NVIDIA has been a spectacular investment in recent years. The company’s shares have soared more than 700% since January 2023 amid the frenzy around artificial intelligence (AI). But the frenzy is a double-edged sword: A slew of companies are now designing custom AI chips, and some investors are concerned that NVIDIA could lose market share.
The following hedge fund billionaires weathered the situation by selling Nvidia shares in the second quarter and reallocating their capital to the Invesco QQQ Trust: (Nasdaq: QQQ)A growth-focused index fund that tracks the Nasdaq 100 Index.
Cliff Anness of AQR Capital sold 1.3 million shares of Nvidia, reducing his holdings by 8%, and bought 9,254 shares of Invesco QQQ Trust, increasing his holdings by 332%.
Steven Cohen of Point72 Asset Management sold 409,042 shares of Nvidia, reducing his holdings by 16%, and bought 1,500 shares of Invesco QQQ Trust, increasing his holdings by 150%.
Millennium Management’s Israel Englander sold 676,242 shares of Nvidia, reducing his holding by 5%, and bought 81,616 shares of Invesco QQQ Trust, increasing his holding by 557%.
Citadel Advisors’ Ken Griffin sold 9.2 million shares of Nvidia, reducing his holdings by 79%, and bought 2.8 million shares of Invesco QQQ Trust, increasing his holdings by 585%.
David Shaw of DE Shaw sold 12.1 million shares of Nvidia, reducing his holding by 52%, and also started a small investment in the Invesco QQQ Trust.
Importantly, these transactions don’t signal a complete lack of confidence in Nvidia: Not only do all five fund managers still hold shares in the chipmaker, but Nvidia is the third-largest position in the Invesco QQQ Trust.
That said, their decision to buy an index fund is a smart one because it diversifies their portfolio into more technology stocks that are likely to benefit from the AI boom. Here’s what investors need to know about the Invesco QQQ Trust.
Invesco QQQ Trust offers significant exposure to technology stocks
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 to the Information Technology sector. The top 10 holdings are listed in order of weighting.
Apple: 8.9%
Microsoft: 8.3%
NVIDIA: 7.7%
Broadcom: 5.1%
Amazon: 5.1%
Meta Platform: 4.8%
Alphabet: 4.6%
Tesla: 2.9%
Costco Wholesale: 2.7%
Netflix: 2%
Many investors view NVIDIA as the quintessential artificial intelligence (AI) stock because the company dominates the market for data center graphics processing units (GPUs), the chips that are the gold standard for accelerating complex workloads like training machine learning models, but several other companies on that list are also well positioned to monetize AI.
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For example, Microsoft, Amazon, and Alphabet own three of the largest public clouds in the world, meaning that these companies stand to benefit greatly from investing in the cloud infrastructure and platform services needed to train AI models and develop AI applications.
Similarly, Broadcom is helping customers like Alphabet and Meta Platforms design custom AI chips, and it recently won a big contract with OpenAI, which bodes well for the company, because Morgan Stanley analysts predict the custom AI chip market will grow faster than the GPU market in a decade.
Finally, Tesla is focused on developing its fully self-driving (FSD) software and plans to monetize its FSD platform through subscription sales and robotaxi services.
Invesco QQQ Trust has generated phenomenal returns over the past 20 years
The Invesco QQQ Trust is a great long-term investment. This index fund has returned 1,490% over the past 20 years, compounding at 14.8% annually. By comparison, the S&P 500 has (SNPINDEX: ^GSPC) Over the same period, it generated a return of 641%, growing at a compound annual rate of 10.5%.
A drawback of the Invesco QQQ Trust is its volatility: the fund is highly concentrated in technology stocks, so weakness in this market sector could cause it to fall sharply. The Invesco QQQ Trust has a 10-year beta of 1.12, meaning it will move 1.12 percentage points for every 1 percentage point change in the S&P 500.
Volatility works in both directions. On the one hand, the Invesco QQQ Trust has returned more than twice as much as the S&P 500 over the past 20 years. On the other hand, the Invesco QQQ Trust fell much sharper than the S&P 500 during the most recent bear market. Specifically, index funds suffered drawdowns of up to 35%, while the S&P 500 never fell more than 24%.
One final thing to look at is the expense ratio: Invesco QQQ Trust has an expense ratio of 0.2%, meaning investors will pay $2 per year for every $1,000 invested in the index fund. This is below the industry average of 0.36%, according to Morningstar.
Bottom line: Invesco QQQ Trust is a growth-focused index fund that tracks several companies that are well-positioned to benefit from the artificial intelligence boom, including NVIDIA. The index fund’s focus on technology stocks makes it volatile, but this volatility has been a positive over the past two decades, as it has outperformed the S&P 500.
I believe the Invesco QQQ Trust will continue to outperform over the next decade as the AI boom continues. Patient investors who can tolerate risk and volatility should consider buying a small position today. Shareholders should also prepare for market weakness by adding to positions during significant downturns.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, 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, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Jennewein owns shares of Amazon, NVIDIA, and Tesla. The Motley Fool owns shares of and recommends Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Netflix, NVIDIA, and Tesla. The Motley Fool recommends Broadcom and recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Billionaires are selling their Nvidia shares and buying this supercharged AI index fund instead This was originally published by The Motley Fool.
