Undoubtedly, artificial intelligence (AI) is a disruptive technology. That implies some sectors and industries will be purveyors of disruption, while others could be adversely affected by it.
This is something for investors to keep in mind. But stock-picking to the effects of both AI beneficiaries and AI “victims” isn’t easy. That underscores potential benefits with exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
As has been widely documented, the two Invesco ETFs delivered stellar returns through the first nine months of 2023. That was due to significant holdings-level exposure to generative AI. Generative AI is a subset that’s currently most accessible and closest to being ready for “prime time.” Cleary, that exposure is a point in favor of QQQ and QQQM, but there’s more to the story.
Avoid Negative AI Disruption With QQQ, QQQM
Multiple reasons, including costs, explain why it’s better to be on the side of AI purveyors rather than companies that need to adapt to related changes. Or, worse yet, those that could be harmed by artificial intelligence advancements.
“Off-the-shelf GenAI services are relatively easy to adopt and will not provide a sustainable competitive advantage. Harnessing the potential of AI to support differentiated offerings will require costly investments. Smaller companies with limited capacity to invest face a disadvantage versus large providers with the resources to adapt and benefit from GenAI,” according to Moody’s Investors Service.
The research firm calls out information technology providers as beneficiaries of generative AI. Though not surprising, Moody’s view is relevant to QQQ and QQQM investors. This is because the ETFs allocate more than 48% of their rosters to the technology sector.
Fortunately for investors considering the Invesco ETFs, the funds are not heavily allocated to industries most at risk of AI disruption. Those include legal advice (law firms are usually private entities) and call center operators. Neither of those are represented in QQQ and QQQM.
“Risk is moderate for business process outsourcers (BPO) focused on customer call centers or headcount-based contracts,” added Moody’s. “Revenue could shrink for companies that operate call centers for corporate clients if GenAI reduces the head count needed to serve clients. But BPO companies that adapt by pivoting to technology services or higher-expertise functions will be better positioned to maintain revenue growth.”
AI investing requires knowing what to access and what to avoid. QQQ and QQQM make accomplishing that objective easier.
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