The stock market has been falling in recent weeks, and many tech stocks have been performing especially poorly. Since the start of the year, the S&P 500 is now down more than 4%. And the Technology Select Sector SPDR Fund, which tracks the tech sector of the broad index, has plummeted by around 9%. High valuations in tech have been a problem for a while, and soaring expectations related to artificial intelligence (AI) certainly don't help.
However, not all tech stocks are struggling. There's even a tech-focused exchange-traded fund (ETF) that's doing incredibly well this year, up more than 25%. And best of all, it has the potential to go even higher. The fund I'm talking about is the Invesco China Technology ETF (NYSEMKT: CQQQ).
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Why the Invesco China Technology ETF has been doing well this year
In recent years, tech stocks have performed fairly well for investors. But Chinese-based stocks have largely underperformed, due to concerns related to government overreach in the country, and just how safe those investments really are.
But earlier this year, AI company DeepSeek rolled out an AI model that was on par with its North American counterparts, including ChatGPT. And particularly unsettling for the U.S. markets, it was supposedly at just a fraction of the cost. That suggests a lot of spending on AI may not be money well spent. And if Chinese companies are able to produce similar types of chatbots, they may be better investment opportunities given the lower cost of labor in China.
In the chart above, you'll notice that for the first month, the China Technology ETF was performing similarly to the S&P 500 and the tech sector. But as DeepSeek rattled the markets toward the end of January and investors began to pay more attention to Chinese tech stocks, a gap began to emerge, with the Chinese-focused fund soaring higher ever since.
The China Technology ETF still has more room to run
Although the China Technology ETF is up significantly this year, it may not be too late to invest in it. The fund averages a forward price-to-earnings multiple of just 19. That's cheap when you compare it to the Technology Select Sector SPDR Fund average of nearly 26. Plus, tariffs could weigh down U.S.-based tech companies for as long as they remain intact. Chinese tech companies, which are focusing primarily on Chinese markets, may be safer investment options by comparison. While that doesn't mean they won't be exposed to tariffs, the risk may be much more modest.
Tencent, PDD Holdings, and Baidu are among the top holdings in the ETF, and they are among the best Chinese stocks to own.
Baidu recently rolled out a new AI model, Ernie X1, which it says can rival DeepSeek and is only half the price. Meanwhile, earlier this month, Tencent's AI chatbot, Yuanbao, overtook DeepSeek on the Apple iOS app store in China as the most downloaded free app. It has been soaring in popularity after the company revamped it with DeepSeek's reasoning model. The other stock noted, PDD Holdings, is the e-commerce giant that owns Temu, one of the most popular online marketplaces in the world. All three of these stocks are promising buys all on their own. And within this ETF, investors get exposure to all of them, and more.
Is this ETF worth putting in your portfolio today?
Investing in Chinese stocks can be a great way for you to diversify your portfolio. Plus, this ETF can give you a way to tap into some undervalued tech stocks that have a lot of room for more growth, particularly due to AI. The Invesco China Technology ETF has been surging this year and with a modest valuation, it can be one of the better ETFs to invest in today.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Baidu, and Tencent. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
