If the Stock Market Crashes, This Is the First ETF I'm Loading Up On

The stock market is prone to crashes, with cycles of booms and busts being a recurring theme throughout its history. While nobody can predict when the next crash will occur, it's crucial to have a strategy in place. One potential option to consider is the Invesco QQQ Trust (QQQ), which may be the first ETF to load up on in the event of a crash.

Artificial intelligence has been a driving force behind the stock market's growth over the past few years. It has become a pivotal technology in recent decades, and the Invesco QQQ offers broad exposure to companies involved in AI. The ETF tracks the Nasdaq-100, a collection of leading technology companies.

Notable holdings within the ETF include Nvidia, Microsoft, Amazon, Micron Technology, Meta Platforms, Alphabet, and Tesla. These companies are heavily involved in AI, encompassing GPUs and memory for data centers, hyperscalers, and emerging industries like autonomous driving and robotics. The ETF has delivered impressive returns, up 98% over the past three years.

However, the rapid growth in AI has led to lofty valuations, with the Nasdaq-100 currently trading at a price-to-earnings ratio of around 30. While tech stocks tend to perform well in bull markets, they may experience significant declines during market downturns. Past crashes, such as the dot-com bubble burst in the early 2000s and the financial crisis later that decade, saw the QQQ plummet by 83% and 50%, respectively.

While it's uncertain whether the AI frenzy will trigger a market crash, there are risks to consider. Front-end model companies like OpenAI and Anthropic are chasing high valuations while still facing substantial financial losses. If these AI firms continue to burn through capital without generating profits, it could lead to challenges for the market as a whole.

Even if an eventual market crash occurs, it doesn't mean that the technology behind AI will be doomed. The internet experienced a bubble and crash before becoming a foundational pillar of the modern global economy. Similarly, AI could follow a similar path. In that case, the Invesco QQQ could serve as a valuable way to invest in the eventual recovery.