ETF Harness the growth potential of international innovation
Invesco
September 23, 2026
ETF Discovering the next generation of Nasdaq innovators
Key takeaways
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Many of today's NASDAQ-100 Index® companies didn't start there. Several firms "graduated" from the mid-cap NASDAQ Next Generation 100 Index as they grew.
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Many companies in the Nasdaq mid-cap universe have recently devoted substantial resources to research, development, and business expansion and have exhibited strong long-term fundamental growth versus peers.
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Mid-cap innovators extend well beyond technology, spanning health care, consumer discretionary, and industrial sectors.
Investors know household names like Apple, Microsoft, and Amazon.com at the top of the NASDAQ-100 Index. Less obvious is that these and other market leaders often began as smaller, fast-growing businesses before earning a place among the largest Nasdaq-listed companies.
Many NASDAQ-100 firms spent years as mid-sized businesses building products, winning customers, and reinvesting in research. Since 2010, 88 constituents of the mid-cap NASDAQ Next Generation 100 Index have graduated into the NASDAQ-100. As of June 30, 2026, 35 NASDAQ-100 members were former NASDAQ Next Generation 100 constituents.1 For investors, that history could point to the potential value of looking beyond today’s largest names to identify earlier-stage innovators with long-term growth potential.
Spending today for growth tomorrow
Research and development (R&D) spending is one of the clearest indicators of how aggressively a company is investing in innovation. It shows how much capital management is directing toward new products, services, and intellectual property that may support future revenue growth.
Historically, NASDAQ Next Generation 100 Index companies have tended to reinvest in R&D at higher rates than their mid-cap growth peers. Nasdaq mid-cap companies’ R&D expense as a percentage of revenue reached 7.4% in 2023, 7.2% in 2024, and 6.4% in 2025. Those levels were considerably higher than the R&D expenses of companies in the Russell Midcap Growth Index, which were 4.8%, 1.7%, and 1.3% of revenue over the same three years.
The gap has been wider still in dollar terms. On a weighted-average basis over the trailing year, NASDAQ Next Generation 100 firms spent roughly 2.6 times more on R&D than Russell Midcap Growth constituents and about 7 times more than S&P MidCap 400 companies.2
Of course, spending on R&D is not a guarantee of success. Sustained reinvestment at this level, though, says something about how these management teams are allocating capital. R&D spend can be an indicator that companies are trying to build something that does not exist yet.
Beyond recent R&D spending, NASDAQ Next Generation 100 companies have also exhibited strong long-term fundamental growth versus other mid-cap peers. For investors seeking growth potential, those characteristics may make Nasdaq mid-caps worth a closer look.
Innovation isn’t just technology
There's a common assumption that "Nasdaq innovation" means technology, such as software and semiconductors. While these types of companies are prevalent in the NASDAQ-100, the mid-cap index composition tells a different story.
Technology accounts for 28% of the NASDAQ Next Generation 100 Index, but health care follows closely at 23%, consumer discretionary at 19%, and industrials at 14%. Energy, utilities, basic materials, telecommunications, consumer staples, and real estate make up the balance.3 That sector mix can help investors pursue multiple sources of future growth potential while reducing reliance on a single area of the market. At the same time, many mid-cap companies remain connected to today’s most powerful economic drivers, including artificial intelligence (AI).
Where AI shows up in mid-caps
Most AI-related conversations focus on hyperscale platforms and the largest semiconductor companies, including a few NASDAQ-100 constituents. Those companies are important, but they represent only one part of the AI ecosystem. Infrastructure providers, software developers, data companies, digital services firms, and component suppliers all help support AI capabilities. Roughly 65% of global servers, for example, are not equipped to handle AI workloads, which may indicate sustained demand for the components required to upgrade and expand that infrastructure.4
Several NASDAQ Next Generation 100 companies sit squarely in the AI supply chain, developing the components needed to help keep up with AI’s rapid acceleration.
- FLEX Ltd. develops AI infrastructure platforms for data centers. AI’s significant computational requirements have generated demand for more efficient data centers, which now account for about 25% of the company’s total revenue.5
- Tower Semiconductor Ltd. produces silicon photonics (SiPho), which can help enable AI data center optical connectivity at scale. The company has a $680 million-plus revenue run rate from SiPho production as of Q2 2026, and it has $1.3 billion contracted for 2027.5
- Sterling Infrastructure, Inc. is a prominent data center site contractor and about 30–40% of the company’s revenue comes from data center development.5
Together, these companies show how mid-cap firms can participate in major growth themes before they become dominant large-cap names, providing another avenue for potential long-term growth exposure.
Growing from mid-cap to large-cap
There are clear examples of former mid-cap companies that innovated, scaled, and ultimately qualified for inclusion in the NASDAQ-100. In December 2025, Seagate, Western Digital, and Monolithic Power Systems all moved from the NASDAQ Next Generation 100 into the NASDAQ-100. Each participated in the AI data-center build-out that has helped to drive demand across storage and power-management components. All three firms grew in market capitalization, which qualified them for inclusion in the NASDAQ-100, among other considerations.6
Accessing the next generation of innovators
Mid-cap innovators have often been the companies building key technological infrastructure, expanding addressable markets, and reinvesting for future growth. Exposure to these mid-cap firms may complement established large-cap Nasdaq companies by providing access to a different stage of the innovation lifecycle, along with diversification across sectors and business models.
For investors considering exposure to mid-cap innovators, the Invesco NASDAQ Next Gen 100 ETF (QQQJ) tracks the NASDAQ Next Generation 100 Index, which holds the 100 largest non-financial companies listed on Nasdaq outside the NASDAQ-100. The fund offers access to companies that may be earlier in their growth cycle, with the potential to become NASDAQ-100 constituents if they scale.
While not every mid-cap innovator will become a future market leader, many established Nasdaq companies began by scaling through investment, product development, and market expansion. QQQJ provides diversified exposure to companies seeking to follow a similar path.
Important Information
NA5918283
Compound annual growth rate (CAGR) represents the rate at which an investment would have grown if it had grown at the same rate every year and the profits were reinvested at the end of each year. CAGR is not a true rate of return and is not influenced by interest rate changes or the volatility the investment might experience over the period.
The NASDAQ-100 Index includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq.
The NASDAQ Next Generation 100 Index includes securities of the next generation of Nasdaq-listed non-financial companies; that is, the largest 100 Nasdaq-listed companies outside of the NASDAQ-100 Index.
The Russell Midcap Growth Index is a market capitalization-weighted index comprised of 800 publicly traded US companies with market caps between $2 billion and $10 billion.
The S&P 400 Index is comprised of 400 companies selected as broadly representative of companies with mid-range market capitalization (market valuation between $200 million and $5 billion).
AI hyperscale platforms are cloud environments engineered specifically for the extreme computational, networking, and storage requirements of AI capabilities.
Past performance is not a guarantee of future results.
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Artificial intelligence (AI) technology companies are sensitive to specific risks such as small markets, business cycle changes, economic growth, technological progress, obsolescence, and regulation. These companies may have limited products, markets, resources, or personnel, making their securities more volatile, especially for smaller start-ups. Rapid technological changes can adversely affect their results. AI companies often rely on patents, copyrights, trademarks, and trade secrets to protect their technology, but there's no guarantee these protections will be sufficient. Significant research and development (R&D) spending doesn’t ensure product or service success.
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