Cybersecurity Stocks Can Rebound From Claude FearsIt seems like hardly a day goes by without Anthropic's Claude artificial intelligence (AI) tool disrupting some corner of the technology sector, causing share price declines in the process. Last week's "victim†was the cybersecurity industry. Shares of some of the most prominent names in the space, including those residing in the [Invesco QQQ Trust (QQQ)] and the [Invesco NASDAQ 100 ETF (QQQM)], were punished on news that Anthropic's vulnerability- scanning t ...

Core Viewpoint - The tech sector, despite a year-to-date decline of nearly 1.8% in the Nasdaq-100 Index, remains a vital investment area, with strong fundamentals and growth potential, particularly in disruptive technologies like AI and robotics [1]. Group 1: Market Performance - The Nasdaq-100 Index has experienced a five-year gain of over 82%, indicating a robust long-term performance despite recent fluctuations [1]. - The tech sector has shown strong returns of 23.33% over the last year and a 5-year compound annual growth rate of 14% [1]. Group 2: Investment Opportunities - Bank of America Research emphasizes the importance of maintaining exposure to disruptive themes such as AI and robotics, which are accessible through ETFs like QQQ and QQQM [1]. - The tech sector's forecasted earnings growth rate for 2026 is the highest among all sectors, justifying the high valuations of some leading ETFs [1]. Group 3: Semiconductor Sector Insights - The Invesco ETFs, while not dedicated chip ETFs, include a variety of semiconductor stocks, which are in high demand due to the growth of AI and the need for advanced computing [1]. - Analyst Vivek Arya notes that the transition from training to inference in AI is increasing demand for leading-edge chips, while supply remains tight in areas like memory and optics [1].

Core Viewpoint - Chip stocks, particularly those involved in artificial intelligence (AI), are not as overvalued as previously thought, providing potential investment opportunities within ETFs like QQQ and QQQM [1] Group 1: Semiconductor Stocks - Semiconductors are crucial for AI developments, leading to increased interest in ETFs that include chip stocks [1] - Nvidia, the largest holding in QQQ and QQQM, represents nearly 9% of these ETFs and continues to innovate in AI solutions, indicating strong fundamentals [1] - Broadcom, another significant holding, is experiencing accelerated growth in its AI chip business, driven by high demand for its products, particularly Google's TPU chip [1] Group 2: Investment Outlook - Despite being growth funds, QQQ and QQQM still offer value through their semiconductor holdings, which have attractive fundamental outlooks [1] - AMD is also positioned to benefit from AI developments, with expectations of meaningful revenue from its MI450 products in the latter part of the year [1]

Core Insights - The semiconductor industry is crucial for the artificial intelligence (AI) revolution, indicating significant investment opportunities in this sector [1] - ETFs like Invesco QQQ Trust (QQQ) and Invesco NASDAQ 100 ETF (QQQM) provide exposure to semiconductor equities, including major players like Nvidia, making them attractive for investors seeking diversified investments without stock selection [1] Semiconductor Industry Outlook - The global semiconductor industry is projected to reach annual sales of US$975 billion by 2026, driven by a booming AI infrastructure [1] - Growth rates are expected to be 22% in 2025 and accelerate to 26% in 2026, with a potential for annual sales to reach US$2 trillion by 2036, even if growth moderates thereafter [1]

Core Insights - Walmart has shifted its stock listing to the Nasdaq Global Select Market, emphasizing its focus on e-commerce and technology [1] - The stock joined the Nasdaq 100 Index in January, becoming the ninth-largest holding in the Invesco QQQ Trust and Invesco NASDAQ 100 ETF, accounting for 3.18% of their portfolios [1] - Walmart has achieved a market cap of $1 trillion, joining an exclusive group of companies, which reflects its ambitions and growth strategies [1] Company Strategy - Walmart aims to grow profits faster than sales by expanding its third-party marketplace and advertising businesses, which offer higher margins compared to traditional operations [1] - The recent appointment of John Furner as CEO is seen positively by investors, as he has overseen key initiatives that contributed to Walmart's growth, such as curbside pickup and improved private-label brands [1] Market Impact - The inclusion of Walmart in tech-heavy ETFs like QQQ and QQQM may provide stability during market volatility, especially as the retailer prepares to report its fourth-quarter results [1] - Positive forward-looking guidance in the upcoming earnings report could act as a catalyst for the stock [1]

Core Insights - The Invesco NASDAQ Next Gen 100 ETF (QQQJ) is highlighted as a notable option for investors seeking exposure to promising tech stocks, despite the common focus on larger ETFs like QQQ and QQQM [1] - QQQJ, with a market capitalization of $883.64 million, primarily includes mid-cap and smaller large-cap stocks, featuring an average market cap of $23.88 billion across its 107 holdings [1] Group 1: ETF Overview - QQQJ has been operational for five years and serves as a proving ground for stocks aspiring to enter the Nasdaq-100 Index [1] - The ETF's holdings include companies that Morningstar identifies as top tech names, such as Fiserv and Akamai Technologies [1] Group 2: Notable Holdings - Fiserv (FISV), a key holding in QQQJ, is recognized for its core processing and complementary services for US banks, with shares considered 47% undervalued relative to a fair value estimate of $126 [1] - Akamai Technologies (AKAM) is another significant holding, noted for its investments in cloud computing and edge computing, with a strong network presence that positions it well against major competitors [1]

Core Insights - The Invesco NASDAQ 100 ETF (QQQM) has a low yield of 0.51%, primarily due to its focus on growth-oriented technology companies that reinvest profits rather than distribute them as dividends [2][8] - The fund's largest holdings, particularly NVIDIA, significantly impact its overall yield, as NVIDIA contributes little to no dividends despite its substantial weighting of 8.47% [3][8] - Apple and Microsoft are the main contributors to QQQM's dividend income, with both companies showing a strong commitment to returning value to shareholders through consistent dividend increases [4][5] Yield and Income Generation - QQQM's yield is notably lower than the S&P 500's typical yield of 1.8% to 2.0%, reflecting the fund's composition, which is heavily weighted towards growth stocks that either pay minimal dividends or none at all [5][8] - The fund has maintained consistent quarterly distributions since its launch in October 2020, supported by a low expense ratio of 0.15%, which helps preserve income for shareholders [6] Performance and Investment Appeal - Over the past year, QQQM has achieved a total price appreciation of 22.3%, and since its inception, it has increased by over 108% [7][8] - Investors are primarily attracted to QQQM for its exposure to leading technology and innovation companies, viewing dividends as a secondary benefit rather than the main reason for investment [7]

Core Viewpoint - The article emphasizes the challenges of market timing and advocates for remaining invested, highlighting the Invesco NASDAQ 100 ETF (QQQM) as a suitable option for long-term investors [1]. Group 1: Market Timing Challenges - Market timing is difficult for most investors, including professionals, as it involves exiting and reentering positions based on market signals [1]. - The likelihood of investors successfully timing the market is low, making a case for the value of staying invested [1]. Group 2: Historical Performance Insights - Historical data shows that the S&P 500 rarely delivers average returns, with about 75% of years being positive and many gains exceeding 20% [1]. - Down years are infrequent and typically result in smaller losses, averaging around 13% [1]. - The broader market tends to close higher on an annual basis more often than not, reinforcing the argument for a buy-and-hold strategy [1]. Group 3: Investment Strategy Recommendations - Investors are encouraged to focus on time in the market rather than timing the market, as this approach is a reliable driver of long-term outcomes [1]. - Maintaining a diversified portfolio aligned with investment objectives enhances the benefits of market asymmetry over time [1].

Core Viewpoint - The upcoming fourth-quarter earnings reports are expected to be positive, potentially calming investors and supporting the equity market, which has faced challenges recently [1]. Group 1: Earnings Expectations - S&P 500 member firms are anticipated to deliver strong Q4 results and provide optimistic guidance for the current quarter and beyond, particularly in the technology and communication services sectors [2]. - The S&P 500 is projected to achieve Q4 EPS growth of 11.7%, marking the highest year-over-year increase since Q4 2021 [4]. - There is a possibility that the S&P 500 could report a year-over-year EPS growth of 14% for the October to December period, based on late last year's earnings improvement trends [5]. Group 2: Historical Performance - Historically, actual earnings growth has surpassed estimated earnings growth in 37 of the last 40 quarters for the S&P 500, with exceptions in Q1 2020, Q3 2022, and Q4 2022 [6]. - Over the past four quarters, S&P 500 companies have exceeded estimated earnings by an average of 4.9%, with 77% of companies reporting actual EPS above the mean EPS estimate [7]. Group 3: Impact on ETFs - The Invesco QQQ Trust (QQQ) and Invesco NASDAQ 100 ETF (QQQM) are significantly influenced by S&P 500 earnings trends, as nearly 50% of their weight overlaps with the S&P 500, and 84% of their holdings are in the benchmark domestic equity gauge [3]. - The recent earnings growth in the S&P 500 is largely driven by the technology and communication services sectors, which constitute two-thirds of the portfolios of QQQ and QQQM [8].

Core Insights - AI spending is projected to increase significantly, reaching $2.53 trillion in 2023 and $3.33 trillion by 2027, with a 44% year-over-year increase expected in 2026 [2][4] - The growth in AI spending is driven by the need for organizations to prioritize proven outcomes and the readiness of human capital and organizational processes [3][6] AI Spending Trends - The increase in AI spending will not be limited to a single theme; it will be diverse, with a notable 49% increase in spending on AI-optimized servers expected for 2026, accounting for 17% of total AI spending [4] - AI infrastructure is anticipated to contribute an additional $401 billion in spending in 2026 as technology providers build out AI foundations [4] Investment Opportunities - ETFs such as Invesco QQQ Trust (QQQ) and Invesco NASDAQ 100 ETF (QQQM) are well-positioned to benefit from the AI spending boom due to their heavy allocation to AI enablers and hyperscalers [3][5] - Enterprise customers are likely to increase AI expenditures with established vendors, which is favorable for large firms within QQQ and QQQM that can demonstrate return on investment [5][6]