By now, most investors know that the tech sector has come to dominate the stock market.
Currently, the seven most valuable companies traded on U.S. exchanges all hail from the tech sector. Those are Apple, Nvidia, Microsoft, Alphabet, Amazon, Meta Platforms, and Taiwan Semiconductor Manufacturing, and those stocks combined have a market cap of roughly $17 trillion, which is more than a third of the entire S&P 500.
The sector has come to lead the stock market because this group of stocks represents the emerging technologies that have become some of the biggest drivers of the economy, including consumer electronics, semiconductors, software and cloud infrastructure, digital advertising, e-commerce, social media, and chip manufacturing.
If you wanted to capitalize on that tech boom, the easiest way to do so would be by buying the Invesco QQQ Trust (QQQ -1.33%), the largest ETF that tracks the Nasdaq-100 index, which is made up of the 100 largest companies on the Nasdaq Composite, and that would have grown handsomely over the last 10 years.
As you can see from the chart, if you had invested $10,000 in the Invesco QQQ Trust a decade ago, you'd now have more than $50,000.
Based on those gains, the Nasdaq-100 grew at a compound annual rate of 18% over the last decade.
It's not guaranteed that the Nasdaq 100 will continue to deliver a CAGR of 18%, but if it does, that kind of growth would allow you to invest $250 a month and grow that investment to $1 million after 25 years.
Will the QQQ trust grow that fast?
An 18% CAGR over 25 years might seem unlikely, especially as the Nasdaq-100 is now trading at a price-to-earnings ratio of 32, meaning that gains from here aren't likely to come from multiple expansion.
Still, tech stocks are at a unique point, as the artificial intelligence (AI) revolution could arguably be as transformative as the internet, and that could drive accelerated growth, especially from some of the larger tech stocks. For instance, analysts expect Nvidia's earnings per share to double in the current quarter, and in fiscal 2026, which begins in February 2025, the consensus calls for earnings per share to grow 43% to $4.06.
Taiwan Semiconductor just reported a 54% increase in earnings per share, showing that the AI growth boom could have a lot of room to run.
Additionally, the push to artificial general intelligence, which some tech CEOs expect to be achieved within the next five years, is also likely to drive a boom in the tech sector, as that technology could unlock further gains for the biggest tech stocks.
There's also the potential for autonomous vehicle technology to unleash massive gains in stocks like Alphabet, which owns Waymo, and Tesla, as Cathie Wood has speculated that its valuation could reach $5 trillion if its robotaxis take off.
Image source: Getty Images.
Why the QQQ Trust will continue to be a winner
It's impossible to predict the compound annual growth rate of the Invesco QQQ Trust, especially over a length of time as long as 25 years.
However, the tech-heavy index looks like a good bet to deliver strong returns and outperform the S&P 500 as the tech industry takes more market share from other industries. Like the S&P 500, the Nasdaq-100 also benefits from refreshing its holdings as companies enter or fall out of the 100 most valuable Nasdaq companies.
That formula has been a big winner since the dot-com bubble burst, and it looks poised to continue delivering strong results in the AI era.
