The tech-heavy Nasdaq-100 Index (NDX) is off nearly 1.8% year-to-date. By no means is that a dramatic decline, particularly amid a five-year gain of more than 82%. Still, with market breadth showing signs of widening, some investors are pondering the tech sector’s near-term fortunes.
Investors holding the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ) need not fret. Tech isn’t going anywhere, and the case for having at least some exposure to that sector is as vibrant as ever.
Though it acknowledged “stretched valuations and geopolitical headwinds,” Bank of America Research pointed out in a recent report that investors should have exposure to disruptive, secular themes such as artificial intelligence (AI), robotics and more. ETFs such as QQQ and QQQM provide access to those very themes.
Tech Fundamentals Still Tempting
As Bank of America points out, the tech sector — by far the largest sector exposure in QQQ and QQQM — isn’t a value destination. However, it’s fundamentals and performance prior to this year are clearly attractive.
“Tech continues to show strong returns, with 23.33% over the last year and a 5-year compound annual growth rate of 14%,” according to the bank. “The tech sector’s forecasted earnings growth rate for 2026 is the highest amongst all sectors.”
That earnings growth forecast is crucial to investors considering QQQ and QQQM. The growth justifies the lofty multiples sported by some of the ETFs’ marquee constituents.
Another point in favor of the Invesco ETFs — one that’s been frequently highlighted of late — is semiconductor exposure. QQQ and QQQM aren’t dedicated chip ETFs. However, they hold an array of stocks from that industry. That’s a positive at a time when advisors and investors continue pouring capital into chip ETFs. More important: As AI evolves, more computing power is needed, creating increased demand for semiconductors. Considering that, it’s not surprising Bank of America is constructive on chip equities.
“We assign a favorable category view. Semiconductor demand remains strong as the sector continues to power the AI buildout and the need for advanced computing grows,” said the bank. “Analyst Vivek Arya notes that the shift from training to inference is boosting compute intensity and supporting ongoing demand for leading-edge chips. Supply remains tight in areas such as memory and optics, and strong semiconductor equipment demand is helping capacity expansions. In contrast, the analog segment is recovering more slowly due to mixed conditions in auto and industrial end markets.”
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