Forget Nvidia shares, I’d rather buy this FTSE AI stock instead

Despite Nvidia shares soaring in recent times, our writer explains why this FTSE pick might be a better stock to buy for her holdings.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

artificial intelligence investing algorithms

Image source: Getty Images.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »