Vanguard Is Bullish on Developed Markets Outside the U.S. -- But How Can You Buy Them? These 2 ETFs Can Help.

Which stocks will be the big winners of the artificial intelligence (AI) boom? Until recently, many investors might have assumed that major U.S. growth stocks, tech names, and AI hyperscalers would be the biggest winners -- after all, those companies are building AI tools that are at the center of excitement around AI. But what if that assumption is wrong?

In its most recent Market Perspectives report published in July, Vanguard said that some of the best AI stocks might not be U.S. growth stocks or even directly related to technology at all. The Vanguard research team wrote: Missed Nvidia in 2009? This Rare Signal Is Flashing Again.

In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » The next phase of the AI story is more about whether current investment translates into productivity gains for the broader global economy.

Vanguard believes that as the benefits of AI tools spread beyond the tech sector, companies, industries, and countries outside the U.S. might outperform U.S. growth stocks that have driven the first phase of the AI boom. If this analysis is accurate, international stocks in developed markets might be a better buy than U.S. growth stocks. These companies might be in the best position to profit from AI, even if they didn't build the AI tools.

The 10-year forecast from the Vanguard Capital Markets Model® projects that developed markets outside the U.S. will outperform U.S. stocks, and especially U.S. growth stocks. Vanguard expects developed markets ex-U.S. equities to deliver average annual returns of 4.5% to 6.5% during the next 10 years, compared to 3.6% to 5.6% for U.S. growth stocks. Let's look at two international stock ETFs that could fit the strategy of investing in developed markets.

If you want to buy developed world international stocks, this ETF makes it easy -- it's right there in the name. The State Street SPDR Portfolio Developed World ex-US ETF (NYSEMKT: SPDW) lets you own 2,436 global stocks from developed markets. The top countries represented in SPDW are Japan (21.8% of the fund), the U.K. (11.3%), Canada (10.8%), South Korea (7.9%), and France (7.2%).