Remember the old saying about making a mountain out of a molehill? Some experts argue that saying applies to the victimization of various technology companies by fears of artificial intelligence (AI) disruption.
In short, some big-name tech stocks, including well-known members of the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ), have recently been drubbed amid concerns their products and services could be rendered obsolete by AI. Many of the “victims” hail from the software industry — a group prominently featured in those ETFs.
AI disruption fears help explain why QQQ and QQQM are in the red year-to-date. However, the pullback experienced by the ETFs may ultimately prove to be a buying opportunity. As Morgan Stanley Wealth Management pointed out, the notion of AI rendering a slew of Nasdaq-100 members and other tech companies obsolete likely got ahead of itself.
“A more probable outcome is widespread AI adoption, with companies paying for tools that make people work faster and more efficiently, rather than AI putting its major customers out of business,” noted the asset manager.
Conflicting Perspectives May Be Good News for QQQ
Some contradicting AI viewpoints could actually work in favor of bellwether ETFs QQQ and QQQM.
“Investors have been punishing many software and data stocks on the assumption that GenAI, with its rapidly improving capabilities, will soon replace those businesses. At the same time, investors are showing increasing skepticism about the AI build-out itself, especially around who will pay for it and whether massive capital investments will yield the hoped-for returns,” added Morgan Stanley.
The research firm pointed to previous recent examples of similar conflict playing out. It noted that just a few years ago markets took a bullish stance on both packaged foods and weight-loss drug stocks. Eventually, that situation was rectified, with the latter soaring and the former sagging. A similar situation could play out in tech. Indeed, market participants may realize that many QQQ/QQQM holdings, including the software names, aren’t AI-vulnerable. Rather, those companies could be AI winners.
“We think the more likely outcome is widespread AI adoption—companies paying to use AI to work faster—rather than AI putting major customers out of business. In that kind of world, investors may find opportunities in businesses with trust, distribution and hard-to-replace data,” concluded Morgan Stanley. “Some software companies will win and some will lose, but the blanket ‘software-is-doomed’ view looks too extreme. One of the clearest uses of AI so far is helping people write and maintain code faster, which could actually improve efficiency inside software companies.”
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