Several hedge fund managers have been buying shares of Invesco QQQ Trust, an index fund that includes AI-related stocks such as Apple, Microsoft, Alphabet and Amazon.
Nvidia has been an incredible long-term investment, with its stock soaring 2,630% over the past five years, but several hedge fund managers (with billions of dollars in net worth to their track records) reduced their Nvidia holdings in the first quarter, reallocating money to the Invesco QQQ Trust (QQQ, 0.52%), a high-yield index fund that tracks the Nasdaq-100 index.
Steven Cohen of Point72 Asset Management sold 304,505 NVIDIA shares, reducing his holdings by 55%, while opening a small position in the Invesco QQQ Trust. Ken Griffin of Citadel Advisors sold 2.4 million NVIDIA shares, reducing his holdings by 68%, while increasing his holdings in the Invesco QQQ Trust by 74%, still keeping his position relatively small. Steven Schoenfeld of Schoenfeld Strategic Advisors sold 96,793 NVIDIA shares, reducing his holdings by 58%, while increasing his holdings in the Invesco QQQ Trust by 1,584%, making it his fifth-largest position excluding options.
Cohen, Griffin and Schonfeld were ranked among the most successful hedge fund managers in the first half of 2024, according to Business Insider. But readers shouldn't interpret their trades as meaning Nvidia is a bad investment: All three billionaires still hold shares in the semiconductor company, signaling some confidence.
Instead, the lesson here is about portfolio diversification. Grand View Research predicts that spending on artificial intelligence (AI) will approach $2 trillion by 2030, and analysts at Swiss investment bank UBS believe that “AI will be the most groundbreaking innovation in the history of humanity and one of the greatest investment opportunities.”
As this opportunity unfolds, NVIDIA won't be the only winner. It may not even be one of the biggest. In that sense, the Invesco QQQ Trust is worth considering, as it offers an easy way to build a diversified portfolio of AI stocks.
The Invesco QQQ Trust is heavily weighted towards information technology stocks.
Invesco QQQ Trust measures the performance of the Nasdaq 100 Index, which tracks the top 100 stocks listed on the Nasdaq Stock Exchange. Invesco QQQ Trust is a growth-focused index fund with an emphasis on the Information Technology sector. The top 10 stocks are:
Apple: 9.1% Microsoft: 8.3% Nvidia: 7.2% Alphabet: 5.2% Metaplatform: 4.9% Broadcom: 4.8% Amazon: 4.8% Costco Wholesale: 2.7% Tesla: 2.7% Netflix: 1.9%
Several of the companies listed above are well positioned to monetize AI, albeit in different ways.
Apple is one of the world's largest smartphone and personal computer makers. The company plans to release a suite of AI capabilities called Apple Intelligence this fall. Morgan Stanley analysts recently named Apple their top pick, based on the assumption that Apple Intelligence will drive record device upgrades by 2026. Microsoft is the largest software vendor and operates the second-largest public cloud. The company has emerged as an early leader in generative AI. About 60% of Fortune 500 companies use one of the company's generative AI Copilots, and more than 65% use cloud AI services. Nvidia is the market leader in data center graphics processing units (GPUs), chips that excel at accelerating complex workloads like AI. According to the Wall Street Journal, “Nvidia's chips power all the most advanced AI systems, and the company's market share is estimated at more than 80%.” Alphabet is the largest digital advertiser and operates the third-largest public cloud. The company is widely considered an authority on AI. Forrester Research recently recognized the company for its leadership in AI infrastructure solutions and large-scale language models. Meta Platforms owns Facebook and Instagram, two of the three largest social media platforms as measured by monthly active users. The company is investing in AI to increase engagement and advertising relevance. Wolfe Research's Deepak Mathivanan believes these investments could have a significant impact on the company's financials in the medium term. Broadcom is a market leader in application-specific integrated circuits, which are custom chips designed for specialized use cases such as AI. Goldman Sachs analysts recently wrote, “We believe Broadcom, alongside NVIDIA, is a critical part of the ongoing AI infrastructure buildout.” Amazon operates the world's largest public cloud, and its market share gains in the most recent quarter suggest its investments in Bedrock and other AI products are paying off. “As a leading provider of infrastructure-as-a-service and other cloud services, (Amazon Web Services) has uniquely positioned itself in the fast-growing AI-as-a-service market,” Argus analyst Jim Kelleher wrote recently.
The above companies are not a complete list of Nasdaq 100 companies benefiting from AI. The index also includes Super Micro Computer, the market leader in AI servers; Adobe, the market leader in digital experience software; and Arm Holdings, the market leader in mobile processors. All three of these companies are already monetizing AI.
Pros and Cons of Invesco QQQ Trust
A drawback of the Invesco QQQ Trust is the risk that comes from concentration and volatility. This index fund is heavily biased towards the information technology sector, and that concentration has led to extreme volatility in the past. The fund's three-year beta is 1.19, which means that it has moved 119 basis points for every 100 basis point movement in the S&P 500 over the past three years.
The benefit of the Invesco QQQ Trust is that returns have skyrocketed. The Information Technology sector has tripled the performance of the next closest market sector over the past decade, and nearly tripled the performance of the next closest sector over the past 20 years. As a result, the Invesco QQQ Trust has returned 1,510% over the past 20 years, compounding at 14.9% annually. That means that investing $150 weekly in an index fund over that period would be worth $633,000 today.
The bottom line is this: The Invesco QQQ Trust will probably be a volatile investment over the next few years and will almost certainly underperform the S&P 500 in times of economic difficulty. However, this index fund has a modest expense ratio of 0.2%, with annual fees of just $20 on a $10,000 portfolio.
Therefore, this fund is an easy way for risk-tolerant investors to build a diversified portfolio of AI stocks. This is worth noting because the AI boom could lead to the information technology sector outperforming over the next decade, and the Invesco QQQ Trust could once again outperform the S&P 500 over the next decade.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool's board of directors. Randi Zuckerberg, former director of market development and public relations for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Trevor Jennewein owns shares of Adobe, Amazon, NVIDIA, and Tesla. The Motley Fool owns shares of and recommends Adobe, Alphabet, Amazon, Apple, Costco Wholesale, Goldman Sachs Group, Meta Platforms, Microsoft, Netflix, NVIDIA, and Tesla. The Motley Fool recommends Broadcom and recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
