Ever since the early months of 2023, NVIDIA (NASDAQ: NVDA) has been an unstoppable force in the U.S. equity markets. The company, traditionally known as a maker of graphics cards for gaming PCs, got an unexpected dose of rocket fuel when its GPUs turned out indispensable for running generative artificial intelligence (AI) applications. Ever since then, it’s been quarter after quarter of blockbuster growth, resulting in NVDA at times being the most valuable company on earth.
According to most indications, NVIDIA will keep growing for a while. However, investors have been getting impatient with its growth lately, hoping to see more. For example, last quarter’s earnings release, despite beating estimates of the reported figures, triggered a selloff because the guidance (forecast of the next quarter’s earnings) was not as good as what analysts had hoped for.
That’s a natural product of a stock trading at 52 times earnings — investors start to demand a lot. However, the secular trend of investment in generative AI is here to stay. Companies see productivity and efficiency gains and will continue to invest. So, it’s still worth searching for quality AI stocks. In this article, I will share one Canadian stock that could be a great AI play — one that, surprisingly, isn’t a tech stock!
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Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX: BIP.UN) is a Canadian infrastructure company with heavy investments in AI infrastructure — including data centres and telecommunications equipment. The company’s data centre investments specifically target the AI opportunity. For example, its recent acquisition of Cyxtera gave it several data centres in Texas, while an earlier acquisition provided 31 data centres in Spain. The Cyxtera deal was done quite cheaply as the company was exiting bankruptcy at the time it was bought out.
A sensible valuation
As we’ve seen, Brookfield Infrastructure Partners is a real assets play with a serious AI angle. That unique play on the AI opportunity is interesting enough. On top of that, the stock is not as expensive as more conventional AI plays, trading at the following valuation multiples:
- 0.75 times sales
- 3.3 times book value
- 3.4 times operating cash flow
- 10 times 2023 free cash flow per share
Compared to the AI chip companies and software companies, this is a steal!
Respectable growth
A final thing that Brookfield Infrastructure Partners has going for it is a respectable amount of growth. In the trailing 12-month period, it grew its revenue by 23% and its operating income by 33%. Over the last five years, it compounded its revenue at 26%, its operating income at 23%, its earnings at 13% and its free cash flow at 26.6%. These are pretty admirable rates of growth for a five-year period. For example, 26% per year compounded over five years works out to 217% total growth.
Foolish takeaway
When you think of AI stocks, most likely you think of the software companies developing LLM chatbots or the hardware companies developing GPUs. NVIDIA fits both descriptions. Unfortunately, the opportunity in these business activities is so obvious that investors are paying a fairly steep price for it. The opportunity in AI data centres is still relatively “under the radar.” So, Brookfield Infrastructure Partners may be worth your while.
