Nvidia was an ideal long-term investment. Shares have risen 45,900% over the past 20 years as the company transformed from a pioneer in computer graphics to an accelerated computing powerhouse. But the stock has been particularly hot lately. Shares have more than tripled in the past 12 months as investors have embraced the artificial intelligence gold rush. However, these gains have raised concerns about Nvidia’s valuation.
While certain Wall Street analysts still see upside potential, some expect stocks to fall next year. The four hedge fund billionaires listed below handled this situation by selling some Nvidia shares in the fourth quarter while also buying Nvidia shares Invesco QQQ Trust (NASDAQ:QQQ)an index fund that tracks the Nasdaq-100.
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John Overdeck and David Siegel of Two Sigma Investments sold 30,663 shares of Nvidia in the fourth quarter, reducing their stake by 5%. They have since increased their position in Invesco QQQ Trust by 75%, making the index fund the second largest position in their portfolio.
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Millennium Management’s Israel Englander sold 1.7 million Nvidia shares in the fourth quarter, reducing his stake by 45%. Meanwhile, he increased his position in Invesco QQQ Trust by 53%, although it is still a relatively small holding.
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Bamco’s Ron Baron sold 59,942 Nvidia shares in the fourth quarter, reducing his stake by 10%. He also opened a small position in Invesco QQQ Trust.
What’s interesting about these trades is that Nvidia is the third-largest position in Invesco QQQ Trust. In other words, the four fund managers listed above swapped some of their direct ownership of Nvidia for a more diluted form of ownership that also allows exposure to other technology stocks.
In any case, the Invesco QQQ Trust has returned 1,260% over the last two decades, more than doubling the trust’s performance S&P 500 (SNPINDEX: ^GSPC). Here’s what investors should know about this top-performing index fund.
The Invesco QQQ Trust offers exposure to technology stocks that are expected to benefit from artificial intelligence
The Invesco QQQ Trust measures the performance of the Nasdaq-100, an index that tracks the 100 largest companies listed on the Nasdaq Stock Exchange. The Invesco QQQ Trust distributes its capital across 10 of the 11 stock market sectors – the financial sector being the only exception – but its composition is most heavily biased towards the information technology (58.9%) and consumer discretionary (17.9%) sectors.
Below are Invesco QQQ Trust’s 10 largest holdings by weight.
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Microsoft: 8.7%
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Apple: 7.7%
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Nvidia: 6.1%
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Alphabet: 5.3%
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Amazon: 5.3%
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Broadcom: 4.5%
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Metaplatforms: 4.5%
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Costco Wholesale: 2.4%
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Tesla: 2.4%
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Modern micro devices: 1.9%
While many investors view Nvidia as the quintessential artificial intelligence (AI) stock, almost every company listed above is well-positioned to monetize AI.
For example, Microsoft, Alphabet and Amazon are the three largest cloud computing companies in the world, meaning they are gatekeepers of AI infrastructure and platform services. Broadcom is a leader in application-specific integrated circuits (ASICs), helping companies like Meta Platforms and Alphabet develop custom AI chips.
Similarly, Tesla is developing fully self-driving software and its supercomputer (Dojo) is specifically designed for training computer vision systems. Both represent potentially significant revenue streams. Finally, Advanced Micro Devices is the second largest provider of data center GPUs, but trails Nvidia’s market share by about 90 percentage points.
In short, while the Invesco QQQ Trust is not explicitly an AI index fund, it does provide convenient exposure to many companies that stand to benefit as companies spend more money on AI.
The Invesco QQQ Trust has delivered impressive returns over the past two decades
The Invesco QQQ Trust has been an excellent, albeit volatile, long-term investment. The index fund returned 1,260% over the last 20 years, which translates to an annual return of 13.9%. In comparison, the S&P 500 returned 563% over the same period, which equates to an annual return of 9.9%. In other words, $10,000 invested in the Invesco QQQ Trust in April 2004 would be worth $136,000 today, but the same amount invested in an S&P 500 index fund would now be worth $66,300 value.
However, this enormous outperformance comes at a price. The Invesco QQQ Trust has a 10-year beta of 1.12, meaning that for every 100 basis point move in the S&P 500, it moved 112 basis points (1.12 percentage points). In other words: The Invesco QQQ Trust was a very volatile investment. This quality works in both directions. Volatility is helpful when the stock market is rising, but harmful when the stock market is falling. Therefore, Invesco QQQ Trust tends to underperform during market downturns.
The last point worth mentioning is the expense ratio. The Invesco QQQ Trust has an expense ratio of 0.2%, meaning investors will pay $2 per year for every $1,000 invested in the fund.
Here’s the bottom line: Invesco QQQ Trust is heavily focused on the technology sector. As such, the index fund has benefited greatly from breakthrough innovations such as mobile devices and cloud computing over the past two decades and is also expected to benefit greatly as AI spending explodes in the coming years. With this in mind, the Invesco QQQ Trust is a great option for patient, risk-tolerant investors looking to capitalize on the AI boom. But it would be a poor choice for any investor looking to avoid volatility.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions at Amazon, Nvidia and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
Billionaires are selling Nvidia stock and buying this supercharged AI index fund instead, originally published by The Motley Fool