Profit margin is an important though easy-to-understand concept. Put simply, it’s how much a company’s sales are retained as profits after all costs are accounted for. Even simpler, the higher the better.
From quarter-to-quarter, sector-level profit margins fluctuate. But first-quarter earnings reports indicate the blended profit margin for the S&P 500 is a solid 12%. As FactSet research indicates, that’s lower on a sequential basis. But it’s still above the five-year average of 11.7%.
That’s material to investors considering ETFs such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ). Both of these ETFs follow the Nasdaq-100 Index. And they allocate a combined 65% of their rosters to the technology and communication services sectors. Those are two of the leading groups regarding elevated profit margins.
QQQ: Basket of Profit-Margin Greatness
Regarding profit margins, the nearly 16% weight QQQ and QQQM assign to communication services stocks is pertinent. That’s because the group is proving to be a first-quarter profit margin leader.
“At the sector level, six sectors are reporting a year-over-year increase in their net profit margins in Q1 2025 compared to Q1 2024, led by the Communication Services (15.6% vs. 13.5%) and Health Care (8.3% vs, 6.6%) sectors,” noted John Butters of FactSet.
QQQ and QQQM are also benefiting by not being heavily exposed to sectors where profits are declining on a quarterly basis. Those include energy and real estate. Those two sectors combine for just 0.74% of the Invesco ETFs’ rosters.
Of course, when discussing QQQ and QQQM, the ETFs’ nearly 50% weight to technology stocks cannot be overlooked. That sector’s first-quarter profit margin decline. But it remains high, and is well above the S&P 500 blended average.
“Seven sectors are reporting a quarter-over-quarter decrease in their net profit margins in Q1 2025 compared to Q4 2024, led by the Information Technology (25.6% vs. 26.8%) sector,” added Butters.
There’s more good news on the profit margin front. And it could prove rewarding for QQQ/QQQM holdings as 2025 moves forward. S&P 500 member firms are expected to notch higher profits in the current quarter and in the back half of the year.
“It is interesting to note that analysts believe net profit margins for the S&P 500 will be improve through the rest of 2025. As of today, the estimated net profit margins for Q2 2025 through Q4 2025 are 12.5%, 12.9%, and 13.0%, respectively,” concluded Butters.
Regarding profit margins, the nearly 16% weight QQQ and QQQM assign to communication services stocks is pertinent. That’s because the group is proving to be a first-quarter profit margin leader.
“At the sector level, six sectors are reporting a year-over-year increase in their net profit margins in Q1 2025 compared to Q1 2024, led by the Communication Services (15.6% vs. 13.5%) and Health Care (8.3% vs, 6.6%) sectors,” noted John Butters of FactSet.
QQQ and QQQM are also benefiting by not being heavily exposed to sectors where profits are declining on a quarterly basis. Those include energy and real estate. Those two sectors combine for just 0.74% of the Invesco ETFs’ rosters.
Of course, when discussing QQQ and QQQM, the ETFs’ nearly 50% weight to technology stocks cannot be overlooked. That sector’s first-quarter profit margin decline. But it remains high, and is well above the S&P 500 blended average.
“Seven sectors are reporting a quarter-over-quarter decrease in their net profit margins in Q1 2025 compared to Q4 2024, led by the Information Technology (25.6% vs. 26.8%) sector,” added Butters.
There’s more good news on the profit margin front. And it could prove rewarding for QQQ/QQQM holdings as 2025 moves forward. S&P 500 member firms are expected to notch higher profits in the current quarter and in the back half of the year.
“It is interesting to note that analysts believe net profit margins for the S&P 500 will be improve through the rest of 2025. As of today, the estimated net profit margins for Q2 2025 through Q4 2025 are 12.5%, 12.9%, and 13.0%, respectively,” concluded Butters.
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