Interested in seeing some of the stocks on my list? Here are three.

A tech stock I already own

When the stock market slumps, the best shares to buy are often the ones an investor already owns. If you know a company well and you’re optimistic about its long-term prospects, why not buy some more shares at a lower price?

This brings me to Nvidia (NASDAQ: NVDA). I’m already a holder of this stock. But I’d love to buy some more shares at a lower price. If the share price fell to, say, $150 I’d be a buyer again.

I’m pretty confident that this company has a lot of growth ahead of it. After all, the AI revolution is just getting started and Nvidia’s chips are going to be essential for technologies like robotics and self-driving cars.

Of course, there’s some competition emerging in the AI chip space now. So, this is a risk to monitor.

Personally, however, I reckon Nvidia will still be able to sell every chip it can manufacture in the years ahead. My view is that in the long run, its share price is going higher.

Nvidia’s main competition

Zooming in on Nvidia’s competition, one company that’s really gaining traction is Broadcom (NASDAQ: AVGO). It makes custom AI chips for large cloud companies (hyperscalers).

This company has been having a lot of success recently, landing chip deals with the likes of Alphabet and OpenAI. As a result, I’m keen to get the stock into my portfolio.

I’m annoyed with myself for not buying the stock years ago. It has been on my watchlist for ages but I’ve never bought it.

Right now, Broadcom stock looks a little expensive. Near $390, the price-to-earnings (P/E) ratio is around 40.

My target price is $300. That’s where I’d be a buyer.

There are risks around customer concentration. But I think this tech company will do well in the long term.

A low-profile AI stock

Finally, Vertiv (NYSE: VRT) is high up on my list. It’s the global leader in data centre cooling systems.

It’s had a lot of success in recent years on the back of the AI build-out. But realistically, the growth story is probably just getting started as over the next decade, a ton of data centres are likely to be built.

At today’s share price of $185, the P/E ratio here is 35 using next year’s earnings forecast. That’s not actually too bad given the company’s growth rate (revenue is expected to rise 28% this year).

But ideally I’d like to pay a lower multiple to reduce my risk. I’d like to buy in around $150 – that would put the P/E ratio under 30.

New data centre cooling technologies are a risk here. There’s no guarantee that in the long run, hyperscalers will continue to use Vertiv’s systems.

This company has some impressive technology, however. And with a razor-sharp leadership team, I believe it will continue to have success.

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Recently, however, investors have been shifting their focus to another AI chip stock and that’s Broadcom (NASDAQ: AVGO). Could this be the next Nvidia?

Incredible AI growth

Recent news from Broadcom – which makes custom AI chips (it calls these ‘XPUs’) for large technology businesses – has certainly been exciting.

Earlier this month, the company told investors that it had just signed a fourth customer for its custom chips. This is believed to be ChatGPT owner OpenAI (the other three are believed to be Google, Bytedance, and Meta Platforms).

This new customer has recently put in $10bn worth of AI chip orders. As a result, Broadcom is expecting huge revenue growth in the near term.

This quarter, it expects AI chip revenue to be $6.2bn, 19% higher than last quarter. Next financial year (starting November), it expects AI chip revenue to climb by more than 60%.

These are incredible numbers. And it’s a little reminiscent of Nvidia a few years ago.

Has the horse already bolted?

Looking at the set-up, however, I’m not expecting Broadcom stock to multi-bag in the same way that Nvidia has in recent years, however. There are three reasons why.

The first is that the stock has already shot up spectacularly. Over the last three years, it has risen from around $50 to $360 – a gain of about 620%.

The second is that Broadcom is now a large company. Today, it has a market cap of $1.7trn, making it the eighth-largest company in the S&P 500 index.

Note that when Nvidia started to really motor back in early 2023, it was a much smaller company. Back then, it had a market cap of less than $400bn.

The third is that the company’s valuation now looks quite high. With Wall Street analysts expecting earnings per share of $9.06 next financial year, the price-to-earnings (P/E) ratio is about 40.

That’s not an outrageous earnings multiple. But I don’t think it leaves a lot of room for a significant upward re-rating.

Put all this together, and I don’t think Broadcom is likely to suddenly double or triple in the near term.

Broadcom vs Nvidia

Of course, it could still perform well. If spending from existing XPU customers increases and/or the company manages to land more customers for its custom AI chips, we could see revenue and earnings soar.

It’s worth noting that on the recent earnings call, CEO Hock Tan said that in the future, XPU share at its major customers could be bigger than GPU share. In other words, the demand for custom AI chips could outstrip the demand for general-purpose chips designed by the likes of Nvidia.

To my mind, however, Nvidia is actually the better stock to consider buying right now. It trades at a lower valuation (its forward looking P/E ratio is only 28) and it has less customer concentration risk than Broadcom.

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Broadcom now has four large AI customers

Starting with Broadcom, it delivered some incredible guidance recently. Thanks to high demand for its custom AI chips (XPUs), it now expects AI revenues to be up more than 60% next financial year (starting November).

It now has four major customers for its XPUs. These are believed to be Google, Meta Platforms, Bytedance, and OpenAI.

Taking a long-term view, I think this company’s revenues and earnings could rise materially from here. Not only could it sign more customers for its XPUs but it could see increased spending from the existing four.

It’s worth noting that on the recent earnings call, CEO Hock Tan said that he expects spending on XPUs by his customers to eventually exceed spending on GPUs made by the likes of Nvidia. That’s exciting.

Looking at the share price and valuation however, I’m not in a rush to buy the stock at current levels. Recently, the share price has gone a little exponential, and that turns me off.

As for the valuation, the forward-looking price-to-earnings (P/E) ratio’s about 40. That’s not outrageous but it doesn’t leave any room for a setback (eg a slowdown in AI spending from customers or the loss of a major customer).

Note that the average price target is $360, slightly below where the share price is now.

Given this set-up, I’m going to keep the stock on my watchlist for now. If it was to pull back by 20% or so, I could be tempted to have a nibble.

Oracle is seeing huge demand

Turning to Oracle, which runs data centres powered by Nvidia GPUs, it’s quite a similar set-up. Recent guidance was incredible.

For the current financial year (ending 31 May), Oracle now expects $18bn in Cloud Infrastructure revenue, 77% higher than the figure last year. Looking further out, it expects revenue of $32bn, $73bn, $114bn, and $144bn over the subsequent four years.

Remaining performance obligations (RPO) – a measure of contracted revenue that hasn’t yet been recognised – soared to $455bn, up 359% from a year earlier. These are phenomenal growth projections.

I think buying the stock for my portfolio here could be a little risky however. Recently, the share price has gone vertical.

Meanwhile, the valuation’s now quite high – currently the forward-looking P/E ratio is 44. Again, that doesn’t leave any room for a slowdown in AI spending.

Now, it’s worth pointing out that a lot of Wall Street analysts do believe that the stock can go higher. Since the recent results, many have raised their price targets to $400, which is around 33% above the current share price.

I’d rather buy at a lower valuation however. So for now, I’m going to keep the stock on my watchlist and focus on other opportunities.

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Is this one I should buy for my Stocks and Shares ISA? Let’s take a look at the numbers.

A chip and networking powerhouse

Before we get into the financials, it’s worth providing a bit of background information on this business. Because it’s not as well known as Nvidia and other popular AI stocks.

A $1.6trn market cap technology business, Broadcom operates in two main areas. These are semiconductor solutions and infrastructure software.

In the semiconductor solutions segment, it makes chips for a range of industries. Where it’s having success right now, however, is custom AI chips (XPUs) for large technology companies.

Currently, it has four customers paying (a lot) for these custom chips. We don’t know who the most recent customer is (it may be OpenAI) but the others are believed to be Alphabet, Meta, and Bytedance.

The infrastructure software segment focuses on providing solutions for managing complex IT environments. This area of the business has grown significantly through acquisitions, including that of VMware, which was recently bought for around $70bn.

Strong momentum

Now, this company has significant momentum at the moment. Last week, it posted its earnings for the third quarter of fiscal 2025 and the numbers were impressive.

For the quarter, revenue was $15.95bn while net income was $8.4bn. These figures were up 22% and 37% year on year, respectively.

Zooming in on AI revenue, this was up 63% to $5.2bn. So clearly, the company is seeing high demand for its custom AI chips.

Looking ahead, management advised that it expects AI revenue to climb to $6.2bn this quarter. Meanwhile, next fiscal year, it expects it to grow by more than 60% thanks to high levels of spending by the four customers.

It’s worth pointing out that on the earnings call, CEO Hock Tan said he believes that in the future, XPU share at its large AI customers could be bigger than GPU share. In other words, the demand for custom chips may eventually outstrip the demand for general-purpose AI GPUs designed by the likes of Nvidia and AMD.

Note that after the earnings, a ton of analysts hiked their price targets for the stock. Loads of them have gone to $400, which is nearly 20% above the current share price.

High valuation

So, this is all very exciting. But what about the valuation?

Well I’d expect the earnings forecast to rise in the weeks ahead on the back of the company’s strong earnings and guidance. But right now, analysts expect earnings per share of $8.73 next financial year (beginning November).

That puts the stock on a forward-looking price-to-earnings (P/E) ratio of 38. That’s quite a high valuation (for reference, Nvidia trades at 26).

It’s not insanely high. But there’s some customer concentration risk here and if one of Broadcom’s customers decided to pull back on spending and earnings are disappointing, the stock could underperform given its high multiple.

My move now

Given the high valuation, I’m going to keep this stock on my watchlist for now.

I’m keen to get it into my portfolio at some stage as it’s clearly a major player in AI. I think I’ll have better buying opportunities in the months ahead, however.

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A clear theme in expectations

Let’s start with the numbers. The most optimistic forecast comes from Oppenheimer, with the team targeting a year-end S&P 500 level of 7,100 points. If this was correct, it would be almost a 20% rally from the current price.

Most of the major US banks are bunched around the 6,500 mark, with this the forecast for Citi, JP Morgan, Goldman Sachs and Morgan Stanley. This still represents just under a 10% gain from the latest closing price.

Bank of America has a rather ominous figure of 6,666 points written. I’ll leave that for everyone to make up their own minds on what that could indicate for the events of the coming year!

None of the major contributors from the data I have are predicting the S&P 500 to fall. The lowest target for 2025 is 6,000 points from Cantor Fitzgerald.

As a disclaimer, these forecasts from the major banks and brokers are subjective. They’re based on research, of course, but ultimately there’s nothing to say for certain the index will hit any of the targets set by these predictions.

Helping to drive the rally

It’s really interesting to consider that Wall Street expects further gains from the US stock market. The index will be driven by key sectors. Many expect that artificial intelligence (AI) can support a continued rally, as more widespread adoption helps to improve profitability.

One company that could help to lead this charge and may be worth further research is Broadcom (NASDAQ:AVGO). The firm’s in the S&P 500 and rocketed 121% higher over the past year. A good portion of this jump came towards the end of the year, as investors started to think it could be a viable chip-making alternative to the expensive ones from Nvidia.

More specifically, it could do well in 2025 as it specialises in making more bespoke custom chips. These Application-Specific Integrated Circuits (ASICs) are much more customisable than some of the Nvidia choices. This works well for companies with specific AI needs that are looking to invest here for 2025 onwards.

Of course, competition in this space is huge and will only continue to ramp up as other players try to take market share away from Nvidia.

A final point

Investors should be aware that the price-to-earnings ratio for the S&P 500’s 27.45, which is almost double the FTSE 100 by comparison. Yet even if something’s perceived to be expensive, it doesn’t mean that it can’t become more expensive, as the forecasts for this year indicate!

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Nvidia was one of the global stock market darlings of 2024. This was mostly as a result of being at the forefront of artificial intelligence (AI) for the year. Yet due to the exceptional share price rally (almost 200%) in the stock, some investors are looking for alternative growth stocks that could lead the way next year. Here are two to consider as we get ready to start the year.

More specialist chips

The first one is Broadcom (NASDAQ:AVGO). The US stock enters 2025 on a hot streak already, with the share price up 54% in the past month. This has pushed the gains over the last year to 118%.

It has soared recently as investors try and find options that are viable alternatives to expensive chips from Nvidia. Not only does Broadcom tick this box, but it’s also becoming a frontrunner in custom chips. For example, Nvidia does well with general-purpose graphic processing units (GPUs). Yet Broadcom has expertise in making Application-Specific Integrated Circuits (ASICs), which are more customisable for companies with specific AI needs.

Given that 2025 could see AI become a lot more specific as companies try to carve out a niche to win customers, Broadcom could see demand surge. As a result, I’d expect this to filter down to better financial results. In turn, this should help it to a higher share price.

As a risk, Broadcom is trying to expand out of just hardware sales. This was noted with the recent purchase of VMware. However, I think the business needs to focus on what it’s good at, with other operations potentially becoming a distraction.

Armed and ready

A second option is Arm Holdings (NASDAQ:ARM). Over the past year, the stock is up 87%. The company is renowned for processor designs that are widely used in mobile devices. Yet the business is now pushing hard into AI and machine learning.

The latest quarterly results highlighted that with the industry buying more chips and needing more complexity in the chips, the result will be higher demand for Arm products. As the report noted: “The concept of AI everywhere is increasing demand for Arm’s highly performant and energy-efficient compute platform.”

Looking forward to next year, the continued development of specialised processors could challenge the dominance of Nvidia in certain applications. This would be in a similar way to what Broadcom could do.

However, investors need to be cautious due to the ongoing legal battle with competitor Qualcomm. This centres around the intellectual property licensing agreements that Qualcomm obtained through acquisitions in recent years and that Arm disputes.

Both AI growth stocks could do well next year and I feel investors could carefully consider both if they are looking to add exposure to this area.

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Large-cap stocks don’t often get much attention from investors. But with the surge of artificial intelligence (AI) spending, many of these businesses have reaped tremendous gains over the last two years. And the semiconductor manufacturer has been no exception, with the stock surging by almost 120%, pushing its market-cap over the $1trn threshold!

AI-fuelled explosion

The story at Broadcom’s very similar to Nvidia. With data centres and other tech-driven businesses seeking to upgrade their IT infrastructure for large language AI models, demand for Broadcom’s AI chips has gone through the roof.

Its latest quarterly results revealed $3.7bn of revenue from these products – a 150% year-on-year increase. That pushed overall sales up by 51% for the quarter. And given AI spending’s expected to continue rising next year, Broadcom’s momentum might only be getting started, especially since management sees a $60bn-$90bn market opportunity for its AI chips by 2027.

With an explosive outlook and growth accelerating drastically, it’s not surprising to see the semiconductor stock skyrocketing. Of course, Broadcom isn’t the only business chasing this opportunity. The threat of competition’s rising as more companies are seeking to develop their own AI chips to cash in on the gold rush. And given semiconductors are a notoriously cyclical space, overproduction could eventually result in slow-moving inventory and a sharp reduction in revenue expansion.

Nevertheless, it’s a growth story worth watching closely. After all, Nvidia managed to reach a market-cap of over $3trn. If Broadcom can do the same, the returns seen so far may only be the tip of the iceberg.

Who’s next?

Right now, there are nine US businesses sitting in the four-comma club. So who’s going to be number 10? Looking just at market-caps, Berkshire Hathaway looks like it’s the closest at $982bn. In fact, Warren Buffett’s investment firm briefly surpassed $1trn earlier this year before cooling slightly.

As for a runner-up, Walmart’s the next closest with a market-cap of $762bn, with Eli Lilly on its heels at $701bn. It’s not just the chip makers leveraging AI to generate growth. Both the retail giant and pharmaceutical titan are incorporating the technology to boost operational performance, from AI personal shopping assistants to clinical data analysis.

Are these businesses guaranteed to hit a trillion? No, there are never any guarantees in the world of investing, especially when competition’s fierce. Nevertheless, both enterprises have impressive track records of defying expectations, making them worth a closer look, in my opinion.

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Broadcom (NASDAQ: AVGO) rallied last Thursday (12 December) after posting its Q4 and full-year 2024 results, far outperforming analyst expectations.

Revenue for Q4 was $13.1bn, up 47% year on year, while earnings per share (EPS) came in at $1.25 — way ahead of the $1.13 estimated.

For 2025, it expects the performance to continue going from strength to strength. Revenue is projected to reach $14.6bn, with EBITDA making up two-thirds of that.

Growth drivers

Over the past decade, the semiconductor company has made several acquisitions, helping it branch out into a range of new products and services. These include CA Technologies, which it bought for $19bn in July 2018, and later security software company Symantec for $10.7bn in August 2019.

But the most critical acquisition was that of VMware, purchased for $69bn in November 2023.

The successful integration of the virtualisation software was noted as a key driver of growth. It contributed $3.8bn in Q4 revenue, helping boost the company’s Infrastructure Software segment revenue by 200%. Its annualised booking value (ABV) climbed to $2.5bn, up 32% quarter on quarter.

CEO Hock Tan said VMWare is on track to achieve or exceed its $8.5bn adjusted EBITDA target by the end of 2025.

However, the takeover still raised a few eyebrows. Some customers have voiced concerns that service quality may decline under Broadcom’s more cost-effective operational style. There’s an ongoing risk that this may drive some customers to seek alternatives.

Riding the AI train

A big chunk of this year’s growth is attributed to the artificial intelligence (AI) boom dominating markets. 

Broadcom’s AI-enhanced ethernet products like Tomahawk 5 and Jericho3AI have helped catapult it onto centre stage. Its products now power much of the hardware that AI services rely on, including networking, wireless, data storage and wireless systems. 

Revenue from the sector increased 220% year-on-year, driven by “our leading AI XPUs and Ethernet networking portfolio,” said Tan.

Looking ahead

Research from MarketsandMarkets predicts the global AI market will reach $1.3trn by 2030, up from $214.6bn today. This could equate to compound annual growth of 35.7% for investors.

However, it’s a highly competitive field dominated by market leader Nvidia. Exactly how much of the market Broadcom can retain remains to be seen. Losing a key client like Apple or Samsung would eliminate much of the company’s profit. 

It could also suffer losses if US-China trade tensions cause supply chain issues.

Both these risks could derail performance in 2025.

What’s more, at $225 per share, it isn’t cheap and its forward price-to-earnings (P/E) ratio of 36.6 looks fairly high. While that’s common for rallying tech socks, it could still stifle future growth. 

Overall, I think there’s still a lot of growth potential in the stock. But with Christmas coming, I don’t have spare cash to buy the stock today. It’s definitely on my list though and I’ll consider it again after Donald Trump takes office in January.

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They can be found in everyday consumer products, including smartphones, laptops, televisions, and washing machines. They also have applications in many other areas, such as information technology, artificial intelligence, communications infrastructure, medical equipment, transportation networks and military systems. In fact, it’s no exaggeration to say that semiconductors are integral to the entire global economy.

According to the Semiconductor Industry Association, a record 1.3 trillion units were shipped in 2025 with sales surpassing $600bn for the first time. But with AI infrastructure spending still marching upward, analysts’ forecasts are projecting even more growth before the end of the decade.

This could make UK semiconductor stocks an attractive proposition. But what are the best chip companies to invest in, and is this market sector right for you? 

What are semiconductor stocks?

Semiconductor stocks are companies that design and manufacture computer chips, whose shares can be bought and sold on a public stock market. 

The industry is sometimes divided into two sub-sectors:

• Semiconductors
• Semiconductor Equipment & Materials

Companies in the former category are producers of semiconductor chips. Companies in the latter category supply tools, parts, and equipment to the semiconductor industry.

Top semiconductor stocks in the UK

Here are the leading UK semiconductor shares traded on the London Stock Exchange in order of market cap as of January 2026: 

Oxford Instruments

Oxford Instruments is a long-established and profitable technology company. It’s also currently among the largest UK semiconductor stocks.

The company serves a range of different markets, including materials analysis as well as healthcare & life sciences. But in recent years, semiconductors have become an increasingly larger core part of operations, generating 29% of revenue in 2025 – it’s the second largest segment.

Management has signalled its confidence in further growth in demand by building a new state-of-the-art facility in Bristol to house its compound semiconductor systems business. Capabilities include fault-finding and failure analysis within advanced micro devices for the leading semiconductor manufacturers, and cleanliness control in precision manufacturing.

IQE

IQE describes itself as “the leading global supplier of advanced compound semiconductor wafers”. These wafers have a diverse range of applications across handset devices, telecoms infrastructure, and 3D sensing.

In recent years, the company has struggled to maintain growth, with earnings consistently providing elusive growth, a struggle that continued throughout 2025.

However, entering 2026, thanks to the tailwinds of AI spending, the group’s order book does show signs of strength, offering improved demand visibility.

CML Microsystems

CML Microsystems occupies a profitable niche in the development of mixed-signal, radio frequency, and microwave semiconductors for global communications markets. It targets sub-segments with strong growth profiles and high barriers to entry.

CML believes its diverse, blue-chip customer base and broad product range largely protect it from the cyclicality usually associated with the semiconductor industry.

Nanoco Group

Nanoco is another young UK semiconductor company that’s still loss-making – albeit by a small margin.

Its niche focus on quantum dots and nanomaterials limits the group’s current market penetration opportunities. However, with new technological innovations accelerating, demand for its specialised products is slowly starting to ramp up. And in the meantime, the business has continued to deliver resilient revenues reaching £7.6m in its 2025 fiscal year.

Nevertheless, management continues to describe its business as “a world leader in the development, manufacture and supply of quantum dots and other semiconductor nanomaterials”.

Investing in foreign semiconductor markets

UK semiconductor stocks are relatively small when viewed on the world stage. As such, investors seeking to buy shares in industry giants will have to look to overseas stock markets.

Leviathan Taiwan Semiconductor Manufacturing Co and Dutch colossus ASML can both be traded in the US market. And of course, the US has homegrown powerhouses.

• Nvidia Corporation – $4.45trn market cap
• Broadcom Inc – $1.61trn market cap
• Intel Corporation – $232.4bn market cap
• Qualcomm Inc – $175.9bn market cap

A further option for UK investors is to buy shares of the London-listed exchange-traded fund VanEck Semiconductor ETF. The fund holds 25 of the world’s top chip stocks (including the six just mentioned), and is a one-stop shop for broad exposure to the industry.

Are semiconductor stocks right for you?

Investors considering buying a semiconductor stock need to take a number of things into account. First, it’s important to be aware that the industry is highly cyclical. It’s notorious for periodic supply-and-demand imbalances, leading to spells of feast and famine. Investors need to be prepared to accept some large swings in the share prices of semiconductor stocks.

Another thing to be aware of is that the industry is very much driven by the maxim of ‘smaller, faster, cheaper’. There’s constant pressure on chip companies to come up with ever more advanced technology at lower prices. It can be as short as a few months before one state-of-the-art product is overtaken by another.

To successfully compete for market share, semiconductor companies need to sustain a breakneck pace of innovation. As such, it’s necessary to recycle a high percentage of revenue back into research and development (R&D).

The best chip companies to invest in

While global semiconductor sales growth is a given, translating it into profitable growth is less certain. Therefore, picking the best chip companies to invest in can be tricky.

High gross margins, operating margins, and free cash flow generation, relative to sector peers, can indicate a company that’s operationally efficient and adept at identifying good areas to target R&D. These qualities, together with a strong balance sheet, may better equip a firm to navigate the hazards of the semiconductor cycle.

If you’re prepared to accept some large ups and downs in share prices and to put a bit of work into finding the stronger businesses in the industry, tapping into the structural growth of this market sector may be right for you.

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What is the S&P 500?

The Standard & Poor’s 500, or S&P 500, is a stock market index that comprises 500 of the largest companies publicly listed on US stock exchanges. Because it encompasses companies spanning nearly all market sectors and industries, it’s widely considered one of the best benchmarks for the overall health of the American stock market and, in turn, the economy. Specifically, the index also serves as an insightful snapshot of how larger US companies are performing.

Given the strength of the US economy over the last century, numerous index funds are available to investors seeking to replicate its performance. It often serves as a central foundation for many retirement plans. At the same time, actively managed funds often use it as a benchmark to compare their own performance against.

RELATED: How to Buy and Trade US Shares in the UK

Why invest in the S&P 500?

Investing in the S&P 500 index means that you can own shares in some of the best companies in America with just one investment.

Here are three great reasons for investing in the S&P 500:

1. Simple and cheap

Investing in an S&P 500 index fund is relatively straightforward. There are plenty of similar trackers to choose from, most offering the same results at an exceptionally low cost. After all, these trackers are not actively managed funds. And that means more of the investor’s money is going towards growing wealth rather than paying management fees.

Since index funds effectively put an investment portfolio on autopilot, a passive investing strategy is very low-maintenance, making it easy to automate with regular contributions. As a result, this investment vehicle is often considered ideal for retirement accounts, such as SIPPs or Investment Lifetime ISAs.

2. Diverse selection of companies

By investing in an S&P tracker fund, a portfolio gains indirect exposure to 500 of the largest US-listed businesses. That includes companies across almost every sector, such as technology, healthcare, finance, consumer goods, manufacturing, materials, and real estate, among others.

That means if one business or sector is struggling, the adverse impact on an investor’s portfolio can be offset by the strength or continued outperformance of another. That’s why index funds generally provide better diversification benefits compared to a concentrated, hand-picked portfolio of US companies.

3. Track record of great performance

While there have been wobbles along the way, the S&P 500 has historically delivered a return of around 10% per year. At this rate, investors have, on average, doubled their wealth every seven years, assuming a consistent approach to investing.

While there are actively managed funds that have outperformed the index, most have struggled to maintain their lead after accounting for the high management fees. As such, many investors could have enjoyed superior performance if they had opted to effectively own the whole market.

However, as seen in recent years, the stock market can be exceptionally volatile, and that includes the S&P 500. Double-digit drawdowns can and do happen. Therefore, investors should keep in mind that past performance is not a guarantee of similar future returns.

What are the drawbacks of investing in the S&P 500?

While investing in S&P 500 stocks comes with a lot of advantages, there are also some drawbacks to consider. Greater exposure to the technology industry has helped pave the way to superior returns, but it also introduces significantly higher levels of volatility. And this trend has only intensified over time.

Since the S&P 500 is weighted based on market capitalisation, the biggest US tech stocks now dominate. In fact, seven of the largest 10 companies operate within the tech industry. Overall, this sector represents close to a third of the total.

Consequently, despite an investment being indirectly diversified across 500 companies, a portfolio would still be fairly concentrated. In fact, just the top 10 stocks are responsible for close to 38% of overall returns. This is why the S&P 500 has become increasingly more volatile in recent years – significantly more than other large-cap indices such as the UK’s FTSE 100.

There are alternative index funds that allow investors to invest in the S&P 500 on an equal-weighted basis rather than market-cap weighting. This helps restore the diversification benefit of the index. But it also increases the weighting on companies that have underperformed. So while these alternative funds are much less volatile, the returns haven’t been as impressive.

What are the top 10 S&P 500 stocks?

In order of market capitalisation, the 10 largest companies currently dominating the S&P 500 as of January 2026 are:

What is the best way to invest in the S&P 500?

The most common way to invest in this index is through a fund.

Investing in an S&P 500 index fund isn’t really something that needs a lot of maintenance because it should all be arranged automatically. So it’s definitely an investment you can manage yourself. Your only options are to buy or sell the fund.

This is usually done as an exchange-traded fund (ETF). An ETF just means that the fund is available on multiple platforms and exchanges.

How you invest in the S&P 500 will be very similar across all platforms. So, it’s important that you aim for a fund with low fees. All platforms should contain the same companies.

What are the most popular funds?

It’s important to remember that S&P 500 funds should be tracking the same index. This means that any difference in returns should be marginal.

Nevertheless, some are cheaper than others, and there are a few that tend to be very popular amongst investors, such as:

• iShares Core S&P 500 UCITS ETF
• Vanguard S&P 500 UCITS ETF
• Invesco S&P 500 UCITS ETF
• SPDR S&P 500 UCITS ETF
• HSBC S&P 500 UCITS ETF

Bear in mind that some investment companies might call their fund something like ‘The America 500’ fund. This is to avoid paying licensing fees and keep their costs down. Although these can be the same as ‘official’ S&P 500 index funds, it’s always worth double-checking exactly what’s in the fund you’re buying.

What is the minimum investment for the S&P 500?

When investing with funds, minimum investment requirements can creep into the picture. As the name suggests, a minimum investment requirement forces investors to put a minimum amount of capital into a fund in order to invest.

Depending on which index fund, the minimum investment requirement will vary. However, in most cases for index trackers, there isn’t one beyond the share price of the fund itself, especially for an ETF.

For example, the iShares Core S&P 500 UCITS ETF does not have a minimum investment requirement. However, at a share price of around $745 (£558), investors must have at least $745 to start investing in the S&P 500 with this index tracker.

Alternatively, the Vanguard S&P 500 UCITS ETF offers effectively the same access to investing in the S&P 500, but since the share price is currently around £98, it’s far more accessible to investors with smaller sums of capital.

Where can I invest in the S&P 500?

Common ways to invest in this popular index are:

• Using a share-dealing platform or brokerage
• With a robo-advisor
• Through a financial advisor

The cheapest way is to do it yourself through a platform. This will be the preferable option for most people because it is quite a simple investment to purchase and manage.

An investing solutions provider may be difficult to organise because they choose the investments, and a financial adviser is likely to be more expensive with no real added benefit.

How do I invest in the S&P 500 in the UK?

Investors cannot buy the S&P 500 index directly, but they can invest in it through passive index funds that track its performance, such as an exchange-traded fund or ETF. To get started, there are three main steps:

1. Research & Choose An S&P 500 Fund

The most common low-cost way to access the S&P 500 is through ETFs. And two popular options here are iShares Core S&P 500 UCTIS ETF or Vanguard S&P 500 UCTIS ETF, although there are other options.

When selecting a fund, it’s essential to compare the fees, which are usually measured by the total expense ratio (TER). This is measured as a percentage representing how much of your investment will be gobbled up each year. Therefore, a lower TER means more of your money stays invested. Typically, the TER for index funds is usually below 0.1% per year.

2. Pick An Investment Platform

To invest in an ETF, investors need access to the stock market through a Share Dealing Account. Each investment platform offers a different suite of features and tools, so it’s important to check if it has the ETF available to buy. Something else to watch carefully is the fees the platform charges.

RELATED: Top Picks For UK Share Dealing Accounts

For British investors, it’s also worth considering two special share dealing accounts:

• Stocks and Shares ISA – shields your profits from capital gains, dividends, and income taxes, making it the best option for most investors.
• Self-Invested Personal Pension – shields your profits from capital gains and dividends, while deferring income taxes until withdrawals begin. Also provides tax relief on deposits when building wealth, making it a suitable option for investors saving for retirement.

3. Fund Your Account And Start Investing

Deposit money into your account and purchase the fund. Most platforms should allow you to use a lump sum or invest a regular monthly amount to pound-cost average. By using dollar-cost averaging, it can smooth out short-term market volatility.

Please note that tax treatment depends on the specific circumstances of the individual and may be subject to change in the future.

LSE Index Fund vs S&P 500

LSE index funds are a popular alternative to the S&P 500 in Britain. The main difference lies in geographical exposure. An LSE index fund, such as one tracking the FTSE 100 or FTSE 250, allows investors to invest primarily I the UK’s largest companies.

While these firms are global in nature, many earn significant revenues from overseas and are often heavily tilted towards defensive sectors like energy, financials, consumer staples, and healthcare.

By contrast, as previously mentioned, the S&P 500 represents the 500 largest businesses in the US. It grants investors far better access to fast-growing technology giants. And since this sector has been a top performer, the historical returns of the S&P 500 have been stronger over the long run compared to the FTSE 100 or FTSE 250, albeit at a greater level of volatility.

Many UK investors often choose to invest in both, relying on the S&P 500 to build their wealth and using the FTSE 100 as a balance to offset volatility and gain exposure to the UK market. Holding a mix of the two can improve portfolio diversification while also generating a more substantial passive income stream from dividends, as UK shares typically offer superior yields.

Should I invest in the S&P 500?

If you want a straightforward, low-cost investment that gives you access to some of America’s best companies, then this might be a great pick. The whole index contains companies of different sizes from various industries, which is what you want in a diversified portfolio.

However, although you get some diversification, it is heavily reliant on the US. Many of the companies will operate internationally, but they are still influenced by what is happening in America. What happens with the dollar or politics can really impact the S&P 500.

Because the index is weighted by market capitalisation, most of your investment goes to the biggest companies. This can work against you sometimes, as these large companies have already seen a lot of growth. Meanwhile, the smaller-cap companies can see bigger gains.

Frequently asked questions

Should a beginner invest in the S&P 500?

Yes. Investing in an S&P 500 low-cost index tracker is often considered to be a good investment for beginners. It offers several advantages for novice investors, including:

• Diversification – The index contains 500 of the largest companies listed in the US.
• Strong Past Performance – While not an indicator of future results, the S&P 500 has historically delivered an average annualised return ranging from 7% to 11%.
• Passive Approach – Investors aren’t required to actively manage their portfolio as the index is managed by a professional or automated algorithm.
• Low Fees – Most modern index trackers are managed by computer algorithms, making them a very low-cost approach to investing. Most passive index trackers typically charge a fee that is less than 0.1%.

Can you directly invest in the S&P 500?

No. You cannot directly invest in the S&P 500. Instead, investors have to buy shares of an index fund that specifically tracks and aims to replicate the desired index.

What if I invested $1,000 in the S&P 500 5 years ago?

Over the last five years, the S&P 500 has delivered a total return of 94% as of January 2026. This includes capital gains as well as dividends.

Therefore, if an investor had bought $1,000 worth of a low-cost index tracker, the value of their investment today would be $1,940. However, this is before paying any fund fees or taxes.

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