The history of financial markets swells with examples of investors being seduced by “the next big thing.” These days, many suspect that AI is overly touted.
Bubble chatter probably isn’t warranted at this juncture. But there’s no denying there is some level of mania being applied to the artificial intelligence investment thesis. That implies market participants should exercise some caution and focus on the most credible AI names.
Fortunately, that objective is easily accomplished thanks to ETFs like the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ). Over the past two years, those funds returned 53.5% while the S&P 500 gained “just” 34.4% with AI accounting for a significant portion of the Invesco ETFs’ advantage. Good news: these ETFs are heavily allocated to some companies that are actually making AI.
Nvidia Helps, But There’s More
Nvidia (NVDA), which accounts for 8.22% of the QQQ/QQQM rosters, is the stock many investors most readily associate with AI. There’s credibility in that thesis. The company manufacturers the pricy semiconductors at the heart of this innovative technology. That underscores why it’s been such a potent artificial intelligence play.
Nvidia is one of 10 AI stocks recently highlighted by Morningstar and the good news for investors considering QQQ or QQQM as AI plays is that the ETFs are homes to eight of the 10 names on that list. In addition to Nvidia, others include Amazon.com Inc. (AMZN) and Microsoft (MSFT).
“Much of the generative AI growth story for the main players seems to be de-risked through 2025 after Nvidia’s latest earnings report and commentary on demand exceeding supply through all of next year,” says Morningstar director of equity research Eric Compton. “Microsoft and Amazon have benefitted in the last two quarters from an uptick in AI-related demand on their public cloud services. As a result, they are ramping up capital expenditure on AI inference capacity. We expect generative AI to remain a modest tailwind for the rest of this year.”
Additionally, Nvidia rival Advanced Micro Devices (AMD), Broadcom (AVGO) and even Intel (INTC) merit consideration. That trio of names combines for 7% of the QQQ and QQQM lineups. Software maker Adobe (ADBE), which accounts for 1.43% of the QQQ/QQQM rosters, is another name with legitimate AI exposure.
“It is easy to see how Adobe Express and Firefly are widening the funnel for new customers, and we think this bodes well for growth over the next several years. We see plenty of momentum within product innovation, client interest, and revenue creation,” says Morningstar senior equity analyst Dan Romanoff.
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