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Rolls-Royce Holdings‘ (LSE: RR.) shares are up 840% over the past five years, which is one of the best FTSE 100 recoveries I’ve ever seen. But they’ve lost ground lately.
Rolls’ long-term prospects are partially keyed to potential demand for small nuclear reactors. Many see them as perfect for powering the soaring numbers of data centres needed for the artificial intelligence (AI) revolution. But some of the biggest AI names have been falling like ninepins, so are Rolls-Royce shares under threat? Let’s dive in…
Major AI wobble?
The rise in AI stocks seemed unstoppable, with top US companies vying to outspend each other in multi-billion dollar investment plans. But just look what happened in the final week of October.
Alphabet, the Nasdaq giant behind Google, started the rot. “Alphabet loses more then $500bn in value” ran the headlines after quarterly results on 28 October led to a 13% price fall the next day. Perhaps ironically, its own AI search is contributing to lower ad revenue.
At the time of writing, Intel has slumped 25% on the back of Thursday evening results. By the time you read this, Friday’s US markets will have closed… and might things be even worse? It makes Amazon‘s decline of currently around 10% look mild by comparison.
Rolls-Royce at risk?
Rolls-Royce shares have taken a bit of a dip, though they’ve only lost a few percent in the wake of this week’s turmoil. But they’re currently 22% down since a 52-week peak of 1,586p in August. Many will consider that as crash territory. The fear is this it might be the start of a longer decline.
Rolls-Royce’s current business is dominated by its Civil Aerospace division. But when Citigroup set a 1,647p price target on the shares in August, it nailed a full 504p of that to the company’s Power Systems division. And it valued Civil Aerospace at only 353p per share.
Power Systems supplies a fair bit more than just data centres. But that valuation does suggest there’s pretty strong support from AI-led potential behind the current average broker target of 1,730p.
Panic, or opportunity?
I misjudged the Rolls-Royce valuation several times over the past few years, and I missed some good profit chances. But that fits in with my investing focus on safety-first. Nobody ever lost money by simply not buying shares.
Rolls-Royce’s business looks fundamentally strong. The company, under the guidance of CEO Tufan Erginbilgiç, keeps on under-promising and over-delivering. And investors should keep that as a key background to their decisions, in my view. And I really see no need to panic.
This latest price fall really could make now a good time to consider buying Rolls-Royce shares. Me? I’ve been waiting for fresh buying opportunities to come along. Right now I’m going to keep watching to see what the coming weeks might bring.
And I won’t take my eyes way from my search for top-quality UK shares with solid safety margins…
Should you invest £5,000 in Rolls-Royce Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rolls-Royce Plc made the list?
Alan Oscroft does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
