%. And the dividend yield is an attractive 2.6%. This ETF won't be as exciting as owning Nvidia, but that's actually the point. Moreover, if overbuilding the AI infrastructure is what ends up popping the AI bubble, the electricity demand from that infrastructure will likely still remain robust.

The smart way to play the AI revolution

If you have $1,000 to invest, you can buy around five shares of Vanguard Utilities ETF. That will get you in the door of what is expected to be a multi-decade increase in demand for electricity. And while AI is a key part of the story, it isn't the only story (EVs could be an even bigger demand driver over the long term), so there's more driving demand here than meets the eye. You could buy Nvidia, but the roughly four shares you could get for $1,000 could be much riskier than you think.

All in, Vanguard Utilities ETF could be the sleeper Vanguard ETF that the smartest investors buy and hold for the long term.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.