These are interesting times to engage with technology stocks. Some companies, many residing in the software industry, have seen punishment on fears that artificial intelligence (AI) will render their business models obsolete. Then there’s evidence of market participants embracing defensive and value sectors, which aren’t homes to traditional AI stocks. Of course, those factors are worth paying attention to. However, they also don’t spell the death of the AI trade. Some market observers argue that opportunity beckons with AI stocks, indicating ETFs such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ) still merit attention.
Yes, QQQ and QQQM saw first-quarter losses. Those declines don’t alter the notion that these ETFs are solid ideas for investors looking to efficiently tap into the AI trade in multi-stock fashion, though. Indeed, the Invesco ETFs hold several of what some experts describe as the best AI names to own.
Familiarity May Breed Opportunity
QQQ and QQQM track the Nasdaq-100 Index (NDX), a basket of the 100 largest Nasdaq-listed stocks excluding financial services equities. That means the ETFs hold some of the most familiar AI stocks, as well as some that may be offering opportunity at the moment. That group includes semiconductor giant Nvidia (NVDA).
“Nvidia has a wide economic moat, thanks to its market leadership in graphics processing units, hardware, software, and networking tools needed to enable the exponentially growing market around artificial intelligence. In the long run, we expect tech titans to strive to find second-sources or in-house solutions to diversify away from Nvidia in AI, but these efforts will, at best, only chip away at Nvidia’s AI dominance,” noted Morningstar’s Brian Colello.
Nvidia is the largest holding in QQQ and QQQM, at a weight of nearly 9%. Speaking of other big-name QQQ/QQQM components, Microsoft (MSFT) — the ETFs’ third-largest holding, has been battered by the AI disruption. The pullback, however, could eventually prove a buying opportunity. That thesis takes root in Microsoft’s strong fundamental outlook and its tangible AI inroads.
“We believe that Azure is the centerpiece of the new Microsoft,” observed Morningstar’s Dan Romanoff. “Even though we estimate it is already an approximately $75 billion business, it is still growing at approximately 30% annually. Azure has several distinct advantages, including that it offers customers a painless way to experiment and move select workloads to the cloud creating seamless hybrid cloud environments.”
Other QQQ/QQQM holdings appearing on Morningstar’s best AI stocks to own list include, Amazon (AMZN), Broadcom (AVGO) and Meta Platforms (META).
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