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How to Simplify the AI Investment Thesis

The artificial intelligence (AI) investment thesis is all the rage this year — so much so that some unwitting investors may be thinking that AI investing represents “easy money.”

To be sure, it does not. At best, the concept of easy money in financial markets is evasive, and investors should forget about it when it comes to AI. However, there are avenues for simplifying the AI investment. Those include exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).

Up 38.26% year-to-date, QQQ and QQQM are proving their relevance as AI-related plays. That pertinence is fortified by large stakes in the likes of Alphabet (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT) and Nvidia (NASDAQ: NVDA), to name a few of the ETFs’ marquee holdings with strong AI exposure.

QQQ, QQQM Lineups Matter

While easy money may be elusive, simple investment concepts are not. For example, an ETF’s underlying holdings determine its price action. That’s pertinent in discussing QQQ and QQQM. While the Invesco funds are not dedicated AI ETFs, they are, as noted above, flush with AI credibility. That’s an important trait when considering the expected multi-year growth trajectory of AI’s total addressable market (TAM).

“The A.I technology total addressable market or the TAM, which includes semiconductors, hardware and networking, is at $90 billion today and we estimate it will grow to $275 billion by 2027. That’s more than half the size of the semiconductor market today,” noted Shawn Kim, head of Morgan Stanley’s Asia technology research team.

Kim went on to highlight the importance of semiconductors in AI. This is highly relevant to QQQ and QQQM investors because those ETFs are homes to more than 15 semiconductor stocks. That includes a 7% allocation to the aforementioned Nvidia.

“This remarkable growth is actually led by semiconductors, where we see the A.I semiconductor market TAM tripling over the next three years from $43 billion to $125 billion, and signifying our growing the overall A.I market,” added Kim. “Companies that we consider A.I leaders are generally showing high growth and returns, consensus shows a three year average EPS growth of 24%, which is more than twice the earnings growth of global stocks on average.”

Fortunately, the analyst said that AI isn’t in a bubble. However, investors looking to avoid a bursting scenario may find utility in funds such as QQQ and QQQM. The lineups are full of large companies with established AI leadership and large war chests. Those traits can potentially take some of the edge out of investing in a new innovative space.

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