VOO vs. QQQ: Which Index Fund Is the Better Buy Right Now?
Key Points
The artificial intelligence (AI) trade has recovered in April and likely has further to go.
Boosted by strong earnings growth and billions in capital expenditures, tech stocks have multiple tailwinds at their back.
The Invesco QQQ ETF's 64% weight in tech gives it the advantage over the Vanguard S&P 500 ETF.
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The Vanguard S&P 500 ETF (NYSEMKT: VOO) is the largest ETF in the world, with assets of more than $925 billion. The Invesco QQQ ETF (NASDAQ: QQQ) is one of the best-performing ETFs of the past two decades.
Both are easily defensible choices if you're investing for the long term. If you're investing for the here and now, however, I think one of them has an advantage.
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VOO vs. QQQ: AI exposure is key
The biggest difference in the two funds is their tech exposure. The Vanguard S&P 500 ETF has 33% invested in tech, while the Invesco QQQ ETF is way up at 64%. That makes the latter more directly reflective of the artificial intelligence (AI) trade.
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The argument has been, for some time, that tech stocks are overvalued. As the big hyperscalers and chip manufacturers have developed and implemented AI solutions, revenues and earnings have grown substantially. That has dropped the forward price-to-earnings (P/E) ratio in the information technology sector down to 23. That's significantly lower than where it's been in recent years.
With earnings growth for the tech sector expected to be well into double digits for at least the next two years, there's still upside for this group from the AI trade.
In my opinion, the Invesco QQQ ETF represents the better trade right now. Earnings growth and AI development are likely to continue driving this market higher.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
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