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Investors continue to have absolute faith in AI, whereas I continue to accumulate stakes in cheap FTSE 100 stocks. So am I missing out by not joining the party?
Peak cycle
I’m making a bold call: the Magnificent 7 – led by Nvidia – likely peaked on 29 October. That was the day when the stock hit $5trn and Meta warned it would miss analyst profit expectations due to soaring capital expenditure.
Three weeks later, Nvidia’s cash flows also disappointed. So why are the AI giants faltering?
Beyond sky-high valuations and limited real-world breakthroughs, investors are starting to question certain commercial relationships, such as Nvidia backing smaller AI firms that later spend heavily on its chips or cloud services.
Is a reckoning coming for the Magnificent 7? I think so. Classic boom-and-bust: overspend on new tech and party like it’s 1999. At the same time, cheaper FTSE 100 stocks offer more grounded opportunities, setting the stage for investors to explore more sustainable bets.
Fallen giant, rising potential
For me, one of the most compelling FTSE 100 growth stories right now is Diageo (LSE: DGE). I’ve watched the company for years, but only recently decided to step in. Its brands are legendary – Guinness, Don Julio, Casamigos – and they retain strong global appeal.
What excites me is the enduring trend of premiumisation. Consumers may drink differently today, but they still pay for quality. The company is adapting well, shifting strategy to reflect changing habits, from at-home socialising campaigns to ready-to-drink formats aimed at younger audiences.
Risks remain. Consumer spending could stay constrained, inventory cycles might persist, and global macro conditions may weigh on near-term performance.
But with a forward earnings multiple of just 13 – well below its long-term average – I feel the risks are largely priced in. The 4.3% dividend is a bonus, but my focus is on strong brands, and a potential turnaround from a cost-conscious new CEO. The reason I hold Diageo is that it now feels like a stock with room to run, setting the stage nicely for my next pick.
Energy giant
For me, BP (LSE: BP.) is a standout contrarian opportunity to consider. Everyone’s bearish on oil, but that’s exactly why I’ve been accumulating. Since its strategy reset in February, scaling back costly renewables projects, the company looks far more focused and disciplined.
Q3 results highlighted this: refining exceeded expectations, supported by higher realised margins and minimal turnaround activity.
In upstream, the project pipeline is impressive – 12 discoveries in 2025 alone, including Bumerangue in Brazil, its largest find in 25 years.
Cash flow is robust, with operating cash flow comfortably covering the 5.6% dividend yield.
BP’s break-even is $40 a barrel. But if prices remain in the $60 range long term the company may miss its ambitious financial targets, which could hit the share price and shareholder returns.
Energy appears mispriced today, in my view. Geopolitical tensions, US onshoring, rising electricity demand from AI, and slower EV adoption all support the case for oil and gas.
Bottom line
For me, the thrill is in finding undervalued FTSE 100 stocks. While hype drives others toward expensive names, I focus on quality companies trading cheaply, offering long-term growth, solid dividends, and the potential for steady wealth compounding over time.
