Tech stocks have been on a tear this year following their underperformance in 2022 — and CNBC “Mad Money” host Jim Cramer took to Twitter to laud the performance of one key exchange-traded fund related to the tech sector.
What Happened: “The outperformance of the QQQs is pretty amazing,” Cramer tweeted Friday, referring to the Invesco QQQ Trust (NASDAQ:QQQ).
QQQ is an ETF that tracks the Nasdaq-100 Index, which includes Apple, Inc. (NASDAQ:AAPL), Alphabet, Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG) and Microsoft Corp. (NASDAQ:MSFT). These companies are at the forefront of transformative technologies, such as augmented reality, cloud computing, big data, mobile payments, streaming services, electric vehicles and more. Microsoft and Apple are the index’s top components, with weightings of 12.58% and 12.24%, respectively.
In the year to date, QQQ has gained about 14.7%, compared to the 2.4% gain by the SPDR S&P 500 ETF Trust (NYSE:SPY), an ETF that tracks the S&P 500 Index (a broader gauge of the market).
Chart Courtesy of BenzingaPro
Incidentally, QQQ was down 32.6% in 2022, underperforming the SPY, which was down a more modest 18%.
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Techs Stage Comeback: The underperformance has clearly benefited the tech sector, as investors look upon many of them as bargain buys.
Following a string of aggressive rate hikes the Fed has implemented since March 2020, most expect the central bank to either ease up on or pause rate hikes due to a slowdown in inflationary pressure. That belief has gained ground in the wake of the recent banking crisis. A pause by the Fed is seen as a prerequisite for kicking growth into top gear.
When economic conditions improve, growth stocks, such as techs, usually lead the market's recovery.
Because innovation is key to growth, forward-looking technologies, such as OpenAI’s ChatGPT, have gained popularity recently. In fact, several high-profile tech companies have set their sights on artificial intelligence and machine learning — the technologies behind chatbots — either as facilitators or adopters. In January, Microsoft reportedly struck a $10 billion deal with OpenAI for integrating GPT-4 into its Bing search engine and cloud applications. Alphabet is similarly developing its own version of the chatbot. And given its expertise in producing AI chips, Nvidia Corp. (NASDAQ: NVDA), a multinational company based in California, is expected to be the biggest beneficiary of this trend.
The set-up for tech names represents a "compelling risk/reward" heading into the rest of the year for high-quality tech names, Wedbush analyst Daniel Ives said in a recent note.
“While it sounds like Twilight Zone comment to many investors; tech stocks have become the new safety trade with Big Tech names a major beneficiary of this dynamic,” he added.
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