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INVESTORS SHOULD CONSIDER NON-AI MARKET OPPORTUNITIES, BOFA SAYS
The excessive focus on stocks related to artificial intelligence - especially those of semiconductor companies such as Nvidia NVDA.O - may be causing investors to overlook opportunities in companies that are not connected to the theme, according to Bank of America Global Research analysts.
This has led the analysts to compile a shortlist of 16 "buy-rated" companies that aren't correlated to AI, but provide a compelling narrative, which encompasses stocks valued below the S&P 500's .SPX multiple of 26x, having positive three-month earnings revisions, and trading 10% below their 52-week highs.
The shortlist consists of stocks across several sectors including communications, consumer discretionary, financial services, entertainment and machinery.
They include: Walt Disney DIS.N, Amcor AMCR.K, AT&T T.N, BGC Group BGC.O, Church & Dwight CHD.N, Dollar General DG.N, Eversource Energy ES.N, Freeport-McMoRan FCX.N, Henry Schein HSIC.O, J.B. Hunt JBHT.O, KeyCorp KEY.N, McCormick & Co MKC.N, Oneok OKE.N, Progressive Corp PGR.N, Regency Centers REG.O, and Viking Holdings VIK.N.
The drive towards AI poses several risks even as companies at the forefront of the technology continue spending on infrastructure. BofA's Savita Subramanian argues that AI-driven efficiency might result in waning demand for middle-income white-collar jobs, which could impair consumer spending. Moreover, history shows that capital-intensive companies have traded at discounts to innovators.
"Today, AI spenders have a combined capex/operating cash flow ratio equivalent to the US oil majors yet they trade near record multiples. If AI monetization disappoints, hyperscalers are poised to de-rate," Subramanian says.
(Chibuike Oguh)
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