With 2025 starting things off with a 6% dip in the Mag Seven-heavy Nasdaq 100, now seems like the perfect time to add to a position if you still believe in big tech and the productivity (and earnings) gains to be had from the ongoing evolution of artificial intelligence (AI) technologies. Indeed, generative AI could take an agentic turn in 2025 as more firms look to offer AI agents (think of it like autopilot) that have more autonomy in the decision-making process.
Indeed, whether such agents can unlock next-level value for providers and their clients remains a big question. Arguably, some firms are already creating ample value for their early customers. In any case, I think some very strong arguments can be made that high-tech firms with lofty multiples may still be worth paying a premium price tag for.
Perhaps higher prices are justified for higher-growth stocks.
Sure, some are bearish over above-average valuations. But others, including Bank of America (NYSE:BAC | BAC Price Prediction) equity strategist Savita Subramanian, think stretched multiples are really nothing to sweat, given corporate investment in efficiency, which seems to be ongoing, with Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META) recently committing to laying off a large number of lower performers in the new year.
In fact, Subramanian thinks the current environment “rhymes with the early 80s efficiency boom, and today’s equity risky premium is close to average levels” during that era. Indeed, I think Subramanian has a very good point that drives home the case for continuing to own the biggest and brightest technology companies, even in their moment of weakness. But the big question is by what means should investors seek to invest in America’s growth companies?
On the one hand, there’s the passive, low-cost option in the Invesco QQQ Trust (NASDAQ:QQQ), which follows the Nasdaq 100 itself. On the other hand, there’s the active approach with ETFs like the T. Rowe Price Blue Chip Growth Fund (NASDAQ:TRBCX).
Invesco QQQ Trust
The QQQ is really a go-to option if you want heavy exposure to the Mag Seven and other large-cap tech innovators that are continuing to drive efficiencies and AI innovations.
As a cap-weighed index, the Q’s, as they’re often referred to, have even more exposure to the Mag Seven than the S&P 500. Some people are jittery over extended multiples in mega-cap tech and want less concentration in the Mag Seven. However, if you’re like many other tech bulls willing to embrace the latest 6% slip in the Nasdaq 100, perhaps more concentration is the better way to go.
Additionally, you gain exposure to a wide range of fast-rising tech firms that may very well appreciate by enough to become part of a future cohort that succeeds the Mag Seven. Perhaps the top reason to go for the QQQ is the low expense ratio (just 0.2%) made possible by the hands-off passive approach. If you’re a long-term investor, perhaps the “mini” version — Invesco QQQ Trust (NASDAQ:QQQM) — of the ETF is worth going for, which knocks down the total expense ratio to 0.15%.
T. Rowe Price Blue Chip Growth Fund
If you want active management in the realm of high-growth, the TRBCX, a large-cap-focused growth fund, may be worth the extra fees. As it stands, the net expense ratio is at 0.7%. That’s markedly higher than the QQQ, but not all too hefty given the active management who’s striving to pick and choose blue-chip growth stocks they believe can fare well over time.
Indeed, if you’re a bigger fan of trusting the expertise of a seasoned fund manager specializing in growth stocks rather than an “arbitrary” rules-based approach of the QQQ (it only includes Nasdaq-listed stocks with liquidity criteria with the occasional rebalancing), the TRBCX may we worth checking out.
Looking under the hood of the fund, you’ll find many of the same names you’d see in the Nasdaq 100. Notably, the TRBCX has ample exposure to the Mag Seven names. However, you’ll also see some high-growth innovators who were excluded from the Nasdaq just because their shares traded on the NYSE, making them ineligible for inclusion into the Nasdaq 100.
Indeed, Eli Lilly (NYSE:LLY), ServiceNow (NYSE:NOW), and the creditcard firms are just examples of “wonderful” growth companies excluded from the QQQ just because they’re on the NYSE over the Nasdaq. Whether exposure to these high-growth NYSE innovators and active management warrants the extra fees is up for debate.
Either way, the TRBX has trailed the QQQ in the past two years, gaining 68.9% versus the 79.4% offered by the Q’s. With a steeper recent pullback of nearly 13% versus a 6.2% plunge in the QQQ, I’d argue that the TRBX is a timelier buy-the-dip option right now.
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