The artificial intelligence (AI) boom has been ramping up recently. I reckon there are some great FTSE options to capitalise on it.
Instead of the burgeoning Nvidia (NASDAQ: NVDA) shares, I’d love to buy Volex (LSE: VLX) shares when I next have some investable funds.
Here’s why!
Nvidia shares continue their great run
I’m not saying Nvidia’s recent performance and share price ascent isn’t worth taking a closer look at.
The business seems to be the hot AI stock of the moment, and continues to churn out excellent results consistently.
However, for me, I’m looking for stocks that offer a better entry point, and a different play on the AI revolution.
Nvidia continues to be a popular stock among investors, but for me, it could be a victim of its own success. For example, the shares now trade on a price-to-earnings ratio of 46! This is higher than more established tech firms including Alphabet and Meta!
Is growth already priced in? Plus, if sales were to drop, could the share price fall off a cliff? I’ll be watching with interest, but I won’t be buying the shares any time soon.
The grunt work behind the magic of AI
It may not be instantly apparent where Volex can capitalise on the AI boom. After all, the business is a manufacturing business specialising in interconnect solutions. These include high-speed copper, fibre optic, and other cables. However, it is an industry leader in data centre cables.
Data centre cables are key to run, you guessed it, data centres. These data centres play a crucial role in AI as huge amounts of data is needed to configure and execute AI.
Volex shares are up 21% over a 12-month period from 287p at this time last year, to current levels of 348p.
Data cables may not be the most direct, or glamorous, route to capitalise on the AI revolution, but I reckon this is a great way to gain exposure, at least for me and my holdings.
The shares trade on a price-to-earnings ratio of 16, which I consider decent value for money. Plus, a small dividend yield of 1.2% could grow. However, I do understand that dividends are never guaranteed.
Finally, Volex’s most recent FY results for the year ended March 2024 made for good reading. The key takeaways for me were increases in revenue, operating profit, and its final dividend. However, the firm’s net debt did rise, which could have an impact on its balance sheet.
From a bearish view, the firm is rather small, which means it could be prone to more volatility, and even takeover bids from larger firms out there. Plus, Volex has a track record of acquisitions. These are great to boost growth when they workout. However, only one bad one could have untold financial and reputational damage, not to mention hurting investor sentiment.
Overall, for a cheaper, alternative option to access the AI revolution, Volex is a stock I’m firmly eyeing up.
The post Forget Nvidia shares, I’d rather buy this FTSE AI stock instead appeared first on The Motley Fool UK.
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Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
