The Nasdaq-100 Index (NDX) is higher by 2.51% over the past month. Clearly, growth stocks benefited from the Federal Reserve lowering interest rates for the first time in four years. That could indicate the start of a rebound for various artificial intelligence (AI) equities.
Count the NDX-tracking Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) as among the exchange traded funds poised to benefit from a potential resurgence by AI stocks. There’s evidence that rebound has started. However, following July, QQQ and QQQM still have room to return to prior highs.
Surprisingly, since mid-July about a dozen of the worst-performing domestic large-cap stocks are names with AI ties. QQQ and QQQM holds all of the members of that group. In better news, many of those stocks are snapping out of their summer doldrums.
AI Adopters Could Drive QQQ Gains
The AI investment thesis is now in the “show me” phase; investors want more than hype. They want results. Fortunately, results have come in the form of AI adopters spending on QQQ/QQQM member firms such as Nvidia (NVDA).
Helped by the recent launch of OpenAI’s Strawberry offering, investors expect AI spending to surge in 2025. That spike could be a boon for a variety of QQQ/QQQM holdings, including Nvidia and Advanced Micro Devices (AMD).
“This new o1 model is expected to better handle complex questions and reasoning, with more of a focus on providing thoughtful answers, rather than quick answers,” he says. “From the chip side of things, these types of Strawberry models should require more inference computing power, which continues to support the exponential growth we still anticipate for Nvidia and AMD in AI accelerator chipsets,” noted Morningstar analyst Brian Colello.
The research firm noted that Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) are among the software companies finding ways to monetize AI. Additionally, valuations on select AI names are more appealing today than they were earlier this year.
“Drilling down into the individual holdings of the index, 18% of the stocks have Morningstar Ratings of 1 or 2 stars, meaning they are overvalued according to Morningstar analysts. Fifty-four percent are fairly valued with 3-star ratings, and 28% have ratings of 4 or 5 stars, which means they are considered undervalued,” said Morningstar’s Bella Albrecht.
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