R&D: A long-term investment

Key takeaways:

• Companies in the Nasdaq-100® Index consistently dedicate a higher share of revenue to research and development (R&D) than the broader market, underscoring their commitment to long-term growth.
• Nvidia and Amazon exemplify how large, sustained R&D and capital investments can drive innovation in transformative areas like AI and cloud computing.
• While R&D can weigh on near-term earnings, a culture of innovation often lays the groundwork for products and services that fuel future profitability.

Investments are made for the long term. Wouldn’t it be nice to know that the companies you invest in have the same focus on the future? Innovation can fuel a company’s growth, but it doesn’t happen overnight. Rather, it is the result of a disciplined approach to investing in and executing strategic plans.

Innovation takes time—very often years—and can be expensive. For example, it wasn’t so long ago that Nvidia was considered to be just a gaming company. Today, it is one of the largest companies in the world with a dominant position in hardware and software tools powering the artificial intelligence (AI) revolution. Nvidia’s explosive growth has been fueled, in part, by the company’s investment in its own future.

One way to measure a company’s dedication to innovation is to look at its investment in R&D. Nvidia spent $8.28 billion on R&D for the six months ended July 2025, up 42.5% from the year-ago period.¹ In September 2025, the company announced a £2 billion investment in the UK’s AI ecosystem.²

“This is the age of AI—the big bang of a new industrial revolution,” said Jensen Huang, founder and CEO of Nvidia. “AI is unlocking new science and sparking entirely new industries.”²

Nvidia’s R&D spending is a reminder that complacency is a risk even for industry leaders, especially in the rapidly changing world of AI. Staying on top typically requires investing in the future to fend off competitors hungry to cut into market share. The proof is in the pudding: In its fiscal quarter ended July 2025, Nvidia reported a 55.6% year-over-year increase in revenue, remarkable growth for one of the market’s largest companies.¹

Amazon is another tech leader known for investing in R&D. In 2023, the company spent $48.1 billion on capital expenditures, which includes R&D, and another $77.7 billion in 2024.³ The company is betting on AI with services like Alexa Plus and generative AI capabilities for its cloud computing unit Amazon Web Services (AWS).⁴

Amazon is spending “a pretty significant amount” on capital expenditures, and “the lion’s share of it is on generative AI,” CEO Andy Jassy said.⁴

Finally, Microsoft is another leader investing deeply in AI and cloud innovation. In its 2024 fiscal year, Microsoft spent $29.5 billion on R&D to drive advances in Azure AI, Copilot, and cloud infrastructure.⁵

AI and large language models require massive capital expenditures because they depend on vast computing infrastructure—specialized chips, energy-intensive data centers, and high-bandwidth networks—that must scale quickly to train and run increasingly complex models.

A focus on R&D

Ironically in today’s world, one way to increase profitability has been to cut R&D investments. For accounting purposes, R&D can be a drag on earnings in the year the investment is made, but for many companies this commitment to development offers the potential for higher sales and profitability down the road.

Scrimping on R&D may be penny-wise and pound-foolish. In other words, spending on R&D and creating a culture of innovation can be a long-term commitment that usually doesn’t yield immediate results.

On average, companies within the Nasdaq-100® Index (Invesco QQQ’s underlying index) have consistently allocated a higher percentage of their revenue to R&D over the past three years compared to those in the S&P 500® Index. This continuous investment highlights their steadfast commitment to innovation and long-term growth.

In fact, 63 companies in the Nasdaq-100 (representing 79% of index weight) recently filed patents across one or more of 35 key areas of Disruptive Technology.⁶

A culture of innovation

We believe most companies held within QQQ have established a culture of innovation, and that their commitment to R&D has led to considerable exposure to a number of growing, transformative themes.

Some of these themes and technologies might contribute to a company’s bottom line today, while others may be future drivers of earnings growth 5, 10, or even 20 years down the road.

No matter how much the market environment changes, the desire and need to innovate remains constant. We think companies will continue to lay the groundwork for better products and new services as innovation continues to push us into the future.