From holding Nvidia and QQQ together, I learned 2 new things!

In the past year or two, regardless of whether you’ve been involved in the stock market or not, you’ve probably heard a lot about Nvidia. Apart from its continuously rising stock price, it’s also considered a leading driver in the future of the AI industry.

So, for those of you who are already investing in QQQ, facing Nvidia’s recent sharp rise, you might wonder if it is outperforming QQQ and if it’s worth reallocating funds into it.

You’re not alone in thinking this way, as I find myself pondering the same question.

Therefore, as an investor holding both assets, I’ll share two things I’ve learned recently, and explore whether it truly outshines QQQ as some may imagine.

Nvidia is propelling not just QQQ, but the entire technology sector as well

Its impact extends beyond the stock price of QQQ; it’s driving new developments across the entire tech industry.

In terms of stock prices, Nvidia’s influence on QQQ is gradually surpassing that of Apple, as evidenced by the following top ten weightings (compiled from the QQQ official website, as of March 6, 2024):

Nvidia in QQQ holdings

Not long ago, Nvidia accounted for less than 4% of the weighting, but now it has become the third-largest weighting stock, even approaching Apple and Microsoft.

If we compare the performance of these three stocks with QQQ so far this year, you’ll see it more clearly (compiled from Yahoo! Finance):

Nvidia vs QQQ

With Microsoft’s (represented by the green line in the chart) performance closely matching that of QQQ (represented by the blue line), the impact of Apple’s (purple line) stock price decline has been nearly offset by Nvidia’s (peach line) impressive performance.

Beyond stock prices, Nvidia has also brought about an industry revolution for all the constituents within QQQ, especially Apple and Microsoft.

From the inception of ChatGPT to the recent emergence of Sora, the evolution and application speed of AI have reached an incredible level, all within a span of just a few months.

This realization has led the tech industry to understand that whoever masters AI can seize a larger share of future markets and profits.

Among the components of QQQ, Microsoft took the lead by not only acquiring OpenAI but also integrating it into search engines and cloud services.

Moreover, Google introduced Gemini (formerly Bard) to compete with ChatGPT. Even Apple recently announced its investment in the application of generative AI while abandoning its development of electric cars.

When you observe these industry leaders taking such actions, you realize how crucial AI is for their future.

Therefore, what Nvidia has catalyzed goes beyond the stock price of QQQ; it marks the beginning of an industrial revolution.

In the long run, QQQ remains relatively stable

However, even with Nvidia’s remarkable performance, if one intends to hold for the long term, QQQ might actually be more suitable.

Returning to the comparison chart of stock prices, although Apple, the second-highest weighting component, has dropped by 12%, Nvidia has surged by as much as 87%. For QQQ, these two effects balance each other out, resulting in relatively minor fluctuations.

This actually underscores a point: even the strongest giants may fall one day, but QQQ won’t.

I remember back in 2020 when I started investing, Apple was the most valuable company by market capitalization and the highest-weighted component in QQQ, accounting for at least 15%. However, various sales and market concerns caused Apple’s growth rate to slow down. By this year, it has even been officially surpassed by Microsoft and may potentially be overtaken by Nvidia.

In the future, Nvidia has a significant chance to surpass Microsoft and become the world’s largest company by market capitalization. However, how long it can maintain this position remains uncertain.

On the contrary, despite experiencing the changes just mentioned, QQQ remains steadfast, with its stock price continuing to rise and likely to do so in the future.

Therefore, from a long-term perspective, investing in QQQ still provides me with a greater sense of security.

So, is Nvidia better than QQQ?

In assessing the comparative merits of Nvidia and QQQ, it becomes evident that Nvidia does not outshine QQQ.

The unpredictable nature of Nvidia’s future advantages poses a significant challenge. Despite its current growth trajectory, there’s no certainty that Nvidia will maintain its momentum in the coming years. Investing in Nvidia for the long term entails navigating through a landscape fraught with uncertainty.

In contrast, QQQ offers a more stable investment option. Despite periodic changes in its constituent stocks, QQQ remains a steadfast performer, consistently delivering incremental growth over time. The resilience of QQQ in the face of market fluctuations renders it a more dependable choice for long-term investors compared to the volatility associated with Nvidia.

In conclusion, while Nvidia may offer short-term gains, the enduring stability and reliability of QQQ make it a preferable option for investors seeking sustained growth and security in their portfolios.

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