In 2023, the artificial intelligence (AI) investing boom was led by purveyors. Think companies such as Alphabet (Google), Nvidia {NVDA) and Microsoft (MSFT), among others.
That theme stoked significant upside for exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM). This year, it’s expected that AI adopters could get their turn in the limelight. This could have positive implications for QQQ and QQQM as well.
The thesis is simple. AI intersects with a variety of other disruptive technologies. Additionally, some of the companies behind those innovative technologies are likely AI adopters and members of the QQQ/QQQM portfolios.
AI Adopters Could Be Ready to Shine
There’s no denying that AI enablers delivered the goods for investors. ETFs such as QQQ and QQQM found those gains meaningful. By some estimates, shares of AI enablers, including those residing in the two Invesco ETFs, tacked on a combined $6 trillion in market capitalization in 2023.
Asking for AI adopters to replicate that feat this year is probably asking a lot. Still, the case for many of these stocks is strong.
“Namely, looking forward, we think that investors should now turn their attention to the adopters. Meaning companies that are leveraging the enablers software and hardware to better use their own data and monetize that for the AI world,” noted Ed Stanley, Morgan Stanley’s Head of Thematic Research in Europe. “Looking back last year, where the enablers returned more comfortably double digit and triple digit returns, the adopters only gained on average around 6%.”
Among viable adopters of AI are biotech, cloud computing and cybersecurity companies. Each of those industries are represented in QQQ and QQQM. That is just a small sampling of the groups that could be credible AI adopters going forward.
AI’s intersection with a broad swath of industries is a positive. This is especially true for enablers such as Microsoft and Nvidia. However, it could be the enabler-meets-adopter investment thesis that’s ready to intersect in earnest this year. This potentially brings with it upside for QQQ and QQQM.
“However, we believe in 2024 we will see the virtuous cycle between these two groups come into greater focus for investors,” concluded Stanley. “Enablers, consensus upgrades and valuations will depend increasingly on the enterprise IT budgets being deployed by the adopters in 2024-25. The adopters, in turn, are in a race to build both revenue generating and productivity enhancing tools, which completes the virtuous circle by feeding the enablers revenue line.”
For more news, information, and analysis, visit the ETF Education Channel.
