Nvidia has been a spectacular investment in recent years. The stock has skyrocketed more than 700% since January 2023 amid excitement surrounding artificial intelligence (AI). But excitement is a double-edged sword. Numerous companies are now designing custom AI chips, and some investors are concerned Nvidia will lose market share.
The following hedge fund billionaires have navigated the situation by selling shares of Nvidia in the second quarter, and redeploying capital into the Invesco QQQ Trust(NASDAQ: QQQ), a growth-focused index fund that tracks the Nasdaq-100 index.
- Cliff Asness at AQR Capital sold 1.3 million shares of Nvidia, shrinking his stake by 8%. He also bought 9,254 shares of the Invesco QQQ Trust, increasing his position 332%.
- Steven Cohen at Point72 Asset Management sold 409,042 shares of Nvidia, reducing his stake by 16%. He also bought 1,500 shares of the Invesco QQQ Trust, increasing his position 150%.
- Israel Englander at Millennium Management sold 676,242 shares of Nvidia, reducing his stake 5%. He also bought 81,616 shares of the Invesco QQQ Trust, increasing his position by 557%.
- Ken Griffin at Citadel Advisors sold 9.2 million shares of Nvidia, slashing his stake 79%. He also purchased 2.8 million shares of the Invesco QQQ Trust, increasing his position by 585%.
- David Shaw at D.E. Shaw sold 12.1 million shares of Nvidia, cutting his stake 52%. He also started a small position in the Invesco QQQ Trust.
Importantly, these trades do not signal a complete lack of confidence in Nvidia. Not only do all five fund managers still have positions in the chipmaker, but also Nvidia is the third largest position in the Invesco QQQ Trust.
Having said that, their decision to buy the index fund is sensible because it diversifies their portfolios across more technology stocks likely to benefit from the AI boom. Here's what investors should know about the Invesco QQQ Trust.
The Invesco QQQ Trust provides heavy exposure to technology stocks
The Invesco QQQ Trust measures the performance of the Nasdaq-100, an index that tracks the 100 largest non-financial companies on the Nasdaq Stock Exchange. The index fund is heavily weighted toward the information technology sector. The 10 largest holdings are listed by weight:
- Apple: 8.9%
- Microsoft: 8.3%
- Nvidia: 7.7%
- Broadcom: 5.1%
- Amazon: 5.1%
- Meta Platforms: 4.8%
- Alphabet: 4.6%
- Tesla: 2.9%
- Costco Wholesale: 2.7%
- Netflix: 2%
Many investors see Nvidia as a paragon of artificial intelligence (AI) stocks because the company dominates the market for data center graphics processing units (GPUs), chips that are the gold standard in speeding up complex workloads such as training machine learning models. But several other companies in that list are well positioned to monetize AI.
For instance, Microsoft, Amazon, and Alphabet have the three largest public clouds in the world. That means they should be major beneficiaries as businesses invest in the cloud infrastructure and platform services required to train AI models and develop AI applications.
Similarly, Broadcom helps customers like Alphabet and Meta Platforms design custom AI chips, and it recently won a major deal with OpenAI. That bodes well for the company because Morgan Stanley analysts expect the custom AI chip market to grow more quickly than the GPU market through the end of the decade.
Finally, Tesla is dedicated to developing full self-driving (FSD) software, and the company plans to monetize its FSD platform through subscription sales and robotaxi services.
The Invesco QQQ Trust produced supercharged returns over the past 20 years
The Invesco QQQ Trust has been an excellent long-term investment. The index fund returned 1,490% over the past 20 years, compounding at 14.8% annually. By comparison, the S&P 500(SNPINDEX: ^GSPC) returned 641% during the same period, compounding at 10.5% annually.
The downside of the Invesco QQQ Trust is volatility. The fund is highly concentrated in technology stocks, such that weakness in that market sector can cause it to nosedive. The Invesco QQQ Trust has a 10-year beta of 1.12, meaning it moved 1.12 percentage points for every 1-percentage-point movement in the S&P 500.
Volatility cuts both ways. On one hand, the Invesco QQQ Trust more than doubled the return of the S&P 500 during the past two decades. On the other hand, the Invesco QQQ Trust declined much more sharply than the S&P 500 during the most recent bear market. Specifically, the index fund suffered a maximum drawdown of 35%, while the S&P 500 never fell more than 24%.
The last item of note is the expense ratio. The Invesco QQQ Trust has an expense ratio of 0.2%, meaning investors will pay $2 per year on every $1,000 invested in the index fund. That's below the industry average of 0.36%, according to Morningstar.
Here is the bottom line: The Invesco QQQ Trust is a growth-focused index fund that tracks several companies well positioned to benefit from the artificial intelligence boom, including Nvidia. The index fund's concentration in technology stocks makes it volatile, but that volatility has been an asset over the past two decades, given its outperformance compared to the S&P 500.
I think the Invesco QQQ Trust will continue to outperform over the next decade as the AI boom unfolds. Patient investors comfortable with risk and volatility should consider buying a small position today. And shareholders should lean into market weakness by adding to their position during significant pullbacks.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
