When previously high-flying mega-cap artificial intelligence equities slumped in late July/early August, many market observers stated that the technology’s “show me” moment had arrived. What that means is that analysts and investors are starting to a demand much more from AI enablers and adopters than just long-term hope.
They want to know that AI is making progress and that there are credible justifications to spend big on the goods and services purveyed by enablers. Should those scenarios there could be positive implications for exchange traded funds such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ).
Both ETFs track the Nasdaq-100 Index (NDX) – a gauge heavy on large- and mega-cap AI names, underscoring the funds’ leverage to the AI theme. One theme for QQQ/QQQM investors to stay abreast of is if the artificial intelligence adopters dwelling in the funds can justify related expenditures.
“We expect AI to transition from a ‘tell me’ to a ‘show me’ story, with any disconnect between investments and revenue generation to come under increased scrutiny," according to Bank of America. “Overweight capex growers that fail to monetize quickly enough could be vulnerable to de-risking.”
Time for More than AI Enablers to Get in Gear
For much of the initial rally, the winning stocks were enablers, including semiconductor makers. That was good news for QQQ and QQQM, because the ETFs are home to a slew of chip stocks, including Nvidia (NVDA) and Broadcom (AVGO), among others.
Now, analysts and investors are demanding broader, justifiable AI participation. That trend would almost certainly by other QQQ/QQQM holdings. Apple (AAPL) could be a prime example as it seeks to tap AI to juice iPhone sales.
“At its Worldwide Developers Conference, or WWDC, Apple said it will integrate OpenAI’s ChatGPT into the Siri voice assistant and iOS 18. The big question is whether Apple ‘Intelligence’ features will spur a major iPhone 16 upgrade cycle in late 2024 and 2025,” reports Reinhardt Krause for Investor’s Businesss Daily (IBD).
Software companies, of which plenty are found in QQQ and QQQM, are also seen as ripe for credible artificial intelligence adoption and benefits, but that could be a longer-ranging theme that requires investors’ patience. Currently, some of these firms are grappling with how to appropriately charge clients for AI products and services.
“Further, most enterprise software makers will not monetize generative AI, or ‘conversational AI,’ in a material way until late 2025, some analysts say. Many U.S. companies are pursuing custom AI software development projects, which will take longer to ramp up commercially,” according to IBD.
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