Among large-cap growth ETFs, the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) are known for being strong proxies for the technology sector. That’s because those funds allocate almost half their respective rosters to that group.
However, tech isn’t the only sector that’s home to storied large- and mega-cap growth names. Communication services is another prime destination for such stocks. That’s the second-largest sector represented in QQQ and QQQM. ETFs devote 16% of their weights to that group, or about 780 basis points more than the S&P 500 devotes to that sector.
Facebook parent Meta Platforms (META) and Google parent Alphabet (GOOG) are the dominant communication services names as measured by market capitalization. That’s a fact reflected by QQQ and QQQM, with the ETFs allocating about 10% of their rosters to those two stocks. And that’s a relevant point for investors to consider .That is because those two companies have AI inroads. They also have dominant perches in online advertising.
QQQ Communication Services Potential Catalyst
Some analysts see shares of high-flying Meta as overvalued. But the stock has performed in fashion to justify those elevated multiples. Conversely, some market observers see value in Alphabet. Both companies could be additive to the QQQ/QQQM outlooks.
“We expect Alphabet and Meta will continue to attract a growing share of advertising budgets, leveraging their unparalleled audience reach and data access. There are technological and regulatory risks for both firms as AI capabilities expand and governments seek to protect consumers,” noted Morningstar analyst Michael Hodel.
NBC Universal parent Comcast (CMCSA), which is the sixth-largest communication services holding in QQQ and QQQM, is another example of a stock from that sector that is attractively valued and has some upside potential.
“Comcast CMCSA will need to increase network spending in the coming years to keep pace with the capabilities of the phone companies’ fiber networks,” added Hodel. “The net result is that we expect cable cash flow to grow modestly over the coming years. We don’t think the NBCUniversal business is as strong. But it remains an important media asset. The company’s theme parks also remain a strong and growing contributor.”
Downtrodden Warner Bros. Discovery (WBD) has potential to rebound. The company is one of the smaller communication services names in QQQ and QQQM. Hodel noted the company contends with a significant debt burden. But it can generate ample free cash flow. And its stream offerings can bring new subscribers onboard.
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