The Invesco QQQ Trust Recently Hit a New All-Time High. Is It Still a Good ETF to Buy Right Now?
Investing in the top stocks on the Nasdaq exchange has historically been a great move for long-term investors. The Nasdaq-100 index is popular because it gives investors exposure to the top growth stocks on the exchange, and that has resulted in tremendous gains in recent years.
The Invesco QQQ Trust (QQQ -1.07%) tracks the Nasdaq-100, and over the past five years, it has more than doubled in value, outpacing the S&P 500, which has risen at a more modest rate of 77% during that same time frame.
However, recently, the Invesco ETF hit a new all-time high, and it comes at a time when the market is growing concerned about artificial intelligence (AI) stocks and a potential bubble that could burst in the near future. Is the ETF still a good buy right now, or has it gotten too risky?
Image source: Getty Images.
Is there an AI bubble?
This is arguably the biggest question in the markets right now: whether there is an AI bubble. Bullish investors and tech CEOs will say there isn’t, that this is a new tech revolution, and that there’s much more growth ahead.
There are also plenty of naysayers, including Michael Burry, who famously predicted the subprime housing crash. He knows a thing or two about crashes, and Burry has shorted AI stocks and recently said he believes the bubble will burst sooner than he expected.
Tech companies have invested heavily in AI on the expectation that the growth opportunities will justify their expenditures. But if that doesn’t end up happening, they could indeed have far to fall. Palantir Technologies, which is one of the most valuable AI companies with a market cap of around $450 billion, trades at a monstrous price-to-earnings multiple of 160; investors are expecting tremendous growth ahead for the business.
Meanwhile, a stock such as Micron Technology trades at a seemingly low valuation (just seven times its projected future earnings), but that’s based on the assumption that demand will remain robust for its products, thanks again, due to AI.
These are just some examples of where there’s considerable risk on the Nasdaq these days.
Today’s Change
(-1.07%) $-7.97
Current Price
$736.53
Key Data Points
AUM
$501B
Dividend Yield
0.42%
Expense Ratio
0.18%
Top Holdings
NVDA
8.16%
AAPL
7.49%
MSFT
5.77%
Why I’d avoid the Nasdaq-100 right now
The Nasdaq-100 tracks the most valuable non-financial companies on the Nasdaq, which will inevitably include many overvalued stocks. Holding a position in an index of highly valued stocks at a time when valuations are high simply doesn’t appear to be all that enticing an option these days. Interest rates are on the rise again, and the market may be overdue for a pullback. These are precisely the types of stocks that could be vulnerable to corrections.
There are far safer stocks and investments to consider right now. While the Nasdaq-100 has done well in recent years, it may be running out of steam.
