AI-Heavy Vanguard ETFs: Still Worth Buying After DeepSeek Drama?
Saturday, Feb 1, 2025 4:54 am ET
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The recent DeepSeek drama has left investors wondering if AI-heavy Vanguard ETFs like VHT (Vanguard Health Care ETF) and VGT (Vanguard Information Technology ETF) are still good picks to buy. This article will explore the performance, valuation, and future prospects of these ETFs in the wake of the DeepSeek controversy.

Performance Since DeepSeek Drama
Since the DeepSeek drama, VHT and VGT have shown mixed performance. VHT, which focuses on healthcare, has gained approximately 1.5% as of February 1, 2025, while VGT, which focuses on technology, has surged around 3.5% during the same period. Although these gains are modest compared to their historical averages, they indicate that these ETFs have rebounded from the initial market turmoil caused by DeepSeek's AI model.
Historical Performance and Industry Peers
VHT has returned around 13.5% annually over the past decade, while VGT has returned around 18.5% annually during the same period. In comparison, the S&P 500 index has returned around 10.5% annually over the past decade. This suggests that both VHT and VGT have outperformed the broader market over the long term.
Current Valuation
The average P/E ratio of the companies within VGT is 33.9, which is significantly higher than the S&P 500 index's 24.7 multiple. This indicates that the companies within VGT are currently trading at a premium compared to their historical averages and industry peers. However, it is essential to consider that the rapid pace of advancements in AI and robotics may justify this higher valuation, as these technologies have the potential to drive significant growth in the sector.
Impact of DeepSeek Drama on ETF Holdings
The DeepSeek drama raised concerns about the sustainability of U.S. dominance and profitability in the AI sector, particularly for companies reliant on high-end hardware like NVIDIA. This event led to a significant sell-off in tech stocks, including those held by AI-focused ETFs.
1. ARK Autonomous Technology & Robotics ETF (ARKQ) experienced a significant drop of 54.88% in one year, with NVIDIA being one of its top holdings. NVIDIA's stock price fell sharply due to DeepSeek's potential threat to its high-end hardware dominance.
2. Global X Artificial Intelligence & Technology ETF (AIQ) also saw a decline of 26.35% in one year. AIQ holds a diverse portfolio of AI-related companies, including NVIDIA, Microsoft, and Alphabet, which were all affected by the DeepSeek drama.
3. ROBO Global Artificial Intelligence ETF (THNQ) dropped by 22.62% in one year. THNQ focuses on companies driving innovations in robotics, automation, and AI, and its holdings were also impacted by the market turmoil caused by DeepSeek.
Potential Impact on Future Performance
The DeepSeek drama highlighted the potential limitations of U.S. trade restrictions and raised concerns about the effectiveness of current policies in the broader context of U.S.-China tech competition. This could lead to increased volatility and uncertainty in AI-related ETFs in the future. However, analysts have downplayed the fears surrounding DeepSeek, suggesting that innovations like its model could help free up compute capacity, driving further growth in AI infrastructure. This perspective could lead to a rebound in AI-related ETFs as investors regain confidence in the sector's long-term prospects.
In conclusion, while the DeepSeek drama has had a significant impact on AI-related ETFs, particularly those with substantial exposure to NVIDIA and other U.S.-based tech giants, the future performance of these ETFs will depend on how investors perceive the long-term implications of the DeepSeek model and the broader geopolitical landscape surrounding AI innovation. Investors should continue to monitor these ETFs for potential long-term growth opportunities in the healthcare and technology sectors.