It’s an understatement to say investor — both professional and retail — enthusiasm for AI is palpable. The emergence of generative AI as a compelling, viable investment theme is a big reason the Nasdaq-100 Index (NDX) surged nearly 55% last year.
The Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) — ETFs linked to NDX — went along for the ride. Today, the artificial intelligence investment thesis remains young. But some investors are concerned about stretched valuations on select AI-related stocks. Looking at you, Nvidia (NVDA).
On the other hand, the youth of the AI investment thesis could imply there’s more in store for AI-related stocks. While the gains won’t be accrued in straight-line fashion, the potential for epic gains remains.
AI Buoys Case for QQQ, QQQM
Earlier this week, the January reading of the Consumer Price Index (CPI) sent stocks tumbling. That prompted market participants to speculate the Federal Reserve may not be able to cut interest rates as soon as March. That was the previously hoped-for time frame.
However, stocks rapidly rebounded from the disappointing CPI reading. Specific to tech and other growth sectors — the cornerstones of the QQQ and QQQM portfolios — some market observers believe those groups are primed for several more years of upside.
Deepwater Asset Management’s Gene Munster said in a recent interview with CNBC that despite the concerning CPI reading and the potential for a longer wait for rate cuts, it’s possible a new three- to five-year bull market is dawning.
He added that investors need to “right-size” when rate cuts will arrive. But Munster also said there’s a massive “positive lever related to AI.” And that could contribute to a doubling of the Nasdaq Composite Index over the next two to three years. Stocks residing in QQQ and QQQM are also members of that benchmark.
Munster noted that the “paradigm-shifting” capabilities of AI compare favorably with or exceed the transformative properties of older disruptive technology. He told CNBC that AI exceeds the transformative elements provided by personal computers decades ago and, more recently, the smartphone. Munster likened artificial intelligence to the dawn of widespread electricity. He also noted the only reason AI isn’t on par with electricity is because the former needs the latter to function.
Fed action aside, the long-term outlook — fostered in part by AI — remains attractive for QQQ and QQQM.
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