Experienced market participants know the early innings of the AI investing thesis have largely been marked by hardware; namely, semiconductors. It’s a key reason Nvidia (NVDA) is the first artificial intelligence stock that comes to many investors’ minds.
Obviously, there’s more to artificial investing investing than Nvidia. ETFs like the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) confirm as much. Indeed, Nvidia is the largest holding in QQQ. And QQQM and the ETFs are homes to scores of chip stocks. But the funds are positioned to capitalize on software’s increasing utility and necessity in artificial intelligence.
“Moving forward, the AI wave will increasingly depend on utilization–how effectively companies convert AI investments into productivity and profit,” observed J.P. Morgan Asset Management. “That transition places software at the center, a sector whose performance has lagged hardware and where AI monetization remains diffuse. Whether the next leg of opportunity comes from software, and what companies within software, will depend on two key frictions: integrating AI into enterprise workflows and finding sustainable ways to charge for it once it’s there.”
QQQ Has AI Software Goods
In the artificial intelligence software realm, there are three critical categories. Those are applications, infrastructure, and platforms. Focusing on artificial intelligence infrastructure software, QQQ and QQQM are pertinent considerations for investors. That’s because Microsoft’s (MSFT) Azure and Amazon’s (AMZN) Amazon Web Services (AWS) are two of the leaders in that space. Those two stocks combine for about 14% of the Invesco ETFs’ rosters.
“Infrastructure providers such as Microsoft Azure and AWS supply the compute power and model-hosting services that underpin the AI economy. Returns here are already visible, with Azure revenues accelerating 20+% year-over-year, though continued utilization growth will be necessary,” added J.P. Morgan.
The large weights of Microsoft and Amazon found in QQQ and QQQM are also relevant regarding AI software evolution. That’s because as things stand today, smaller companies in the arena are finding monetization difficult.
“For now, AI software remains a story of broad adoption but narrow monetization. As companies allocate larger budgets toward AI models and agent-building tools, the focus is on where those dollars flow. Not all use cases will ramp at the same speed, but early patterns will reveal where durable value is forming, with incumbents extending their lead or upstarts capturing the next phase of AI growth,” concludes J.P. Morgan.
Amazon and Microsoft are massive companies with diverse revenue streams and the financial war chests to cement leadership in AI software. Those traits confirm QQQ and QQQM can take some of the risk out of investing in a compelling, but potentially volatile, industry.
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