The Nasdaq-100 Index (NDX) is higher by 87.4% for the three years ending August 28. And the Magnificent Seven stocks are taking on larger percentages of other widely observed benchmarks. So it’s not surprising that many investors believe tech stocks are richly valued.
To be sure, the tech and communication services sectors aren’t value destinations. But in what could be a relief to market participants and good news for the NDX-tracking Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM), tech valuations aren’t as demanding some investors perceive them to be.
“Despite significant recent returns, the overall tech sector currently still trades at a slight discount to its long-term averages. In our view, the strong earnings power of the largest companies, particularly the Magnificent 7, provide near-term support to these levels,” noted Goldman Sachs Asset Management (GSAM).
AI, Cybersecurity Could Boost QQQ
As homes to each of the Magnificent Seven stocks along with other equities with clear AI ties, QQQ and QQQM have long been viewed as proxies on that emerging technology. That solidifies the ETFs’ status as valid plays on AI’s intersection with other industries. One of those is consumer internet. That’s meaningful, because the consumer cyclical sector accounts for more than 13% of the QQQ/QQQM rosters.
“AI’s rapid advancement and integration are reshaping the consumer internet sector, impacting advertising, gaming, social media, and e-commerce,” added GSAM. “AI-driven algorithms provide hyper-personalized advertising, transform gameplay and development, enhance content curation and user safety on social media, and revolutionize e-commerce with smarter recommendations and predictive analytics.”
Almost lost in all the AI hoopla is the cybersecurity investment theme, which was once the belle of the ball. Though overshadowed by AI, cybersecurity remains highly relevant. And it’s a technology companies cannot afford to skimp on. That’s a relevant point in evaluating QQQ and QQQM. That’s because the Invesco ETFs are homes to multiple cybersecurity companies. And that means the products offer investors exposure to an essential, still rapidly growing technology.
“Cybersecurity remains a critical concern for companies due to increasingly sophisticated and pervasive AI-powered cyberattacks,” observed GSAM. “Organizations are investing in zero-trust architectures and advanced threat intelligence to defend against complex risks, while regulatory scrutiny continues to rise. We are bullish on cybersecurity as a foundational sector that underpins trust and operational continuity across all industries in a digital-first world.”
As for tech valuations, GSAM pointed out that some companies outside the Magnificent Seven — some of which reside in QQQ and QQQM — are more attractive on valuation and may have appealing long-term growth traits.
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