The Invesco QQQ Trust (QQQ) is an exchange-traded fund that formed in 1999, and gives investors a cheap and easy way to gain exposure to many of the hottest tech and tech-adjacent stocks on Wall Street.
The QQQ has been one of the best ETFs and best tech ETFs so far this year, with shares up more than 37% through the first half of 2023 vs a slimmer 15% return for the S&P 500. What's more, the QQQ has outperformed the broad market over the past three-, five-, 10-, and 20-year time frames, too.
This impressive performance is reflective of investors' appetites for riskier tech and growth stocks over the last two decades. You see, the QQQ tracks the Nasdaq-100 Index (NDX), which is made up of the largest domestic and global non-financial companies according to market capitalization that are listed on the Nasdaq Composite. These firms have long histories of growth and innovation.
More recently, the QQQ has seen strong returns thanks to surging demand for generative artificial intelligence (AI). Since the launch of OpenAI's ChatGPT, the industry has been transformed. More importantly, the growth is likely to be long lasting.
With this in mind, here are nine of the best QQQ stocks for investors to buy. The names featured among these best stocks to buy have a long history of growth and innovation, and each has a hand in AI – which could help accelerate expansion down the road.
Data is as of June 28. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
- Industry: Software – application
- Market value: $58.2 billion
- Dividend yield: N/A
Enterprise resource planning (ERP) software helps to manage a company's daily mission-critical activities like accounting, human resources, budgeting, procurement and compliance. For decades, the industry has been dominated by mega-operators like SAP (SAP) and Oracle (ORCL).
But there is a newer entrant in the market that is making significant headway: Workday (WDAY, $222.96). The company has more than 10,000 customers, which include over half of the Fortune 500.
It certainly helps that the Workday founders have a deep background in the industry. In 1987, Dave Duffield founded PeopleSoft, which was the pioneer of ERP. Aneel Bhusri was a top executive at that company, and is now the co-CEO of Workday.
In its latest quarter, WDAY reported $1.7 billion in revenue, up 17.4% on a year-over-year basis. Subscription revenue jumped by 20.1% to $1.5 billion. Operating cash flows were $277.3 million, and the company has $6.3 billion in the bank.
A key driver for Workday has been its heavy investments in AI. The company has been focused on this technology for close to 10 years – making it one of Wall Street's top AI stocks.
Unlike traditional ERP systems, Workday's is much more than just recording and tracking data. It has extensive abilities to provide deep insights to help managers make better decisions. There are also automations to streamline processes.
During its most recently reported quarter, the company announced various AI offerings. These include semantic search to improve employee feedback, sophisticated forecasting, and low-code capabilities.
"We approach AI and ML [machine learning] with a heavy emphasis on being human-centric, using these capabilities to augment people and organizations to make them more productive, better informed to make decisions, and to help them reduce business risk," Bhusri said on the company's earnings call. This strategy could help WDAY stay on this list of the best QQQ stocks.
- Industry: Software – infrastructure
- Market value: $58.4 billion
- Dividend yield: N/A
Cybersecurity remains a high-priority for senior executives. The costs of a breach can be enormous. And this is not only about monetary damages, but also the tarnishing of the brand.
What's more, the cybersecurity industry has thousands of players, which has added to the complexities for managing the technologies. As a result of this, there is more of a focus on vendor consolidation, with a report from Gartner indicating that 97% of enterprises are considering this strategy over the next three years.
This is good news for Fortinet (FTNT, $74.33). Founded in 2000, the company is one of the largest providers of cybersecurity. Fortinet has a platform that can meet the many critical needs for many customers – whether small organizations or global behemoths.
And the proof is in the pudding. In Q1 2023, FTNT reported total revenue of $1.3 billion, up 32% on a year-over-year basis. Cash flows from operations were an impressive $647.2 million, compared to $396.1 million in Q1 2022.
With its resources and large team of cybersecurity experts, Fortinet has continued to innovate at a rapid clip. The company has over 1,280 global patents and has made heavy investments in artificial intelligence – all of which will provide even more motivation for customers to consolidate on the company's platform.
Not only is FTNT one of the best QQQ stocks to watch going forward, but it is also a top cybersecurity stock for investors considering jumping in on this growing industry.
- Industry: Semiconductors
- Market value: $1.02 trillion
- Dividend yield: 0.04%
When it comes to AI, the focus is often on the software and advanced algorithms. But there is a critically important area that often does not get much attention: semiconductors.
Often AI is based on graphics processing units, or GPUs. These are able to process huge amounts of data in parallel. GPUs can also handle complex vector calculations particularly well – which is essential for AI.
Of course, the world leader in GPUs is Nvidia (NVDA, $411.17). CEO Jensen Huang was prescient in transforming NVDA to be an AI-focused firm, and as a result, it is now the world's most valuable chip company.
Currently, there is a shortage of GPUs because of the enormous demand for AI applications. Nvidia's chips are often selling at higher prices in the secondary markets.
In late May, Nvidia reported a 19% year-over-year jump in first-quarter revenue and guided for Q2 revenue of $11 billion, a hefty 64% improvement over Q1 2022. By comparison, Wall Street at the time was forecasting $7.2 billion in second-quarter revenue.
True, there is competition from semiconductor stocks like Advanced Micro Devices (AMD), as well smaller startups. But for now, NVDA has a huge lead in the market. A key factor is its Cuda software development kit, which is a standard in the industry.
Nvidia also continues to innovate its line of chips at a furious pace. For example, the company recently announced its state-of-the-art AI supercomputer, called DGX GH200 AI. Major tech and tech-adjacent companies like Microsoft (MSFT), Meta Platforms (META) and Alphabet (GOOGL) are already trying it out.
All of this together makes NVDA one of the best QQQ stocks to watch going forward.
- Industry: Software – application
- Market value: $42.9 billion
- Dividend yield: N/A
Atlassian (TEAM, $166.89) develops software for organizations of all sizes to help with coding, project management and customer service. Some of its tools include Jira, Trello, Confluence and Bitbucket. The customer base is over 250,000.
Like many other software companies, Atlassian has felt the impact of macro pressures, with many customers cutting back on IT expenditures.
Still, Atlassian has still been able to churn out strong top-line growth. For the fiscal third quarter, the company reported a 24% year-over-year increase in revenue to $915.5 million. There was also positive cash flows from operations of $352.4 million.
Atlassian does have some advantages to weather the storm. The company's products have competitive pricing and they have shown strong results in terms of increasing efficiencies and productivity.
Then there is AI. TEAM has the benefit of a massive user base, which provides valuable data.
Atlassian has also been able to quickly adopt generative AI into its own systems. With natural language prompts, users can easily create emails for customer situations or summarize large amounts of information.
TEAM has used the technology for its own internal service desk, which has resulted in 50% of requests having been resolved with little or no human intervention. This outcome is certainly a game changer – and will be of interest to customers in any macro environment.
- Industry: Software – application
- Market value: $31.6 billion
- Dividend yield: N/A
Datadog (DDOG, $98.15) builds software to help with observability and security. The systems – which are based on a cloud platform – monitor IT performance in real-time, provide log management and generate insights. As software becomes more pervasive, these kinds of technologies have become mission critical.
Perhaps this is why the macro environment hasn't had too much of an impact on one of the best QQQ stocks. During the latest quarter, DDOG said revenue jumped 33% year-over-year to $481.7 million. The company also generates substantial cash flows, which came to $133.8 million. There is about $2 billion in the bank.
A major driver for this growth is Datadog's strong focus on innovation. This has been bolstered by a "land and expand" strategy. In the first quarter, about 81% of customers were using two or more products, 43% were using four or more products and 19% were using six or more products. This has created a powerful flywheel that should help propel growth for the long haul.
AI is another booster. This technology needs sophisticated data management and monitoring systems in order to succeed.
As proof, CEO Olivier Pomel highlighted one Datadog customer in the company's Q1 earnings call. This top AI company implemented six Datadog products to address "an order of magnitude increase in user demand and a surge in new customers following enormous innovation and interest in generative AI," Pomel said. And this resulted in an eight-figure ARR (annual recurring revenue) deal for DDOG.
- Industry: Software – infrastructure
- Market value: $2.5 trillion
- Dividend yield: 0.8%
Given the massive size of blue chip stock Microsoft (MSFT, $335.85), it is impossible for the company to be immune from the economic turbulence. This was witnessed in MSFT's most recent earnings report. Revenue was up only 7% to $52.9 billion, primarily because of the weakness in the Windows business.
Yet this was still better than what Wall Street was expecting. There was also lots of optimism from generative AI.
Back in 2019, Microsoft invested $1 billion in OpenAI. This was followed with several more hefty investments. Then, in early 2023, Microsoft invested a whopping $10 billion in the company, sending its ownership stake to 49%.
So yes, when it comes to generative AI, MSFT is aligned with perhaps the hottest company in the category – and that is one of the reasons it is on this list of the best QQQ stocks.
Specifically, this investment is helping to fuel growth of Microsoft's Azure cloud platform. MSFT had to build a supercomputer to manage the complex workloads of generative AI. This is certainly a highly unique and valuable asset. In fact, if customers want to leverage the benefits of OpenAI, the best way is through Azure.
Additionally, Microsoft is quickly infusing generative AI through its product line, including with Office 365 and Teams. This integration could allow the company to aggressively move into other lucrative categories like CRM (customer relationship), and potentially leverage its LinkedIn platform to take on fellow Dow stock Salesforce (CRM).
All this is still very early. But Microsoft is working fast to capitalize on its advantages, which bodes well for growth down the road.
- Industry: Internet content & information
- Market value: $1.5 trillion
- Dividend yield: N/A
Alphabet (GOOGL, $120.18) is one of the pioneers of generative AI. It was the company's researchers that wrote the pathbreaking paper on this topic, "Attention Is All You Need."
Yet Alphabet was slow to adopt and commercialize the technology. And when ChatGPT was launched, there was a desperate scramble to catch up.
Despite all this, it does seem that the company has gotten back on track. This was evidenced at the Google I/O developers conference, where Alphabet showcased its latest cutting-edge generative AI technologies. GOOGL also announced aggressive efforts to infuse these in the various product lines like Google Workplace and Maps.
With Alphabet's massive resources and large numbers of engineers, it's in a good position to be a leader in the generative AI market – and remain on this list of the best QQQ stocks.
Granted, there are still risks with the company. After all, advertising revenues have been soft because of the macro pressures. But then again, the latest quarter did show stabilization. More importantly, Alphabet is likely to get a lift from generative AI.
- Industry: Software – infrastructure
- Market value: $77.5 billion
- Dividend yield: N/A
Founded in 2005, Palo Alto Networks (PANW, $254.18) is one of the world's top cybersecurity firms. The company has built one of the most comprehensive platforms that spans across categories like network security, secure access service edge, cloud security and security operations. All these are mission-critical for enterprises.
PANW is also a leader with zero-trust solutions. This is the next-generation approach that allows for improved security, higher efficiency and lower costs.
In the fiscal third quarter, Palo Alto Networks reported revenue of $1.7 billion, up 24% on a year-over-year basis. Adjusted net income jumped by 86% to $359 million.
As a testament to the strategic importance of the technology, PANW is getting more traction with larger accounts. During the most recently reported quarter, there was a 136% increase in the number of deals in excess of $10 million and a 62% increase for those above $5 million.
Generative AI is certainly a high priority for this top QQQ stock. The company has the benefit of a massive data infrastructure, with analysis of 750 million new objects each day.
What's more, Palo Alto Networks is building its own large-language model (LLM). This will not only allow for improved security but also enhance the company's internal operations. Given PANW's scale, it is one of just a few firms that can build its own LLMs. This should be a major competitive advantage for the cybersecurity vendor going forward.
- Industry: Semiconductor equipment & materials
- Market value: $288.1 billion
- Dividend yield: 1.4%
ASML (ASML, $724.19) got its start in 1984 in the Netherlands. The company was a venture between Philips and Advanced Semiconductor Materials International, a leading semiconductor manufacturing firm. The focus of ASML was on developing advanced lithography systems that allow for using light for projection, such as to print silicon wafers.
The company grew quickly to become the dominant player in its market. And this has continued to today, which is why ASML is on this list of the best QQQ stock.
ASML is the global leader in extreme ultraviolet (EUV) systems, which are critical for chips in data centers, smartphones, game consoles and automobiles. It's one of the world's most complicated technologies, and its platform can sell for up to $200 million.
For 2023, ASML projects sales to grow over 25%, but this could prove to be too conservative. The main reason is the impact of AI. The company's technologies are essential for advanced applications, such as with GPUs. They also allow for operations with massive global scale. All in all, ASML could be poised for an acceleration of growth.
