The Invesco QQQ Trust (QQQ 1.46%) is the fifth-most popular exchange-traded fund (ETF) worldwide as measured by assets under management. A few hedge fund billionaires bought shares in the fourth quarter:
- Israel Englander of Millennium Management added 234,600 shares, increasing his stake by 65%.
- Cliff Asness of AQR Capital Management purchased 43,800 shares, increasing his stake by 17%.
Neither fund manager has a large percentage of their portfolio in the QQQ Invesco ETF, but the trades are still noteworthy because both beat the S&P 500 (^GSPC 1.31%) during the last three years, and this index fund offers diversified exposure to technology stocks likely to benefit from artificial intelligence (AI).
In other words, investors underexposed to the technology sector (or those who prefer not to buy individual stocks) can buy this index fund to gain exposure to a major secular trend. And history says $500 invested monthly in the Invesco QQQ ETF could be worth a bit more than $485,000 in two decades.
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The Invesco QQQ ETF is heavily invested in technology stocks likely to benefit from artificial intelligence
The Invesco QQQ ETF measures the performance of the Nasdaq-100, an index that tracks the 100 largest nonfinancial companies listed on the Nasdaq Stock Exchange. The Invesco QQQ ETF has more than 60% of its assets invested in technology stocks, many of which should benefit as the artificial intelligence (AI) boom unfolds.
The top 10 holdings in the Invesco QQQ ETF are listed by weight below:
- Nvidia: 8.9%
- Apple: 7.6%
- Alphabet: 6.7%
- Microsoft: 5.8%
- Amazon: 4.3%
- Tesla: 4%
- Meta Platforms: 3.7%
- Walmart: 3.3%
- Broadcom: 3.1%
- Micron Technology: 2.6%
Artificial intelligence spending across hardware, software, and services is forecast to increase at 30% annually through 2033, according to Grand View Research. Many of these companies listed are likely to be major winners as the market grows.
Amazon, Microsoft, and Alphabet operate the largest public clouds, which means growing demand for AI infrastructure and developer tools will be a tailwind. All three companies have designed custom AI chips as an alternative to Nvidia GPUs. Also, Microsoft is the middleman for most applications built on OpenAI models, and Alphabet's Gemini is the second-most popular AI application behind ChatGPT.
Nvidia dominates the market for AI infrastructure. While best known for GPUs, the company actually builds comprehensive data center systems that include CPUs and networking. It has also built a more robust ecosystem of software development tools than any other AI computing company. Bernstein estimates Nvidia captures 30% of spending on AI data centers as profit.
Apple, Tesla, and Meta Platforms are well positioned to monetize consumer demand for AI. Apple is bringing AI capabilities to smartphones and other electronic devices. Meta is leaning on AI to make its social media networks more engaging, and the company plans to build smart glasses powered by superintelligence. And Tesla is developing autonomous vehicles and humanoid robots.
History says the Invesco QQQ ETF can turn $500 per month into $485,000 in 20 years
The Invesco QQQ ETF returned 1,610% over the last two decades, compounding at 15.2% annually. While similar results are possible over the next 20 years, I will assume a slightly lower return of 13% annually to introduce a margin of safety.
At that pace, $500 invested monthly in the Invesco QQQ ETF would be worth approximately $110,500 in one decade and $485,600 in two decades. Of course, some readers may want to save more or less each month, so I included the chart below to show how other amounts would grow (assuming returns of 13% annually).
|
Holding Period |
$200 Per Month |
$400 Per Month |
$600 Per Month |
|---|---|---|---|
|
10 years |
$44,200 |
$88,400 |
$132,600 |
|
20 years |
$194,200 |
$388,500 |
$582,800 |
Data source: Dollar amounts assume annual returns of 13% and were determined using the compound interest calculator available at investor.gov.
Investors need two more pieces of information. First, the Invesco QQQ ETF has been very volatile in the past due to its heavy exposure to technology stocks. The index fund declined more than 12% from a record high six times over the last decade, and it fell 35% during the bear market of 2022.
Second, the Invesco QQQ ETF has an expense ratio of 0.20%, meaning shareholders will pay $20 per year on every $10,000 invested. All things considered, this index fund is a good way for investors to get exposure to many of the most influential technology stocks in the world.
