The Nasdaq-100 Index usually isn’t home to a variety of stocks trading at levels that can be described as “discounted.”
However, that scenario does occur on occasion. When investors take a sector- or industry-level view of things, more NDX valuation opportunities can emerge. That could prove to be beneficial to market participants considering exchange traded funds such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ).
Both ETFs follow NDX, which is a famously tech-heavy benchmark. A significant portion of the index’s tech exposure derives from allocations to semiconductor stocks. While that group, including QQQ and QQQM holdings, often isn’t inexpensive, some valuation opportunities are emerging among select chip stocks. QQQ and QQQM allow investors to obtain exposure to many semiconductor stocks currently trading at discounted levels.
Growth Stocks Under Pressure
Some QQQ/QQQM chip holdings looked pricey earlier this year due to a run-up in assets with ties to AI.
“There is no more important story in semiconductors than the rise in artificial intelligence accelerators, led by Nvidia’s data center graphics processing units,” said Brian Colello, director of technology equity research at Morningstar. “We see the world’s leading cloud computing providers racing to buy enough GPUs to run generative AI for themselves and their customers. We don’t see this demand slowing anytime soon.”
Enthusiasm for AI hasn’t waned. But in recent months, growth stocks have come under pressure due to a rapid surge by 10-year Treasury yields. That’s ominous, but the silver lining is that it’s made some QQQ/QQQM chip holdings, including Advanced Micro Device (AMD), more attractively valued.
“Advanced Micro Devices designs a variety of digital semiconductors for markets such as PCs, gaming consoles, data centers, industrial, and automotive applications, among others,” added Colello. “AMD’s traditional strength was in central processing units, CPUs, and graphics processing units, or GPUs, used in PCs and data centers. Additionally, the firm supplies the chips found in prominent game consoles such as the Sony PlayStation and Microsoft Xbox.”
Leading Provider of Communication Chips
Though not yet a major AI chip play, Qualcomm (QCOM), another QQQ/QQQM holding, is a leading provider of communications chips, and its shares are inexpensive today.
“The company’s key patents revolve around CDMA and OFDMA technologies. These are standards in wireless communications that are the backbone of all 3G, 4G, and 5G networks,” added the Morningstar analyst. “Qualcomm’s IP is licensed by virtually all wireless device makers. The firm is also the world’s largest wireless chip vendor. It supplies nearly every premier handset maker with leading-edge processors. Qualcomm also sells radio frequency front end modules into smartphones. It also sells chips into automotive and Internet of Things markets.”
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