Software Stocks Quietly Sold Off – Snap Up This Undervalued Tech ETF

PNQI is different since it does not invest in pure tech stocks and applies that “internet” label very liberally. IGV is 90%-plus tech, and PNQI is only 30% tech. This is a good thing today, and it will likely be a good thing going forward. But again, there will be instances where the composition will work against this ETF.

Those who bought this ETF during the post-pandemic AI bubble learned it the hard way when PNQI fell in the ensuing selloff. We are not in that environment, and I don’t expect a sharp selloff from here, but that’s something to keep in mind just in case you don’t like e-commerce or fintech.

I believe e-commerce is a plus, since many of these are deeply discounted stocks. The market’s hopes may have been dashed for several significant rate cuts this year, but more rate cuts are still expected in the coming years, as they’re still high. Speaking of high, PNQI’s expense ratio is 0.60%, or $60 per $10,000. It’s a little pricey, but I do think you’re getting your money’s worth.

PNQI doesn’t have many “pure AI” holdings in its portfolio. The hyperscalers themselves have advertising or e-commerce businesses and remain highly profitable. On the other hand, an ETF like IGV has Palantir (NASDAQ:PLTR) as its third-largest holding.

Will we see a second leg up where investors push PLTR stock to over $500? Probably not. It’ll probably tread water, and so will most other software AI stocks that are still overvalued.

PNQI is far less risky, and the average price-to-earnings ratio of its holdings is below 25x.

Better yet, you get a little international exposure on the side. Foreign stocks held by PNQI are in the low to high teens, and these have not only softened the software blow but have also added to its gains during rallies. International stocks are expected to continue outperforming their U.S. counterparts as the dollar normalizes and countries worldwide continue cutting interest rates. This is mainly why I’m choosing PNQI, even above the First Trust Dow Jones Internet Index Fund (NYSEARCA:FDN).

A software and a hyperscaler rebound can push PNQI up by over 20% this year. Earnings and revenues are still rising in this sector, so PNQI could end up rallying 30-40% in the next 12 months.

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