Examining the Earnings Stars of QQQ

Second-quarter earnings season is winding down, providing market participants with an opportunity to look back at some of the stocks that delivered while also looking forward to what could be exciting second-half performances courtesy of the companies that delivered optimistic forecasts for the third and fourth quarters.

Broadly speaking, results from the June quarter were solid, but not awe-inspiring. Tech-heavy exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) felt a pinch on the back of Apple’s (NASDAQ: AAPL) tepid results. The same goes for Tesla (NASDAQ: TSLA), another marquee holding in those ETFs.

While QQQ and QQQM, both of which follow the Nasdaq-100 Index (NDX), traded lower over the past month, there were some earnings bright spots among the funds’ member firms. Importantly, some of that positivity also pertains to third- and fourth-quarter outlooks.

QQQ, QQQM Potential Remains Solid

While QQQ and QQQM are off 3.4% for the month ending August 11, that’s not an alarming decline, and it arguably belies some of the optimism pertaining to some of the ETFs’ other big-name holdings, including Amazon (NASDAQ: AMZN). That stock commands an allocation of 5.58% in the Invesco ETFs and is the largest consumer cyclical holding in the two funds.

“Wall Street analysts mostly liked what they saw in these companies’ Q2 earnings reports, especially for Amazon which is the standout in terms of improved investor sentiment over the past month,” observed DataTrek co-founder Jessica Rabe in a report published last Friday.

Buoyed by resilience in the internet advertising space and enthusiasm for the artificial intelligence (AI) investment theme, Facebook parent Meta Platforms (NASDAQ: META) and Google parent Alphabet (NASDAQ: GOOG) were among the other QQQ/QQQM earnings darlings. That’s important because those stocks are the ETFs’ largest holdings from the communication services sector and combine for nearly 10% of the funds’ rosters.

“Largely positive earnings momentum after just reporting Q2 results is an encouraging fundamental signal, but further cost-cutting initiatives would be helpful to keeping this trend going,” DataTrek’s Rabe noted of the two companies.

There’s one more big earnings test for QQQ and QQQM. Nvidia (NASDAQ: NVDA), the semiconductor maker at the center of the AI boom, steps into the earnings confessional on August 23. Over the past 90 days, there have been 34 bullish revisions to earnings per share forecasts on Nvidia and no downward revisions. The stock is the third-largest tech holding in QQQ and QQQM at 4.11% of the ETFs’ weights.

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