Investors are questioning the sustainability of Nvidia’s valuation as its share price continues to rise rapidly amidst the artificial intelligence hype. With the stock trading at a high 2.5% free cash flow yield for next year, some are urging caution as Nvidia historically traded at a 4% FCF yield before the pandemic. On the other hand, many tech companies are investing in infrastructure for artificial intelligence, which is a power-intensive industry. As the demand for AI continues to grow, so too will its power needs.
Hannah Gooch-Peters, a global equity investment analyst at Sanlam Investments, believes there are other stocks with similar operating profit margins to Nvidia’s 60% that may offer more sustainable investment opportunities. Meanwhile, Morgan Stanley Investment Management’s Aaron Dunn has identified one stock that could benefit from this trend, offering investors an opportunity to capitalize on the increasing power requirements of AI technology. CNBC Pro subscribers can access more information on both of these stock opportunities.
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