With Nvidia’s stock price continuing to rise on the back of artificial intelligence hype, some investors are becoming increasingly concerned about the sustainability of the company’s valuation. Despite currently trading at a 2.5% free cash flow (FCF) yield for next year, which is lower than its historical 4% FCF yield before the pandemic, caution is advised. However, Hannah Gooch-Peters, a global equity investment analyst at Sanlam Investments, believes that there may be other stocks with similar operating profit margins to Nvidia’s 60% that could present more sustainable investment opportunities.
In contrast to Nvidia’s focus on AI, many tech companies are investing in developing infrastructure for the technology in order to remain competitive in the rapidly growing market. As AI continues to grow in demand and become more power-intensive, companies that can provide efficient and cost-effective solutions will be well-positioned to benefit from this trend. Aaron Dunn, a portfolio manager at Morgan Stanley Investment Management, has identified one stock that he believes will benefit greatly from this trend: Advanced Micro Devices (AMD).
AMD is a semiconductor company that produces high-performance CPUs and GPUs used in data centers and PCs. The company has been making significant investments in AI research and development over the past few years and has also partnered with major tech companies such as Microsoft and Amazon to develop AI solutions. Additionally, AMD’s products have been shown to be highly energy efficient compared to other brands on the market. As demand for AI continues to grow, AMD is well-positioned to benefit from this trend due to its focus on efficiency and partnerships with major players in the industry.
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