The Invesco NASDAQ 100 ETF (QQQM) stands as a beacon in the realm of tech-centric investments, mirroring the performance of the NASDAQ-100 Index. With a formidable $20.97 billion in total net assets as of January 31, 2024, QQQM solidifies its position as a leading player in the exchange-traded fund arena.
Notably, QQQM’s performance trajectory has been nothing short of remarkable. After experiencing a challenging year in 2022, marked by a notable 33.03% loss, the ETF staged an impressive comeback in 2023, delivering an outstanding 53.88% gain—the highest since its inception in 2020.
The bullish momentum has extended into 2024, with QQQM surging by an impressive 7%, signalling a promising start to the year. This surge has propelled the ETF to new heights, hinting at the potential for further upside if the current momentum persists. Fuelling investor optimism is the growing recognition of the transformative power of Artificial Intelligence (AI), which permeates the tech sector—a domain where QQQM holds substantial exposure. As economic landscapes evolve and technological innovation continues to reshape industries, QQQM remains a compelling instrument for investors seeking to capitalize on the dynamic opportunities presented by the NASDAQ-100 Index and the burgeoning AI revolution.
Technical
The Invesco NASDAQ 100 ETF has showcased a compelling upward trajectory amidst recent market dynamics. Its ascent, characterized by trading within an ascending channel pattern and maintaining a position above the 100-day moving average, underscores bullish sentiment among investors.
Despite encountering a brief downturn at the onset of 2024, marked by three consecutive days of losses, QQQM swiftly regained ground, finding support at the crucial $163.03 level. This rebound demonstrated resilience among buyers, preventing further downside momentum.
Currently, the QQQM faces a notable resistance point at $180.77, following its recent peak. Last week, the ETF experienced its first weekly loss after five consecutive weeks of gains, signalling a potential shift in market sentiment. Moreover, trading in overbought RSI territory suggests the possibility of sustained downside pressure if sellers gain momentum.
For bargain hunters eyeing potential entry points, the 38.20% Fibonacci Retracement level could stand as an initial area of interest. Should downside momentum persist, further support could lie at the 50% and 61.80% Golden Ratio Fibonacci levels. While the ongoing upside momentum may lead to a retest of the resistance level, cautious monitoring of market dynamics and potential retracements is advisable, as shifts in sentiment could influence future price action.
Fundamental
The Invesco NASDAQ 100 ETF has defied expectations amidst a backdrop of rising interest rates set by the Federal Reserve in response to soaring inflation rates, reaching their highest level in 40 years. Despite this challenging macroeconomic environment, characterized by a federal funds rate ranging from 5.25% to 5.5%, the highest in 22 years, the QQQM ETF remained resilient, indicating a divergence from traditional market reactions.
Historically, equities face headwinds during high-interest rate environments due to increased borrowing costs for companies, limiting their earnings potential and growth prospects. Additionally, the allure of the bond market, offering high yields, often draws investors away from equities.
However, the exceptional performance of the Invesco NASDAQ 100 ETF can be attributed to the prevailing confidence in the future of technology stocks, particularly those involved in Artificial Intelligence (AI). The widespread adoption of AI across various industries has fuelled investor optimism, outweighing concerns about steep interest rates.
Key hardware components driving the AI revolution, such as chips, have witnessed unprecedented demand, propelling semiconductor companies to significant gains. This surge in demand underscores investors’ belief in the earnings potential of tech stocks amidst the AI boom.
Source: Trive – Financial Times, Nkosilathi Dube
The Invesco NASDAQ 100 ETF exhibits a significant concentration in the technology sector, constituting over half of its sector weighting at 50.58%. This heavy allocation underscores the ETF’s strong reliance on the tech sector’s performance, making it the largest holding within the fund.
Following tech, the Communication Services, Consumer Cyclical, and Healthcare sectors represent substantial portions of the ETF’s holdings, accounting for 15.54%, 13.01%, and 6.94%, respectively. Collectively, these sectors comprise nearly 90% of the QQQM ETF’s composition.
While the technology sector has experienced robust growth fuelled by the widespread adoption of its products and services, the ETF’s significant exposure to this sector poses inherent risks. In the event of a downturn or underperformance in the tech sector, the QQQM ETF could face considerable negative impact, given its heavy reliance on tech-related companies.
Source: Trive – Financial Times, Nkosilathi Dube
The composition of the Invesco NASDAQ 100 ETF (QQQM) reveals a notable concentration in its top holdings, with the top 10 holdings collectively representing 46% of the total QQQM portfolio. Among these holdings, household tech stocks dominate, with only two companies, Tesla Inc and Costco Wholesale Corp, operating outside of the tech sector.
A significant development within the top holdings is the recent shift in the rankings of Microsoft Corp and Apple Inc. Microsoft Corp surpassed Apple Inc to become the world’s most valuable company, reflecting its robust performance and market dominance. This shift underscores the dynamic nature of the tech industry and the competitive landscape within the QQQM ETF’s holdings.
Moreover, the top three holdings hold considerable significance within the QQQM portfolio, collectively accounting for a fifth of the total holdings. This highlights their substantial market value and influence within the ETF, emphasizing their pivotal role in driving performance. Any shifts or developments within these key companies could have notable implications for the ETF’s returns and portfolio dynamics.
Source: Trive – Koyfin, Nkosilathi Dube
Nvidia has emerged as the standout performer not only in 2023 but also over the past three years, boasting a remarkable surge of 459% in value. Broadcom follows closely, with a substantial growth of 176.47% over the same period. This stellar performance of Nvidia and Broadcom underscores the prevailing investor confidence in chipmakers, which is evidenced by their prominent positions among the top 10 holdings of the QQQM ETF.
Looking ahead, the semiconductor market is poised for further growth, particularly in chips designed to accelerate generative AI workloads. Deloitte forecasts this segment to exceed US$50 billion in sales for 2024, accounting for nearly 10% of global chip sales, a significant leap from zero in 2022. This projection reflects the evolving landscape of technology and the increasing importance of semiconductor solutions in powering AI-driven innovations.
Source: Trive – Invesco, Nkosilathi Dube
The data highlights a decade-long trend where the Nasdaq-100 Index has consistently outperformed both the S&P 500 Index and the Russell 1000 Growth Index in terms of revenue, earnings, and dividend growth rates. This outperformance underscores the dominance of the Nasdaq-100 Index, particularly in the realm of technology stocks.
Tech stocks, known for their potential for rapid growth, predominantly belong to the growth stocks category. Therefore, the tech-heavy composition of the Nasdaq-100 Index naturally positions it as a frontrunner in various metrics. The continuous innovation and disruptive technologies within the tech sector contribute to robust financial performance, driving the overall performance of the Nasdaq-100 Index. This pattern reaffirms investors’ confidence in the resilience and growth potential of technology companies, making the Nasdaq-100 Index an attractive investment choice for those seeking exposure to high-growth sectors.
Tech Sector Outlook
According to Ernest & Young, the tech sector outlook for 2024 is optimistic, driven by pivotal advancements in artificial intelligence (AI) and continued digitization. Generative AI presents transformative potential, although widespread adoption may take years. Semiconductor companies like Nvidia and Broadcom stand to benefit, along with cloud computing providers. Despite potential macroeconomic uncertainties, long-term growth prospects remain robust.
Summary
The Invesco NASDAQ 100 ETF showcases robust performance, soaring to new heights amidst bullish momentum, with key technical levels such as $163.03 support and $180.77 resistance. Dominance in tech stocks and chipmakers’ stellar growth underscores its resilience, making QQQM a compelling investment choice amid evolving economic landscapes.
Sources: Invesco, Deloitte, Ernest & Young, Fidelity, Bloomberg, Financial Times, Reuters, Bankrate, TradingVIew
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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