Key insights
- The article argues that QQQ is a better buy than VOO due to higher tech exposure and the ongoing AI-driven growth in the technology sector. It suggests that strong earnings growth in tech, coupled with a decreasing forward P/E ratio, indicates further upside for QQQ despite valuation concerns.
The Vanguard S&P 500 ETF (VOO +0.79%) is the largest ETF in the world, with assets of more than $925 billion. The Invesco QQQ ETF (QQQ +1.84%) is one of the best-performing ETFs of the past two decades.
Both are easily defensible choices if you're investing for the long term. If you're investing for the here and now, however, I think one of them has an advantage.
The biggest difference in the two funds is their tech exposure. The Vanguard S&P 500 ETF has 33% invested in tech, while the Invesco QQQ ETF is way up at 64%. That makes the latter more directly reflective of the artificial intelligence (AI) trade.
The argument has been, for some time, that tech stocks are overvalued. As the big hyperscalers and chip manufacturers have developed and implemented AI solutions, revenues and earnings have grown substantially. That has dropped the forward price-to-earnings (P/E) ratio in the information technology sector down to 23. That's significantly lower than where it's been in recent years.
With earnings growth for the tech sector expected to be well into double digits for at least the next two years, there's still upside for this group from the AI trade.
In my opinion, the Invesco QQQ ETF represents the better trade right now. Earnings growth and AI development are likely to continue driving this market higher.