QQQ ETF: Rising From The Ashes (2023)

QQQ ETF: Rising From The Ashes (1)

Thesis

The Invesco QQQ ETF (NASDAQ:QQQ) started life well in 2023, as it outperformed the S&P 500 (SPX) (SPY) and the Dow Jones Industrial (DJI) (DIA).

Hence, investors have continued to lift the gloom over the tech-heavy QQQ, despite the recent layoffs by Microsoft (MSFT) and Google (GOOGL) (GOOG), joining Amazon (AMZN) and Meta Platforms (META) in their endeavor to slash costs.

The QQQ's revival could have surprised some tech bears over the past three weeks. Notably, enterprise IT spending has continued to come under further pressure, coupled with cuts in capital spending.

Therefore, the tech headwinds that faced the QQQ have carried on from 2022 as investors parsed whether it's time to return to growth stocks within the QQQ that have outperformed the S&P 500 over the past ten years.

The media headlines streaming in do not seem to favor a re-rating in the QQQ. However, we believe that significant pessimism has been reflected, which is also supported by QQQ's price action.

As such, we urge investors not to fear the downcast news but focus on the underlying secular growth drivers underpinning the leading holdings of the QQQ, particularly in AI.

Buy QQQ To Gain The AI Edge

The QQQ is a tech-focused ETF. However, what's likely less known is that the leading constituents in the QQQ have an AI edge. As such, investors could benefit tremendously from the diversification by buying the QQQ if they are unsure who the winners could be.

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Name % Weight
Microsoft 11.93%
Apple (AAPL) 11.63%
Amazon (AMZN) 6.55%
Nvidia (NVDA) 3.78%
Alphabet 3.75%
Alphabet 3.72%
Tesla (TSLA) 2.78%
Meta Platforms 2.64%
Total weight % 46.78%

Leading holdings in the QQQ ETF. Data source: YCharts

The leading constituents in the QQQ have invested significantly in AI. The top eight holdings comprise nearly 47% of the ETF's weight, lending investors considerable exposure to the benefits of their investments in AI.

As such, investors can leverage the ETF as a core exposure without the need to decide on who could win among these holdings.

But why the focus on AI now? Microsoft founder Bill Gates reminded investors recently:

AI is the big one. I don't think Web3 was that big or that metaverse stuff alone was revolutionary but AI is quite revolutionary. I am quite impressed with the rate of improvement in these AIs. I think they will have a huge impact. - Insider

Microsoft Or Google On Generative AI?

Microsoft CEO Satya Nadella highlighted that the pandemic-fueled corporate excesses are likely over, as he's "now seeing them optimize their digital spend to do more with less."

As QQQ's leading holding by weight, investors should be assured that Nadella & his team appears to be at the forefront of incorporating AI into its entire suite of products and services. We discussed in a recent article highlighting why Microsoft's investment in OpenAI has enabled it to capitalize on AI technology that Google has been reticent to embrace.

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However, things may be starting to change pretty rapidly. Google stock's combined weighting of 7.47% places it right behind Apple stock as the No.3 holding by weight. Hence, investors in QQQ have a front-row seat in assessing the AI battles between Nadella and Google CEO Sundar Pichai.

In a recent GOOGL article, we discussed why Microsoft wants to disrupt Google's ability to grow its most promising growth driver in a challenging year for advertising. But, then, just when we thought Microsoft was gaining the upper hand against Pichai and his team, the NYT reported that Pichai invited Google's founders Larry Page and Sergey Brin back for critical AI product and strategy meetings.

According to presentation slides obtained by the NYT, Google is ready to amp up its launch cadence of AI into its search and other product features in 2023. Hence, we could witness one of the most exciting face-offs between two of QQQ's leading companies in their quest for AI dominance.

Notably, Google was said to be ready to "unveil more than 20 new products and demonstrate a version of its search engine with chatbot features this year."

Pichai also took the opportunity to assuage investors in his publicly released internal email to employees about the company's developments in AI. Accordingly, Pichai accentuated:

Pivoting the company to be AI-first years ago led to groundbreaking advances across our businesses and the whole industry. Thanks to those early investments, Google’s products are better than ever. And we’re getting ready to share some entirely new experiences for users, developers and businesses, too. We have a substantial opportunity in front of us with AI across our products and are prepared to approach it boldly and responsibly. - Message from Sundar Pichai

Hence, the stage is set for Google to take on Microsoft as the two tech behemoths contend for AI leadership.

Investors also shouldn't forget about the underlying infrastructure that supports the massive AI ecosystem. Stratechery's Ben Thompson made a critical point: "Nvidia's investment in the CUDA ecosystem means the company doesn't simply have the best AI chips, but the best AI ecosystem, and the company is investing in scaling that ecosystem up."

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Hence, with NVDA as QQQ's fourth-largest holding behind AMZN, the AI arms race could favor a re-rating of NVDA if the market is satisfied that its consumer headwinds have been adequately de-risked.

AMZN has also seen a remarkable recovery in 2023, as investors have likely positioned themselves for a recovery in economically sensitive sectors like consumer discretionary. As the Consumer Discretionary Select Sector ETF's (XLY) most significant holding by weight, AMZN's performance has a considerable bearing on the XLY's performance.

Recent backtesting data on the XLY seems optimistic, suggesting that further gains could continue to follow. Therefore, it could indicate that investors are likely assured that a deep recession could be avoided.

Moreover, Morgan Stanley (MS) Investment Management sees a strong rebound in battered sectors like consumer discretionary, suggesting that the pessimism could have been overextended in 2022.

Hence, the QQQ's recent outperformance against its leading index ETF peers could have further momentum, given its significant underperformance in 2022.

Takeaway

Generative AI could still be a hype that may fail to live up to its billing. Despite that, its public preview through the launch of ChatGPT has proved to be relatively successful, spurring Google to catch up on its product launch cadence. Hence, investors not sure about which AI company to invest in can consider leveraging the QQQ as a core exposure.

Notwithstanding, investors looking to add exposure should continue paying attention to the Fed's messaging. We assessed that the market has likely priced in an earlier-than-expected Fed pivot. However, Fed officials have consistently maintained their commitment to combat inflation. As such, we have yet to glean that the Fed is ready to reverse the direction of their rate hikes, which could carry some nasty surprises to the downside.

Therefore, it may be prudent for investors to remain cautious, adding exposure over time and benefiting from potential downside volatility to improve their reward/risk.

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Rating: Buy (Reiterated).

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QQQ ETF: Rising From The Ashes (2)

FAQs

Is QQQ a buy or sell? ›

Mostly positive signals in the chart today. The QQQ ETF holds buy signals from both short and long-term moving averages giving a positive forecast for the stock. Also, there is a general buy signal from the relation between the two signals where the short-term average is above the long-term average.

How often does QQQ rebalance? ›

The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The Fund and the Index are rebalanced quarterly and reconstituted annually.

Should I hold QQQ long term? ›

QQQ Pros. Long-term growth potential: QQQ holdings include many companies that develop new technologies, such as computers and zero-emission vehicles. That gives the QQQ ETF more potential for long-term growth. QQQ is also much more diversified across the growth technology sector.

Is QQQ good for long term? ›

QQQ is one of the single best ETFs to invest in, the other being VGT. Both have beaten the S&P-500 by a factor of two-to-one over the past 10 years.

Is QQQ bullish or bearish? ›

[Positioning] Intermediate trend possibly bullish, Sideways trend near lower support. [Positioning] Short term typical rally, rally may start to slow. Indicators for positioning trade entry and exits. strong up (+7.53, +2.7%) from yesterday's close, may pause/stop.

What is the future for QQQ? ›

Invesco Qqq Trust quote is equal to 289.040 USD at 2023-01-24. Based on our forecasts, a long-term increase is expected, the "QQQ" fund price prognosis for 2028-01-19 is 498.373 USD. With a 5-year investment, the revenue is expected to be around +72.42%. Your current $100 investment may be up to $172.42 in 2028.

Why should I buy QQQ? ›

SQQQ is ideal for very short-term short bets against the Nasdaq 100 index. Overall, SQQQ best serves as a very specific and small satellite holding in an aggressive investor's portfolio.

What is the best QQQ ETF? ›

The largest NASDAQ-100 Index ETF is the Invesco QQQ Trust QQQ with $146.21B in assets. In the last trailing year, the best-performing NASDAQ-100 Index ETF was QID at 33.84%. The most recent ETF launched in the NASDAQ-100 Index space was the Invesco NASDAQ 100 ETF QQQM on 10/13/20.

Does QQQ pay good dividends? ›

Historical dividend payout and yield for Invesco QQQ (QQQ) since 2005. The current TTM dividend payout for Invesco QQQ (QQQ) as of January 23, 2023 is $2.14. The current dividend yield for Invesco QQQ as of January 23, 2023 is 0.74%.

What is the best QQQ? ›

Invesco QQQ Trust ETF (QQQ)

This fund is the top-performing large-cap growth fund in terms of total return over the 15 years to Sept. 2022, according to Lipper. Expense ratio: 0.20 percent.

Does QQQ have decay? ›

While volatility decay periods don't happen extremely often, an underperformance of 8.4% during a year that QQQ has positive returns can feel like a big slap in the face. Of the periods where TQQQ underperforms QQQ, volatility decay accounts for 37% of the periods.

How much does QQQ grow per year? ›

Capital Growth as of Dec 31, 2022

An investment of 1000$, since January 1993, now would be worth 34893.03$, with a total return of 3389.30% (12.57% annualized). The Inflation Adjusted Capital now would be 16682.51$, with a net total return of 1568.25% (9.84% annualized).

Should I buy QQQ or VOO? ›

Investing in QQQ is riskier, but it comes with the potential for higher rewards since this fund invests heavily in tech-related stocks, which are prone to rapid growth during a bull run. VOO provides you with instant diversification since this fund invests in the S&P 500, so it has five times as many holdings as QQQ.

How long should you hold a 3x ETF? ›

A trader can hold the majority of these ETFs including TQQQ, FAS, TNA, SPXL, ERX, SOXL, TECL, USLV, EDC, and YINN for 150-250 days before suffering a 5% underperformance although a few, like NUGT, JNUG, UGAZ, UWT, and LABU are more volatile and suffer a 5% underperformance in less than 130 days and, in the case of JNUG ...

Which is better QQQ or TQQQ? ›

TQQQ has a 0.95% expense ratio, which is higher than QQQ's 0.20% expense ratio. Scroll down to visually compare performance, riskiness, drawdowns, and other indicators and decide which better suits your portfolio: TQQQ or QQQ.

Is QQQ bullish? ›

ProShares UltraPro QQQ Stock Price History

The current trend is relatively stagnant and TQQQ is experiencing buying pressure, which is a positive indicator for future bullish movement.

How volatile is QQQ? ›

QQQ implied volatility (IV) is 28.1, which is in the 41% percentile rank. This means that 41% of the time the IV was lower in the last year than the current level. The current IV (28.1) is 3.2% above its 20 day moving average (27.2) indicating implied volatility is trending higher.

What ETF competes with QQQ? ›

The largest ETF holder of QQQ is the Main Sector Rotation ETF (SECT), with approximately 291.27K shares. Investors may also find of interest that the ETF with the largest allocation to QQQ stock is LHA Market State Tactical Q ETF (MSTQ), with a portfolio weight of 40.73%.

What ETF is comparable to QQQ? ›

Quickly compare and contrast Invesco QQQ Trust (QQQ) and Vanguard Information Technology ETF (VGT). Both ETFs trade in the U.S. markets.

Does QQQ settle in cash? ›

While it is simple to deliver or receive 100 shares of QQQ, delivering the actual Nasdaq-100 index, meaning delivering all the shares in the correct weighting would be enormously unwieldy and would require delivery of fractional shares. So index options are settled in cash, rather than through the delivery of shares.

Who owns QQQ? ›

The sponsor of the Nasdaq-100 TrustSM, a unit of investment trust, is Invesco Capital Management LLC (Invesco).

Does QQQ pay monthly? ›

QQQ Dividend Information

QQQ has a dividend yield of 0.76% and paid $2.14 per share in the past year. The dividend is paid every three months and the last ex-dividend date was Dec 19, 2022.

What is difference between QQQ and Qqqm? ›

QQQ and QQQM both track the Nasdaq 100 Index, meaning their lineups are identical. The marquee difference between the two products is that QQQM is better suited for long-term investors due to its lower annual expense ratio of 0.15%, or $15 on a $10,000 stake.

What is the difference between QQQ and spy? ›

QQQ tracks the NASDAQ 100 while SPY tracks the S&P 500. Aside from SPY featuring five times more holdings and 50% more daily trading volume, the biggest difference is that QQQ is significantly more tech-focused.

Can you live off ETF dividends? ›

Can You Live Off Dividends? While you can live off the dividends from your investments, it might not be the optimal retirement strategy. You're generally better off optimizing your portfolio's total return than you are chasing a high dividend yield just for the sake of dividends.

How long can I hold TQQQ? ›

Back tests show that TQQQ can be held longer term (1-Year) and beats QQQ but holding for too long (5 Years) can significantly worsen performance.

Is Costco part of QQQ? ›

Costco Wholesale Corporation is a company in the U.S. stock market and it is a holding in 270 U.S.-traded ETFs. COST has around 42.1M shares in the U.S. ETF market. The largest ETF holder of COST is the Invesco QQQ Trust (QQQ), with approximately 5.85M shares.

Is 10% a good annual return? ›

Most investors would view an average annual rate of return of 10% or more as a good ROI for long-term investments in the stock market. However, keep in mind that this is an average. Some years will deliver lower returns -- perhaps even negative returns.

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