If the Stock Market Crashes, This Is the First ETF I'm Loading Up On

The stock market will crash again at some point. There have already been numerous boom-and-bust cycles throughout the stock market's history, making the next crash more a matter of when than if.

Unfortunately, nobody actually knows when it will happen. Therefore, the best way to defend against a stock market crash is to have a plan for when the time comes. When it does, the Invesco QQQ Trust (NASDAQ: QQQ) could be the first exchange-traded fund (ETF) I load up on.

The QQQ holds the best AI stocks money can buy

Artificial intelligence (AI) has driven the stock market higher for several years now. It's not a fluke; AI has become arguably the most important technology in decades.

Image source: Getty Images.

The Invesco QQQ offers remarkably broad exposure to most companies involved in the AI trade. The ETF tracks the Nasdaq-100, an index filled with the world's most prominent technology companies.

Of course, that means a heavy lean into AI. Investors will find Nvidia, Microsoft, Amazon, Micron Technology, Meta Platforms, Alphabet, and Tesla among the ETF's top holdings. That covers GPUs and memory for data centers, the hyperscalers, and even emerging industries, such as autonomous driving and robotics.

Why the next crash will probably create jaw-dropping buying opportunities

At the same time, excitement for AI has propelled the Nasdaq-100 and the Invesco QQQ. The ETF is up a whopping 98% over the past three years alone. Today, the stocks in the Nasdaq-100 trade at a blended price-to-earnings ratio of approximately 30. That's already a lofty valuation, and what if the AI boom slows and earnings deteriorate? That certainly wouldn't be good.

Tech stocks tend to outperform other sectors in bull markets. But that also means they tend to fall further during market downturns.

You can see how the QQQ has plunged during major market crashes, for instance, falling 83% following the burst of the dot-com market bubble in the early 2000s and about 50% during the financial crisis later that decade.

Data by YCharts

I can't say with certainty that the AI craze will trigger a market crash. That said, there are risks.

The leading frontier model companies, such as OpenAI and Anthropic, are chasing massive market valuations while still logging hefty financial losses. It could become a big problem for the market if these AI companies continue to burn so much capital.

Without profits, companies, shareholders, and investors will only tolerate their enormous spending budgets for so long. If data center projects slow, the entire AI trade could unwind. But even if there is an eventual market crash, it doesn't mean that the technology itself is doomed.

Remember, the internet caused a bubble and eventual crash before ultimately becoming a foundational pillar of the modern global economy. Perhaps AI could follow a similar path. If it does, the Invesco QQQ is a fantastic way to invest in the eventual recovery.

Justin Pope has positions in Alphabet, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Micron Technology, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.