Some election-related trades are fading, but politics aside, there’s still momentum for artificial intelligence (AI) investing. That underscores the point that market participants see its long-term viability and are willing to wager that changes in the political climate will have limited impact on its disruptive and innovative traits.
Durability in the AI trade highlights the utility of exchange trade funds such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ). Those funds have the same rosters and both are heavily allocated to some bellwether AI companies. One way of looking at that is that QQQ and QQQM remove the stock-picking burden.
It’s a good thing, too, because multiple AI stocks currently look appealing. Plus, several of the best names in the space, as deemed so by Morningstar, are QQQ/QQQM holdings. That could be an indication the Invesco ETFs could build on their impressive 2024 gains next year.
Cream of AI Crop Found in QQQ
One of the advantages offered by QQQ and QQQM is that most of the ETFs’ AI-adjacent holdings are not solely dependent on that technology to drive top and bottom line growth. However, some of these firms do have considerable leverage to the technology. Microsoft (MSFT), the third-largest QQQ/QQQM holding, is a solid example.
“Microsoft is one of two public cloud providers that can deliver a wide variety of PaaS/IaaS solutions at scale. Based on its investment in OpenAI, the company has also emerged as a leader in AI,” noted Morningstar analyst Dan Romanoff. “Microsoft has also enjoyed great success in upselling users on higher-priced Office 365 versions, notably to include advanced telephony features. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins and deepening ties with customers.”
Google parent Alphabet (GOOG) is another example of a QQQ/QQQM component that has a diverse business model and ample AI ties. Alphabet shares account for 5% of the QQQ/QQQM rosters.
“We see the firm’s investments in AI as a continuation of this effort to safeguard its core product, Google Search,” observed Morningstar’s Malik Ahmed Khan. “We believe that by leveraging generative AI, Google can not only improve its own search quality via features such as AI overviews, but also improve its advertising business by augmenting its ability to target customers with relevant ads.”
Adobe (ADBE) and Cognizant Technology Solutions (CTSH) are other examples of QQQ/QQQM holdings appearing on Morningstar’s best AI stocks list.
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