QQQ vs. SPMO: Which ETF Can Better Cash in on the AI Boom?

By Joey Frenette Published Oct 18, 9:05AM EDT

Key Points

The SPMO has outperformed the QQQ in recent years, making it hotter and growthier.
Still, the QQQ’s concentration in the Magnificent Seven makes it the better AI boom beneficiary, at least in my view. Though, I expect both ETFs will win big as the AI revolution plays out.
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QQQ vs. SPMO: Which ETF Can Better Cash in on the AI Boom? — © JHVEPhoto / iStock Editorial via Getty Images

The AI boom has been a driving force for the tech-heavy indices, and while a correction could have the potential to be more painful for the growth- and AI innovation-heavy Invesco QQQ Trust (NASDAQ:QQQ) and other similar ETFs out there, longer-term investors who can weather a storm without breaking a sweat might be in for greater rewards over the long run.

In this piece, we’ll look at the QQQ, which follows the Nasdaq 100, and the Invesco S&P 500 Momentum ETF (NYSEARCA:SPMO), a hotter, momentum-flavored version of the S&P 500. For investors who already have plenty of exposure to the S&P 500, the big question is which growthier ETF is a better complement as the AI revolution looks to enter another year with a potential slate of new winners.

The beauty of the QQQ and its like is that investors don’t need to pick and choose from the broad basket of AI and tech plays to benefit from the broader jolt that an AI revolution is more than capable of providing. So, without further ado, let’s go into greater depth on the QQQ and SPMO to determine which Invesco ETF is a more suitable fit for investors seeking more skin in the AI boom.

Invesco QQQ Trust

The QQQ is a fantastic, low-cost way to play the Nasdaq 100 index, which is heavier in the growth names, especially the Magnificent Seven companies. Indeed, if you thought the S&P 500 was concentrated at the top of tech, the QQQ takes things to the next level. Personally, I think the overconcentration fears are overrated and think investors should actively seek to be more overweight in the Magnificent Seven names.

Indeed, it’s hard to be equal-weight if you’re a stock picker who also owns index funds. Either way, the QQQ can help you balance that weighting so you can have more exposure to the tech titans that, in many ways, are leading this AI revolution, with considerable spending that investors hope will yield significant returns in the (hopefully not too distant) future.

As for whether the QQQ is a suitable replacement for the S&P remains the big question. For younger, growthier investors who aren’t going to panic at the first signs of a tech meltdown, I’m definitely not against gravitating to the QQQ over an S&P 500 or total market ETF with your next big purchase. Either way, the Nasdaq 100 is a well-built basket of stocks that I suspect will outperform if the AI boom has a long way to go. Whether there are a few years or a decade left in the AI surge, though, remains a mystery. Either way, the QQQ stands out as a buy-and-hold ETF that one should actively seek to keep adding into on weakness.

Invesco S&P 500 Momentum ETF

The Invesco S&P 500 Momentum ETF is a very interesting momentum factor ETF that’s actually been hotter than the QQQ this year, gaining just shy of 26% year to date, topping the mere 17.6% gain posted by the QQQ. Zooming out a bit further and the relative outperformance becomes even more pronounced, with the SPMO more than doubling (105% gain) in the past two years compared to a still-decent 63% posted by the QQQ. As it’s turned out, riding the momentum wave has been more profitable amid this AI boom.

Underneath the hood of the SPMO, you’ll find some of the hottest AI tech stocks at the top. Indeed, there’s quite a bit of overlap with the QQQ, but with the SPMO, you’re not just getting outperformance from tech, but from the financial, retail, and industrial scenes.

For instance, the SPMO is heavier in shares of hyper-momentum AI play Palantir (NASDAQ:PLTR | PLTR Price Prediction) than the QQQ, with a 4.64% weighting versus 1.3%. Additionally, GE Aerospace (NYSE:GE) and Oracle (NYSE:ORCL) shares gained 242% and 187% in the last two years, moves that were missed out on by the QQQ entirely as both firms trade on the NYSE, not the Nasdaq.

The Bottom Line

While the SPMO is a more aggressive ETF fit for momentum seekers, I view the QQQ as having more exposure to the AI boom. It’s the concentration in the Magnificent Seven that I think will allow it to outdo the SPMO over the longer term, especially if the hyperscalers begin to profit on their massive investments.

Of course, with the SPMO, you’re also getting exposure to the must-own AI names (like Oracle) that aren’t even in the QQQ. Still, I favor the QQQ because of its towering Magnificent Seven presence. My takeaway? I’d go for the QQQ while also buying individual names that aren’t included in the ETF, like Oracle, on the side.

About the Author Joey Frenette →

Joey is a 24/7 Wall St. contributor and seasoned investment writer whose work can also be found in publications such as The Motley Fool and TipRanks. Holding a B.A.Sc in Computer Engineering from the University of British Columbia (UBC), Joey has leveraged his technical background to provide insightful stock analyses to readers.

Joey's investment philosophy is heavily influenced by Warren Buffett's value investing principles. As a dedicated Buffett disciple, Joey is committed to unearthing value in the tech sector and beyond.