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AI may be the biggest story around, but FTSE 100 companies as a collective aren’t nearly as involved in the tech and AI space as their counterparts in the S&P 500. Not that this is a bad thing.
While this may have led to outperformance of US tech stocks in recent years, concerns are emerging that their tremendous share price appreciation may have been overdone, and the bubble could burst.
I think it might be worth considering some Footsie shares that are genuinely good long-term investments as an alternative.
The AI tech bubble
“There are elements of irrationality”, were the words of Alphabet CEO, Sundar Pichai, recently, when discussing AI. While he thinks that AI has tremendous long-term potential, he says that share prices may have been overstretched.
This echoes concerns that a similar event to the dotcom bubble in the early 2000s could occur with AI stocks. For example Palantir, while seeing its shares drop 21% since the start of November, still has a price-to-earnings (P/E) ratio of 358.
But there’s a big caveat, which is why I don’t see this situation being as bad as the dotcom bubble. You see, the companies in the AI tech sector are pretty solid with strong fundamentals. This wasn’t the case 25 years ago.
Nvidia, Apple, Alphabet, Amazon, etc, are all great companies that are making great innovative strides. I see a pullback or even a correction for sure, but not necessarily a large crash. Over the long term, these are still great shares that investors should consider.
However, I do still believe FTSE 100 offers lots of opportunities, as it always has done.
What does the FTSE 100 have to offer?
The Footsie does have some great alternatives to buying US tech stocks. One notable pick that I’m sure many readers are thinking of is Rolls-Royce. I really like the company and think it’s one of the most innovative in the UK. It has great potential in the nuclear energy market, especially with its investments in small modular reactors.
However, the company I want to discuss in this article is one that may have been overlooked by readers as a potential investment due to the lack of excitement in the industry it’s part of. The company in question is Unilever (LSE:ULVR).
The consumer goods conglomerate has some unattractive attributes. Its revenue hasn’t seen big movement since 2022. Tariffs could also pose a threat to the company, especially as it sells its packaged goods globally.
But there’s also plenty to like about its shares. For example, it has an attractive dividend yield of 3.5% making it a good passive income stock.
Moreover, the nature of its products puts it in a very defensive position with respect to a potential economic crisis. No one is going to stop eating, cleaning their home, and washing themselves, no matter how dire economic conditions become. It’s also very insulated from any crash AI stocks may experience.
The company’s products may not excite the mind, but we can’t forget their importance. In the UK, 98% of homes have a Unilever product somewhere on their shelves. As investors, we should assign some value to this fact.
That’s why I think investors should consider adding some of the company’s shares to their portfolios. Unilever shares could provide some much-needed balance during any volatility that could occur, resulting from the AI bubble.