With Nvidia (NVDA) ranking as the primary culprit, AI stocks have pulled back of late. That retrenchment has sparked jitters among some investors. But experienced market participants know such declines are often par for the course regarding emerging technologies.
One way of looking at the recent AI dip, in addition to it being healthy, is that it has placed emphasis on being selective when it comes to the related stocks. Good news: That doesn’t mean investors have to pick individual stocks. ETFs such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) remain homes to some of the best names in the AI lot.
That doesn’t mean they’re are free of some of the artificial intelligence stocks that have contributed to the recent slide. No ETF is perfect. And to the credit of QQQ and QQQM, their rosters include several of the stocks analysts view as among the top avenues for AI exposure.
Familiar Names Could Lead AI Rebound
One of the most attractive points regarding an array of the AI-related holdings in QQQ and QQQM is that these companies have diversified business models with wide moats. And, they’re not heavily dependent on artificial intelligence to stoke top- and bottom-line growth. Take the case of Microsoft (MSFT), the second-largest component in the Invesco ETFs.
“Microsoft starts off our list of the best AI stocks to buy now. The software and cloud provider has established a leading AI portfolio with offerings like OpenAI, which is home to ChatGPT,” noted Morningstar analyst Tori Brovet. “We recently raised our revenue growth estimates and profitability assumptions for Microsoft based on consistent performance and a solid outlook. This AI stock is priced at a discount to our fair value estimate of $490.00.”
Another example of a mega-cap name with clear AI inroads is Amazon (AMZN). That’s the largest consumer cyclical holding in QQQ and QQQM. Through its Amazon Web Services unit, the company is a cloud computing one, providing leverage to the AI theme. The company’s advertising business also represents artificial intelligence opportunity.
“AWS and advertising growth should continue to outpace e-commerce growth and should be the main growth drivers over the next five years. This is critical, as each of these segments drives higher margins than the corporate average, which in turn should allow both operating profit and EPS to outgrow revenue as margins continue to expand,” observed Morningstar’s Dan Romanoff.
The research firm also called QQQ/QQQM holdings Alphabet (GOOG) and MongoDB (MDB) among the best AI stocks to buy now.
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