To The Moon

• The Schwab U.S. Large-Cap Growth ETF is a compelling opportunity due to its focus on the largest U.S. corporations with intact fundamentals.
• AI is a global megatrend, expected to reach $1.8 trillion by 2030. U.S. companies like Nvidia, Broadcom, Microsoft, Google, Amazon, and Tesla lead in processors, cloud infrastructure, and the real world.
• The ETF's 50% exposure to the Technology sector and strong performance history make it superior to peers and the S&P 500 Index.
• Despite potential market volatility and geopolitical risks, U.S. tech giants' dominance in innovation and AI trends ensures long-term growth and shareholder value.

JohnnyGreig

Investment Thesis

It is a significant day for the United States as the latest results suggest that Donald Trump is returning to the White House. While I believe the U.S. president plays a major role in the country's international politics, the domestic environment for the largest U.S. technology companies is unlikely to change significantly. Many presidents have taken office since the digital revolution began several decades ago. Regardless of who has been president of the world's largest economy, the U.S. has remained at the forefront of innovation.

I believe the country's position as the world's innovation epicenter is secure due to the vast financial resources of its largest technology corporations and their ability to recruit the brightest engineers and top talent globally. Therefore, I think that a high-quality ETF focusing on the largest U.S. corporations, such as the Schwab U.S. Large-Cap Growth ETF™ (NYSEARCA:SCHG), is a "Strong Buy."

About SCHG

Schwab U.S. Large-Cap Growth ETF is a relatively small fund with around $34 billion in assets under management (AUM). Despite its size, the expense ratio is quite low at just 0.04%. When I go to SCHG's "Peers" tab, I see that Seeking Alpha offers five different alternatives with highly likely similar strategies.

Seeking Alpha

SCHG's advantage is that it is the largest fund in AUM among peers, and it offers much higher liquidity. It is also important that none of the peers offer a lower expense ratio. SCHG is also the best-performing ETF among rivals over the long-term horizon. I also like that SCHG focuses on the "Buy and Hold" strategy with just a 3% turnover rate, by far the lowest among peers.

Seeking Alpha

Such a low turnover rate means that the ETF's managers are highly likely to make a very thorough analysis before allocating funds. The ETF offers quite a high concentration in the top 10 stocks with a total of 60% weight. There were 231 holdings in the portfolio as of November 1, 2024.

Seeking Alpha

Since we live in the digital age, it is unsurprising that the most successful Technology stocks are the largest. As a result, SCHG offers a large 50% exposure to the Technology sector. This is a notably higher Technology exposure compared to the 33% offered by the major ETF tracking the S&P 500 Index (SPY). As a result, SCHG significantly outperformed SPY over the last decade.

Seeking Alpha

Reasons I Am Bullish

Let me start from the financial position perspective: Companies that represent the largest holdings in the SCHG portfolio have accumulated almost $480 billion in cash as of the latest available reportable quarter. This amount is more than two times higher compared to the GDP of my home country, the oil-rich state of Kazakhstan.

Compiled by the author

As people who read about the U.S. stock market every day, we all know that these giants aggressively reinvest in innovation. The total TTM R&D spending of these nine companies is $269 billion. This is certainly lower compared to the cumulative cash pile of these giants, but still notably higher than the GDP of countries like Qatar and Iraq.

Compiled by the author

Such aggressive R&D spending from U.S. corporations is not something new, it is a secular trend. This innovative culture allows the American Technology sector to lead the whole world in the digital revolution that started several decades ago. As a result, almost all of the above companies created new blue oceans and still dominate in their domains. It is indisputable that U.S. technology companies set trends and golden standards for the entire world, and this dominance looks intact.

The fact that I am confident that the largest U.S. corporations will be able to maintain their technological dominance is not only explained by their financial power. There are a few big reasons why these corporations have strong advantages when we speak about the ability to hire the brightest engineers across the world.

The country is very attractive for the new potential engineering superstars. More than 50% of the world's top 100 universities are located in the U.S. Furthermore, it is well-known that the U.S. is an excellent place to build a business or career for energetic and highly skilled immigrants. According to the American Immigration Council, an impressive 44.8% of Fortune 500 companies were founded by immigrants or their children. Sundar Pichai and Satya Nadella are not founders but are quite successful CEOs of giants like Alphabet Inc. (GOOG), (GOOGL) and Microsoft Corporation (MSFT).

Another reason why the U.S. is likely the most attractive destination for promising engineers is its vibrant entrepreneurial history. The transparency of U.S. public companies allows young people worldwide to study the business cases of the most successful American corporations. As someone born and living thousands of kilometers away from the United States, I can firmly state that figures like Henry Ford, Jack Welch, Steve Jobs, and Bill Gates are iconic not only in the history of corporate America but globally. This factor is crucial in inspiring young engineers worldwide to move closer to the world's epicenter of innovation, the United States.

To wrap up, with vast financial resources and the ability to recruit top talent from around the world, the largest U.S. technology corporations are poised to continue rolling out new products and technologies for global export. This trend mirrors what we've seen over the last few decades with PCs, software solutions, paid video streaming, the iPhone, and many other products. We already see it in the new wave of the digital revolution-the emergence of generative AI, where young thriving players are once again U.S. startups like OpenAI and Anthropic.

Grand View Research

AI is emerging as a new global megatrend. Grand View Research forecasts that the global AI market will grow at a 36.6% CAGR by 2030, reaching a $1.8 trillion industry. In addition to the aforementioned hot generative AI startups like OpenAI and Anthropic, the largest U.S. corporations dominate the entire AI value chain. NVIDIA Corporation (NVDA) and Broadcom Inc. (AVGO) dominate in AI hardware. Microsoft, Google, and Amazon.com, Inc. (AMZN) are by far the largest players in the global cloud infrastructure market. Tesla, Inc. (TSLA) brings AI to the real world with its vehicle autopilot and humanoid robot.

Risks to Consider

Growth is never linear, and there may be some bumpy parts along the way. The global stability we all enjoyed after the Great Recession was suddenly disrupted in 2020 with the onset of the COVID-19 pandemic. Over the last five years, several adverse developments have occurred beyond the pandemic: the largest war in Europe since World War II, rapid conflict escalation in the Middle East, and a fierce Cold War between the U.S. and China. While I am confident that the largest U.S. corporations are well-positioned to thrive over the coming decades, the stock market acts as a voting machine in the short term. Consequently, some sensational headlines might lead to panic in the stock market.

There are also opinions that the U.S. stock market is overvalued. For example, the Buffett Indicator Model suggests that the market is "Strongly Overvalued." I tend to be more optimistic, and as I cover most of the largest U.S. tech stocks in-depth, I consider most of them either fairly valued or even undervalued. However, I might be too optimistic in my projections and must caution readers that other opinions exist.

Bottom Line

To conclude, SCHG appears to be a "Strong Buy." The ability of the largest U.S. corporations to recruit top talent from around the world, combined with their vast financial power, represents an invincible blend. The U.S. is firmly positioned to remain at the forefront of innovation, which will then be exported internationally, boosting value for shareholders.