Invesco QQQ Trust (NASDAQ: QQQ), an exchange-traded fund (ETF) that passively tracks the Nasdaq-100 index, has rallied more than 20% this year. By comparison, the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) have only risen 13% and 16%, respectively. Let's see why QQQ outperformed the benchmark indexes -- and why it might have more room to run over the next few years.
The Nasdaq-100 includes only the 100 largest non-financial stocks listed on Nasdaq. It excludes financial stocks (which account for about 3% of the Nasdaq Composite) because they're more dependent on interest rate cycles than on innovation and organic growth. This Rare Signal Is Flashing Again.
In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » QQQ's top holdings include Nvidia (NASDAQ: NVDA) (8.3%), Apple (NASDAQ: AAPL) (7.4%), Microsoft (NASDAQ: MSFT) (5.5%), Micron (NASDAQ: MU) (5.1%), and AMD (NASDAQ: AMD) (4.2%).
Those are also the S&P 500's top holdings, but QQQ allocates larger shares of its portfolio to each stock because it only invests in 100 companies instead of 500. Most of the S&P 500's slower-growth stocks aren't included in the Nasdaq-100 and QQQ. The Nasdaq-100 is also rebalanced quarterly and reconstituted annually, so it keeps its existing winners, adds new high-growth stocks, and prunes its weaker ones.
That's why QQQ is better optimized for long-term growth than ETFs that track the S&P 500, yet it charges only a low expense ratio of 0.18%. Therefore, it's a simple way to stay invested in the market's highest-growth stocks without doing any research on individual stocks. QQQ's top holdings are all heavily exposed to the AI boom.
Nvidia, Micron, and AMD provide crucial chips for AI clusters; Apple is integrating more AI features into its devices; and Microsoft's Azure -- the world's second-largest cloud infrastructure platform -- is becoming a major ecosystem of first- and third-party generative AI applications. Its portfolio also includes other AI heavyweights -- including Amazon, Meta, Alphabet, and Tesla. Most of those stocks still look surprisingly cheap relative to their growth potential.
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