The AI sector is sharply divided: hardware infrastructure stocks remain relatively cheap to their explosive cash flow generation while software players have become overpriced on speculative hype.
One of the best ways to value an AI company is:
Forward PEG ratio -Price to Earnings to Growth. If a stock trades at 40x P/E but its earnings are growing 80% YoY, its PEG ratio is 0.5. That is a great bargain disguised as an expensive tech play.
Micron has the best Forward PEG ratio, at a remarkable 0.04 to 0.12. PEG ratio under 1.0 is considered undervalued.
Another metric of valuation is Free Cash Flow. NVIDIA is the King of Free Cash Flow with USD 46.5 billion.
My Top pick is NVIDIA as it is an all rounder -GPU & CUDA moat with great free cash flow.
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- DavidSGΒ·06-09 05:25Agreed!2Report