Key Points
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If the Invesco QQQ Trust repeats its trailing 10-year performance, investors will grow their starting capital by nearly sevenfold between now and August 2036.
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Should AI capabilities improve and adoption grow, this ETF is poised to continue being a big winner.
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The bear case focuses on the chance that growth starts to decelerate for the most dominant tech businesses.
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The purest way to play the stock market is to buy individual stocks. However, investing in exchange-traded funds (ETFs) is a fantastic way for investors to gain exposure to specific indices, sectors, or trends. And it’s hard to find a better option in the market than the Invesco QQQ Trust (NASDAQ: QQQ).
This is a tech-heavy ETF that has been a huge winner in the past decade. And if history is any indication, the QQQ will grow a $10,000 starting sum into $66,000 in 10 years. Here’s what investors should know about the bull and bear cases.
Past performance was impressive
In the past decade, the QQQ generated a total return of 563% (as of Aug. 13). Assuming this performance repeats in the next 10 years, a $10,000 investment made today will be worth $66,000 in August 2036. On an annualized basis, this translates to a jaw-dropping 20.8% total return. That’s significantly better than the 15.4% yearly total return of the S&P 500 index over the trailing decade.
The top positions in this ETF drove its performance — 45.7% of the portfolio is represented by the 10 biggest holdings. The other 90-plus stocks account for the remaining 54.3% of QQQ.
The leading companies all sit in the middle of the artificial intelligence revolution. They have a strong presence in chip manufacturing, cloud computing, and hardware and software development. Investors basically get comprehensive exposure to this important technological secular trend.
Perhaps no business contributed more to the QQQ’s exceptional performance than Nvidia. The leading AI stock skyrocketed 14,200% over the last 10 years. Its financials have been boosted by insatiable demand for its high-powered graphics-processing units.
The bull and bear debate focuses on AI
Bullish investors would love to see a repeat performance, which would grow their $10,000 initial capital outlay into $66,000 in a decade. It’s very clear what this outcome depends on.
The bull case rests on AI living up to the hype. This means that as AI capabilities advance, compute costs fall, utility rises, and demand among enterprises and consumers soars. It comes down to the potential for new economic activity being enabled by this technology.
Leading tech companies, like the hyperscalers, will need to earn adequate returns on their surging capital expenditures, which are projected to approach $800 billion in 2026 combined from Amazon, Alphabet, Microsoft, and Meta Platforms. The market needs confidence that this spending won’t prove wasteful and will lead to higher free cash flow in the future.
On the other side of the equation, there’s the bear case. The argument here focuses on decelerating growth in the future among the QQQ’s leading businesses, which already operate with massive scale. It becomes increasingly difficult to keep expanding when starting from a higher base.
Adding to the growth concern is the very real chance that AI fails to deliver the economic gains many hope for. So much attention is paid to the meteoric success of chipmakers, cloud platforms, and AI labs, as reflected in their market values. Less attention is paid to the tangible benefits that flow down the value chain to the end customers. No one knows the long-term answer to this.
I believe investors who have a tilt toward growth stocks and companies at the forefront of the AI boom should consider buying the QQQ. But it’s a good idea to refresh your perspective. The past performance was impressive. It’s not guaranteed to repeat, though. Temper your expectations.
Both the bull and bear arguments hold weight. Over the coming decade, it’s likely that the QQQ will generate a total return somewhere between these extremes.
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Neil Patel has positions in Invesco QQQ Trust. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.