As the artificial intelligence (AI) investment thesis continues evolving, one benefit accrued by investors will be that it becomes easier to identify winners and losers.
That’s already happening, and that parsing could bring implications for select individual stocks and exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM). The Nasdaq-100 Index (NDX), the underlying benchmark for both ETFs, is higher by nearly 42% year to date, confirming it has more than adequate leverage to the AI investing phenomenon.
Alone, that’s obviously impressive performance, and it confirms the utility of QQQ and QQQM as AI plays. However, investors new to AI may be assigning much of the ETFs’ ties to this disruptive theme to large technology exposure. There’s truth in that assumption, but there’s also more to the story, the strong exposure of QQQ and QQQM to internet companies that are increasingly prominent AI players.
Internet Titans Proving to Be AI Forces
A recent note from Barclays analysts highlights clear, potentially lucrative intersections between AI and the internet, many of which are pertinent to QQQ and QQQM investors.
“The next few years could change the way traffic flows through the internet, and the market cap of many stocks,” noted the bank. “We think it’s still too early to declare the AI (artificial intelligence) ‘winners’ and ‘losers’ in the consumer internet space. Instead, we think the right thing for investors to do at pivotal times like today is to focus on previous major shifts in technology. Taking this approach, we have created a framework that can be applied today to assess potential winners and losers as the AI theme plays out.”
That’s highly pertinent to QQQ and QQQM investors because Amazon is the ETFs’ largest consumer discretionary holding, while Meta and Alphabet are the funds’ top two communication services components. Combined, the three stocks account for over 15% of the QQQ and QQQM rosters.
Another advantage possessed by the two ETFs is that they are large-cap funds. As noted by Barclays, there are some smaller companies that could be vulnerable as the AI evolution takes shape.
“Names that demonstrate low customer retention, have relatively weak position in their respective end markets, have limited headroom to invest in [generation]AI projects, and lesser amounts of data from the smaller user bases. We do point out that the logistical intensity of these names could help protect the companies from disruptors,” concluded Barclays.
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