Impressive showings last Friday notwithstanding, large- and mega-cap artificial intelligence (AI) equities are struggling in the early stages of 2025. This creates apprehension among investors accustomed to seeing these stocks rise on a seemingly daily basis.
However, the recent retrenchment experienced by AI stocks and exchange traded funds such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ) is seen as a healthy, arguably overdue correction and one that could provide long-awaited opportunity to get involved with AI stocks at more favorable prices than were seen just a few months ago.
There’s something else to consider. AI spending forecasts remain elevated, potentially indicating that the first-quarter pullback by the related stocks is in fact a buying opportunity. In a report out earlier this month, Morgan Stanley estimated that by 2028, generative AI (GenAI) spending could reach $1.1 trillion, well ahead of the $45 billion spent last year.
Positive Implications for QQQ
The Morgan Stanley forecast is pertinent to investors considering QQQ and QQQM. It includes an estimated $280 billion in GenAI semiconductor spending. If accurate, that could be a boon for the Invesco ETFs, which are heavy on chip stocks.
“Revenue from generative AI is likely to increase more than 20-fold over the next three years, with software and internet companies expected to see a positive return on their AI investments as soon as this year, as the expanding functionality of GenAI prompts broader use and triggers a new technology cycle,” according to the bank.
Another $400 billion of Morgan Stanley’s forecast is attributable to software expenditures. Again, that could be positive for QQQ and QQQM because the ETFs feature deep benches of software stocks. The estimate includes other expenditures that are related to industries to which the Invesco funds provide exposure.
“Consumer platforms, which include ecommerce, search, social media, autonomous and wearables, could generate additional revenue of $680 billion as companies automate their consumer processes, making shopping and devices more efficient,” added Morgan Stanley.
In good news for QQQ and QQQM, the forecast expects hardware as a major driver of GenAI spending.
“Despite the recent development of some AI models with smaller amounts of hardware, major companies continue to increase their spending plans,” concluded Morgan Stanley. “GenAI Semiconductor spending is forecasted to reach $280 billion in 2028, from $115 billion in 2024, and is well supported by this level of GenAI returns. Spending on hardware, networking and memory for GenAI is likely to almost triple to $276 billion in 2028, from $98 billion in 2024.”
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