QQQ Proving Its AI Merit

As the artificial intelligence (AI) investment theme becomes increasingly captivating and relevant, an important theme is emerging. With that in mind, market participants don’t have to venture into the unknown to participate in an exciting trend.

On that note, exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM), which are not dedicated AI plays, are appealing on multiple fronts. As ETFs, QQQ and QQQM remove the stock-picking burden. Second, the average market capitalization of the ETFs’ holdings is $892.48 billion, confirming these are large/mega-cap funds with AI exposure.

Obviously, $892.48 billion is a massive number. Some investors may interpret it as implying companies of that size have limited room for additional upside. On May 25, Nvidia (NASDAQ: NVDA) proved the opposite.

The semiconductor maker, which is seen as a “pick and shovel” AI play and is a QQQ/QQQM member firm, posted an intraday gain of 24.37%, putting it in a position to become the next $1`trillion US-listed company. That surge resulted from a strong quarterly financial update, including bullish commentary on the firm’s AI exposure.

 

“The uplift is primarily driven by unsatiated demand for Nvidia’s latest H100 data center GPU. Relative to its predecessor, the H100 is nine times faster in artificial intelligence training and up to 30 times faster in AI inferencing for transformer-based large language models such as Open AI’s ChatGPT (generative pre-trained transformer),” notes Morningstar analyst Abhinav Davuluri.

QQQ, QQQM AI Credentials

One way of looking at the above comment is that Nvidia is benefiting from the generative AI boom, which is boosting demand for select semiconductors.

Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOG) are among the early leaders in the generative AI clubhouse. That’s good news for those firms as well as Nvidia.

“Microsoft MSFT in January made its third round of investment—$10 billion over a multiyear period, according to Semafor—in OpenAI, a company specializing in artificial intelligence, specifically large language models. OpenAI’s ChatGPT has captured the attention of CEOs, software engineers, and the general public. It was the quickest technology service to gain its first 1 million users, which took just five days,” Morningstar analyst Dan Romanoff added.

In terms of relevance to QQQ and QQQM investors, it’s clear. Microsoft is the ETFs’ largest holding at a weight of 13.26% as of May 24. Nvidia is the fourth-largest holding in the ETFs at a weight of 5.58%. The two share classes of Alphabet combine for 8.32% of the ETFs’ rosters.

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