Tech Stocks to Weather an AI Slowdown: Qualcomm, Dell, and More
Source: morningstar.com
As artificial intelligence captivates the market, some investors wonder if it's becoming a bubble. Here are five tech stocks positioned to endure a potential AI downturn, thanks to their strong free cash flow.
Focusing on Free Cash Flow
Investors can hedge against an AI downturn by focusing on free cash flow yield. This metric reflects the cash a company generates after covering its operational and capital expenses.
Qualcomm's Edge
Ted Mortonson at Baird highlights Qualcomm for its “fabless” business model. This means Qualcomm designs its chips but outsources their manufacturing, boosting free cash flow. Mortonson added that Qualcomm's technology is vital for powering AI devices at the edge.
Dell's Growth Potential
Dell is another attractive option for investors seeking free cash flow. Bank of America analyst Wamsi Mohan noted that Dell should significantly increase its free cash flow. This will be driven by improved profitability in AI servers and expansion of its storage business.
Atlassian's Collaboration Tools
Beyond hardware, the software sector also offers opportunities for strong free cash flow. Atlassian, known for its developer collaboration tools, is one such example. Truist Securities anticipates Atlassian’s free cash flow will grow by 13.7% annually.
Salesforce's Momentum
Salesforce is another pick, despite a stock sell-off due to concerns about slow AI adoption. The company demonstrated growing momentum with its Agentforce offering. Salesforce also plans to repurchase $7 billion in shares, signaling confidence in its financial health.
Western Digital's Gains
Storage and memory businesses like Western Digital have benefited from the AI boom. Travis Prentice, CIO of the Informed Momentum Company, noted Western Digital's increased pricing power.
Screening Criteria
The analysis began with the S&P 500 information-technology sector and the Nasdaq-100 Technology Sector index. Companies were then screened for estimated free-cash-flow yields based on 2026 estimates.
Top Performers
These companies exhibit high estimated 2026 free-cash-flow headroom: PDD Holdings, GoDaddy, Akamai Technologies, ON Semiconductor, and Adobe. Cognizant, Gartner, First Solar, Dell, and GlobalFoundries also made the list.
Final Thoughts
Ultimately, companies with growing free cash flow are better positioned to withstand market volatility. By focusing on these fundamentals, investors can navigate the AI landscape more cautiously.