The broader artificial intelligence (AI) investment theme and the related equities are serving as the primary fuel for technology sector upside this year.
That’s been a boon for exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM). Owing to their identical lineups, both funds are higher by 36.9% year-to-date and are flirting with 52-week highs. Generative AI — the form of AI that can mimic audio, media, written prose, and videos — is the big driver of market participants’ AI enthusiasm this year. The good news is that the long-term outlook is bright and the usage case is expanding.
“This technology is still in its early stages, but there’s already a breadth of use – from writing essays to summarising data or even assisting developers with generating code. It’s also conversational in the sense that queries can tie into previous prompts, so that the dialogue with a chatbot flows in a natural, human-like way,” noted Derek Glynn, BNP Paribas associate portfolio manager.
Generative AI Could Unlock Growth
In terms of QQQ and QQQM member firms with direct exposure to the generative AI theme, Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOG), and Meta Platforms (NASDAQ: META) are among the names that check that box.
Those are just a few examples, and it’s not a stretch to say that more QQQ and QQQM holdings will find their way to becoming generative AI players (and adopters of the technology) because this form of AI has the potential to pay dividends in terms of making companies leaner and more profitable — traits all smart corporations long for.
“Generative AI can unlock new growth avenues and help companies become cost efficient. There will be new products and capabilities driven by accelerating innovation, which opens up revenue opportunities,” added Glynn.
Indeed, there are compelling attributes in the AI investment thesis, and those could be positives for ETFs such as QQQ and QQQM over the long haul. However, some astute investors may be pondering if near-term AI hype is too much of a good thing.
Given that market history teems with examples of bubbles bursting, investors aren’t wrong to ponder that fate when it comes to AI. While there may be a near-term pullback in AI assets, the good news is that some think the long-term outlook is attractive and not necessarily prone to bubble tendencies.
“It does seem overhyped in the short run, and we’ve already seen an expansion in multiples for certain technology stocks exposed to this theme. On the other hand, given how transformational it can be, many are still underestimating its longer-term impact five years or more out,” concluded Glynn.
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