The amount of money companies are investing in their artificial intelligence (AI) efforts is truly mind-boggling. Given that many experts believe this technology will unleash productivity gains like the world has never seen before, it makes sense why executive teams are going all in. No one wants to get left behind.
From an investing perspective, the course of action is crystal clear. Investors should look to allocate capital behind this powerful secular trend. To do that, here’s the best AI exchange-traded fund (ETF) to invest $2,000 in right now.
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Get your AI right here
Investors who want to obtain comprehensive AI exposure in their portfolios don’t need to look further than the Invesco NASDAQ 100 ETF (QQQM 0.22%). As its name suggests, this investment vehicle follows the performance of the Nasdaq-100, which contains the 100 largest non-financial stocks that trade on that exchange. It provides a more concentrated approach compared to the well-known S&P 500 index.
Perhaps nothing is more important for investors than knowing what it is that they own. This ETF contains all sectors of the market. Don’t expect equal representation, however. The technology sector reigns supreme. It accounts for almost 62% of the Invesco NASDAQ 100 ETF’s entire asset base. Consumer discretionary is a distant second at just over 20%.
Given the heavy exposure to tech, this is a bet on the future of AI. Nvidia is the single largest position. The dominant enterprise that sells powerful data center graphics processing units has been the biggest beneficiary of the AI boom. Its share price has skyrocketed 1,250% in the past five years (as of Feb. 25).
Microsoft, Amazon, and Alphabet combine to make up 17% of the Invesco NASDAQ 100 ETF. These businesses run the leading cloud computing platforms, which are all posting impressive growth due to robust demand to tackle AI workloads.
There might be no executives that are more bullish on the promise of AI than Meta Platforms‘ Mark Zuckerberg and Tesla‘s Elon Musk. The former is sparing no expense to introduce what he calls personal superintelligence. The latter believes his company will achieve unprecedented financial success thanks to robotaxis and humanoid robots.
Apple, another top holding, might be the least involved in the AI race. That doesn’t mean it lacks a formidable competitive position.
Taken all together, investors are buying access to the entire AI opportunity set by owning these industry-leading businesses.
Today’s Change
(-0.22%) $-0.55
Current Price
$249.51
Key Data Points
Day’s Range
$246.25 – $249.69
52wk Range
$165.72 – $262.23
Volume
165K
Looking at the past and the future
There are no complaints from investors regarding performance. The NASDAQ 100 ETF has generated a total return of 94% in the past five years. Had you invested $2,000 in late February 2021, you’d have $3,900 today. This translates to a wonderful 14.3% compound annual gain.
The cost for this kind of performance is even more noteworthy. This ETF carries an expense ratio of just 0.15%. That comes out to $3 on that $2,000 allocation. It’s impossible to argue about this offering.
The NASDAQ 100 ETF trades 3% below its peak. It’s totally understandable if investors are wondering if now is the right time to put money to work. It’s natural to want to wait for a bigger pullback in an effort to buy at a lower entry point. There are certainly AI bubble fears out there that can cap investor optimism.
Trying to predict what will happen in the near term is not a good use of time, though. The best mindset involves thinking about the long term, with a time horizon that spans at least a decade into the future. Buying today means that investors are letting compounding work its magic.
Will the NASDAQ 100 ETF repeat its past performance? This is impossible to say. Patience and discipline should be rewarded, as has been the case historically.
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