Over the past several years, the technology and communication services sectors have been primary drivers of the bull market.
That’s been to the benefit of investors engaged with growth-heavy exchange traded funds such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ), which allocate a combined 65% of their rosters to those sectors.
As measured by the relevant S&P indexes, both communication services and technology posted returns in excess of 50% over the past three years. That can be hard to replicate and it’s enough to make investors wonder if the groups are overdue for pullbacks. However, some market observers believe technology equities will lead again this year. This potentially provides support for ETFs like QQQ and QQQM along the way.
Fundamentals Support Tech Leadership
The magnificent seven stocks loom large in QQQ and QQQM. That’s served investors well over the past few years. Still, some market observers believe 2025 will be the year when the tech rally broadens. Should that thesis prove accurate, QQQ and QQQM could benefit due to their deep benches of tech stocks. Strong fundamentals across the tech sector could propel the ETFs.
“We are optimistic about the potential for positive return on investment (ROI) among ‘hyperscalers’ driven by the artificial intelligence (AI) buildout,” notes Goldman Sachs Asset Management. “We also see encouraging dynamics among software companies benefiting from AI developments and ASIC semiconductor companies with the ability to scale and grow.”
While all eyes are on AI spending trends, other tech-related expenditures could come back into focus. This could provide ballast to the sector.
“While AI-related spending was a strong tailwind, we also saw strong demand in cybersecurity, enterprise software, and semiconductors. As a result, strong fundamentals support valuations. We expect this trend to accelerate in areas such as data center systems, software, and IT services,” added Goldman Sachs.
Importantly, many of the marquee names in QQQ and QQQM are disciplined when it comes to capital allocation. Said another way, if they don’t see good reason to spend big on AI, they won’t.
“We believe hyperscalers’ capital spending will result in positive ROI given the general capital discipline of these companies and the strong competitive moat. We expect software companies to benefit from partnering with frontier model providers and capitalizing on their vast data sets,” concluded Goldman.
For more news, information, and analysis, visit the ETF Education Channel.
