The Nasdaq-100 Index (NDX) is higher by 7.6% year to date. That’s good news. Yet year to date, the performance of the famed “Magnificent Seven” hasn’t been linear. Some of those stocks are up, while others are lagging. That underscores the difficulties in stock-picking while highlighting the benefits of ETFs like the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ).
Both of those funds follow the NDX. And each is heavily allocated to the Magnificent Seven stocks. The benefits afforded by QQQ and QQQM are all the more impressive when considering that Apple (AAPL) and Tesla (TSLA) are both in the red this year. Each of those stocks combine for over 10% of the two ETFs’ portfolios.
Conversely, the ETFs’ 5.52% weight to Alphabet (GOOG) has been a boon. That’s because that stock has surged nearly 23% year to date. That has been helped in part by the company’s first dividend announcement.
Alphabet, Apple & Tesla Could Lift QQQ
Clearly, Alphabet is the best performer of the aforementioned trio. And the stock could have more upside in store, indicating potential benefits for QQQ and QQQM investors.
“Search advertising, YouTube advertising, and the cloud business delivered impressive growth. Like Meta, Alphabet is prioritizing its AI technology. Alphabet is also setting the expectation that capital investment will likely continue at its current pace, reaching nearly $50 billion,” according to Morningstar.
As for Apple, the stock’s 2024 weakness has some investors befuddled, particularly because the stock has often moved closely with other Magnificent Seven members and because the company recently announced a $110 billion repurchase program, signaling it sees value in its shares.
Don't Overlook the AI Angle
“There’s also, for Apple, a pretty big AI angle. Developments in artificial intelligence have pushed other members of the Magnificent Seven, like Nvidia, like Microsoft, a lot higher this year, and investors have kind of worried that Apple is falling behind the pack a little bit. And a major AI announcement in the coming months, in the coming year, could really help turn things around for Apple stock,” added Morningstar.
The research firm sees Tesla, which is the second-largest consumer cyclical holding in QQQ and QQQM, as having a penchant for volatility. But Morningstar added that there are also outlets through which the shares can reclaim lost glory.
“Our analysts have also said the company can benefit from shifting its focus a little bit away from growth and toward more steady profitability. That would definitely make markets very happy. But the big thing for investors to remember about Tesla is that it’s a very volatile stock with a very uncertain outlook. Things can change very quickly for Tesla based on news headlines and on the company’s own fundamentals,” concluded Morningstar.
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