The S&P 500 is close to record highs, but valuation still matters.
Some growth ETFs offer more targeted exposure to the market’s strongest themes.
Investors should balance AI-driven upside with concentration and interest rate-related risks.
The S&P 500 (SNPINDEX: ^GSPC) index closed at 7,537 on July 6, around 1% below its recent record closing high of 7,610 (as of June 2, 2026). The S&P 500 is trading at a forward 12-month price-to-earnings (P/E) ratio of 21.3, above its five-year average P/E of 19.9 and 10-year average of 19.
However, investors do not have to avoid the market altogether. Instead, they can opt to buy shares of the Invesco Nasdaq 100 ETF (NASDAQ: QQQM). This ETF was trading at a forward P/E of 25.1 (as of June 30), according to Invesco. But the ETF offers a more direct exposure to artificial intelligence (AI), cloud computing, semiconductors, and large technology companies that have helped drive the recent market rally.
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The Invesco Nasdaq 100 ETF tracks the Nasdaq-100, which is designed to measure the performance of 100 of the largest Nasdaq-listed non-financial companies. Hence, its holdings are heavily exposed to the AI supply chain, including chipmakers, cloud platforms, and large technology companies that use AI across their products.
The Invesco Nasdaq 100 ETF’s largest holdings include Nvidia, Apple, Micron Technology, Microsoft, and Amazon. The top 10 holdings also accounted for about 47.4% of the ETF’s total assets. Since the ETF is more exposed to the companies driving the AI-led market rally than a standard S&P 500 fund, it may have stronger growth potential than the broader index.
The Invesco Nasdaq 100 ETF also charges a 0.15% management fee. The ETF had 104 holdings and a market value of $98.27 billion as of July 2, 2026. While not the cheapest ETF on the market, it is a low-cost way to track the Nasdaq-100 index.
Additionally, FactSet expects S&P 500 earnings to rise 23.3% year over year in the second quarter and 24.1% for full-year 2026. The strong earnings outlook gives investors a better backdrop for owning growth-focused ETFs.
The Invesco Nasdaq 100 ETF is more concentrated, more volatile, and more dependent on a narrow group of winners than ETFs tracking the S&P 500 index. While that structure can help boost investor returns when AI and technology stocks are rallying, it can also hurt returns when investors rotate away from expensive growth stocks.
Inflation is also elevated, with the Consumer Price Index up 4.2% over the 12 months ending in May 2026. The Federal Reserve also kept rates at 3.5% to 3.75% in June, as inflation remains above its 2% goal. If rates stay high for longer, investors may become less willing to pay premium valuations for growth-focused ETFs.
The labor market is another mixed signal. U.S. employers added only 57,000 jobs in June 2026, below Reuters-polled economists’ expectation of 110,000. While a softer job market could reduce pressure on the Federal Reserve to raise rates soon, it can also hurt consumer spending and corporate earnings.
So, the Invesco Nasdaq 100 ETF is not the right choice for investors seeking maximum diversification or income. But for long-term investors who want more direct exposure to AI infrastructure, semiconductors, cloud platforms, and the market’s most important growth companies, it could be a smarter buy than a standard S&P 500 ETF right now.
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Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Micron Technology, Microsoft, and Nvidia. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
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