The global cloud computing market could expand by 218% from $752.4 billion in 2024 to $2.39 billion in 2030, according to a forecast by Grand View Research, as the explosive growth of the artificial intelligence (AI) market drives more companies to upgrade their cloud infrastructure. One simple way to profit from that trend would be to invest in a tech giant like Alphabet (GOOG +1.46%) (GOOGL +1.26%), which owns the world's third-largest cloud infrastructure platform and hosts a broad range of cloud services across its ecosystem.
However, a safer way would be to invest in an exchange-traded fund (ETF) that owns many of the market's top cloud and AI stocks, including Alphabet. One top ETF that fits that description is the Invesco QQQ Trust (QQQ +0.25%), which has rallied by more than 440% in the past 10 years while the S&P 500 rose by less than 230%. Here's why this diversified ETF is still a great play on the booming cloud market.
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An easy way to track America's top tech companies
QQQ passively tracks the Nasdaq-100 index, which is comprised of the 100 largest non-financial companies in the Nasdaq Composite index. Its eight top holdings are Nvidia (9.1% of its portfolio), Apple (8.8%), Microsoft (7.7%), Alphabet (7.6% split across its class A and class C shares), Broadcom (6.6%), Amazon (5.3%), Tesla (3.3%), and Meta (3%).
NASDAQ: QQQ
Key Data Points
All of those companies are participants in the cloud and AI markets. Amazon and Microsoft own the world's two largest cloud infrastructure platforms. Nvidia and Broadcom provide crucial data center chips for supporting the newest cloud-based AI applications. And Meta, Apple, and Tesla all store and crunch a lot of data on their own cloud platforms.
Those eight companies (which include all of the Magnificent Seven stocks) account for over half of the total values of the Nasdaq-100 and the QQQ. And their growth has allowed the QQQ to outperform other ETFs, such as those that track the broader S&P 500.
The fees are headed lower
QQQ's biggest weakness is its expense ratio of 0.2%, which is meaningfully higher than the Vanguard S&P 500 ETF's (VOO +0.35%) ratio of 0.03% or the average expense ratio of 0.14% for passively managed ETFs. QQQ fees are higher because it was originally created as a unit investment trust (UIT) instead of an open-ended ETF.
Back when QQQ was launched in 1999, it was easier to get a fund approved as a UIT -- which can't reinvest its dividends before paying them, lend out its securities for income, or actively adjust its portfolio to reduce its expenses -- instead of an open-ended ETF. Because it lacks those ways to offset its costs, QQQ needs to charge higher fees than many open-ended ETFs.
But in 2020, Invesco launched a nearly identical open-ended ETF, the Invesco NASDAQ 100 ETF (QQQM +0.24%), which has an expense ratio of 0.15%. It's also in the process of converting QQQ into an open-ended ETF, and intends to reduce its expense ratio to 0.18%. QQQM's lower fee might make it more appealing than QQQ. However, QQQ is more actively traded, has higher liquidity, and supports options trading. QQQM -- which is more lightly traded and not tethered to options -- is a better pick for buy-and-hold investors.
A simple way to profit from the cloud and AI markets
If you expect the global cloud infrastructure and AI markets to expand significantly over the next few decades, it would be smart to invest in either the QQQ or QQQM and then tune out the near-term noise. Both ETFs are likely to be more volatile than S&P 500 ETFs, but over the long term, they'll also likely outperform the broader index as more companies ramp up their spending on cloud infrastructure upgrades.
