Including both technology and communication services stocks, tech – with assistance from the magnificent seven – was on fire in the first half of the year.
Now, mega-cap growth investing faces a dichotomy. Market observers believe many of the first half leaders are stretched on valuation. Still, they remain long-term bullish on tech and see secular tailwinds acting as driving forces for potential upside. Over the near-term, investors may need to exercise discretion with large growth stocks and exchange traded funds such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ) can help with that objective.
“We remain confident in secular tailwinds in technology, such as cloud computing, artificial intelligence, and rising semiconductor demand in a variety of end markets. We still see some select buying opportunities in semis and software, even with some macroeconomic concerns on the horizon,” noted Morningstar analyst Brian Colello.
AI Is Just Getting Started
Above-average exposure to artificial intelligence-related and adjacent stocks benefited QQQ and QQQM. Those include Microsoft (MSFT) and Nvidia (NVDA), to name a pair.
Two points remain valid, despite talk of the markets richly valuing AI stock. First, AI is in its infancy. Second, QQQ and QQQM are among the most credible ETF access points to this investment theme.
“We think AI has the potential to revolutionize industries and how people interact with the world,” added Colello. “Meanwhile, the dreadful demand environment for PCs and smartphones seems to have bottomed, although we only anticipate a slow recovery. Automotive semis was the last sector to see headwinds, but supply/demand seems to be normalizing.”
Cloud computing, cybersecurity and healthcare innovation, among others, are disruptive technologies that could drive long-term benefits for QQQ and QQQM member firms. Still, the allure of AI is too compelling for many investors to ignore. This is despite the fact that forecasts for this market’s size and scope are fluid at best.
“Consumers and businesses alike are interested in artificial intelligence, although there’s no clean and clear way to size this market. We anticipate that AI development will be enormous, but monetization may be scattered,” concluded Colello.
Cognizant Technology Solutions (CTSH), a QQQ and QQQM holding, is among Morningstar’s preferred tech stock ideas.
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