2 Reasons Why Selling the Invesco QQQ ETF Is Good for AI-Focused Investors

Artificial intelligence has dominated the stock market since the beginning of last year. The Invesco QQQ Trust ETF (QQQ 1.31%)a popular tech-leaning exchange-traded fund (ETF), has arguably been one of the best stocks for AI-focused investors. The ETF tracks an index of 100 prominent companies that trade on Nasdaqoffering investors instant diversification.

In other words, you don’t have to pick specific AI stocks; buy Invesco QQQ instead and wait for the winners to rise to the top. The ETF has outperformed the broader market for years.

However, tech stocks have felt a jolt recently; a burst of market volatility created one of the strongest selloffs in recent memory. While the market has rebounded somewhat since then, there could easily be more turbulence as elections approach and recession worries cloud the horizon. It’s a departure from the relatively smooth ride investors have enjoyed.

No, it doesn’t feel good when stock prices fall, but here are two reasons why this recent selloff is actually beneficial in the long run.

1. A sale may withdraw into assessments

The past 18 months have been remarkable for AI stock investors. The Invesco QQQ is up 78% since January 2023. A handful of big tech companies, the “Magnificent Seven” stocks, have helped boost those returns, but their share prices are rising faster than their underlying businesses. Below, you can see that the price-to-sales ratios for this group have increased tremendously since the AI ​​craze began in January 2023:

NVDA PS Ratio data by YCharts

These six actions, Nvidia, Microsoft, Apple, Amazon, Meta platformsand Alphabetthey combine for about 40% of Invesco’s QQQ. You may have contributed to driving the ETF above, but it can go both ways.

Great companies often have higher valuations, but stocks can become riskier as those valuations rise. Crashes can occur when valuations set incredibly high expectations and then something happens that sends investors running for the exits. That’s not to say the big tech stocks (and Invesco QQQ by extension) are at that point, but the selloff is healthy as they can recover valuations and reduce those risks.

2. It’s great for calculating dollar costs

As much as some may try to tell you, no one can really predict what the stock market will do. Trying to buy and sell on time in the stock market is like shooting darts blindfolded.

That’s why dollar cost averaging is an excellent investment strategy. Instead of trying to guess, investors buy stocks slowly and often over long periods. That could mean buying every week, month, or however you feel is best for your budget. Sometimes you’ll buy when the price goes up or down, but the goal is to average in between. Your investment won’t be at the absolute bottom, but it prevents you from buying at the worst possible time.

The Invesco QQQ has risen steadily over the past 18 months. Outside of the recent selloff, the ETF has only fallen 10% or more from its high once, and that was a short-lived decline in 2023:

QQQ data by YCharts

Those with a dollar cost averaging strategy have bought at increasingly higher prices over the past 18 months. A sell is an opportunity to purchase shares cheaper and maybe even lower the average cost. An old investment cliché says that the stock market is the only place where people exit the store when items go on sale. Invesco QQQ is a leading technology ETF that is a strong choice for any AI-focused investor. If you invest in a bright future with artificial intelligence, you receive a sale with a smile and open arms.