The Nasdaq-100 Index (NDX) is lower by 3.36% over the past month, and plenty of growth stocks across all market capitalization segments performing significantly worse than that. Some retail investors are worried the once easy money tech trade is evaporating.
Rushing to that conclusion could be to investors’ detriment because market history confirms pullbacks are healthy and to be sure, ETFs such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM), which track NDX, have pulled back but they’re not in bear markets. In fact, those funds aren’t yet in correction territory.
Much of the recent weakness encountered by QQQ, QQQM and peer ETFs boils down to concerns about artificial intelligence (AI) spending and whether or not expenditures measured in the hundreds of billions are justifiable overt the long-term. U.S. Bank Wealth Management points out there uncertainties accompanying the AI evolution, but the longer-ranging outlook is constructive.
“Businesses are investing heavily in technology to boost productivity and , with spending shifting from to business-to-business investment,” says Terry Sandven, chief equity strategist with U.S. Bank Asset Management Group.
QQQ Valuation Concerns Likely Overblown
Another factor that’s recently weighed on tech-heavy ETFs such as QQQ and QQQM are concerns about valuations on AI-related large- and mega-cap stocks. Indeed, those names, including the ones looming large in the Invesco ETFs, aren’t cheap per se, but they’re nowhere near as stretched as were the valuations on internet and tech equities 25 years ago.
“In the long run, these valuations look reasonable, but in the short run, we have questions to overcome,” notes Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group.
He adds that it would take significant earnings retrenchment or a major inflationary spike for AI/tech valuations to look concerning, but neither of those ominous scenarios appears likely over the near-term.
Another reason QQQ and QQQM still merit consideration is because technology and communications services – the ETFs’ two largest sector exposures – remain hubs of innovation and have consistently outperformed the broader market in recent years.
“Communications services and information technology have consistently outperformed the broader S&P 500 in recent years, despite higher volatility, and this trend continues in 2025,” according to U.S. Bank. “Tech stocks posted an impressive track record in recent years. A hypothetical $100,000 investment in the S&P 500 communications services and information technology index in 2018 would have grown to over $480,000 by 2025, far surpassing the S&P 500’s overall return.”
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