Nancy Tengler on AI Stocks, Free Cash Flow and Bond Yields

Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments, says the AI bull market is still in its early stages and that stocks are cheaper than they were earlier this year because earnings have outrun prices.

In this Full Signal conversation, she takes on the free cash flow and bond yield worries and explains why she still owns names like Amazon, AMD and Alphabet.

I sat down with Tengler on Full Signal to ask where we are in this bull market. "I think we're in the early stages," she said, noting that she managed money in the 1990s and sees plenty of analogies, even if this is not that.

Tengler said this bull market ranks fifth out of eight since 1966, up 112%, and is not close to historic highs. She argued that skepticism is a sign of early years, adding "it was the euphoria of 1999 that created problems."

She acknowledged the bears have a case, joking that they "always sound smarter." Tengler listed tariffs, energy prices, geopolitical risk, the AI buildout and AI alarmists as part of "a huge wall of worry we're climbing right now."

Tengler said she expects earnings growth of about 36% over the next 12 months, and that multiples have compressed because prices have risen far less than earnings.

She added that more than 30% of S&P 500 companies have raised guidance, including revenue guidance, which is harder to massage than earnings.

She also pointed out that the average stock is down 20% from its recent highs, which she said is why the market does not feel as good as the index suggests. Tengler said the broadening-out trade stalled, but she does not see a warning flag and views the dislocation as an opportunity for long-term investors.

Her example was Nvidia, which she said trades at a forward multiple of about 17 to 18 times while growing earnings about 80% this year. She estimated roughly 35% annualized growth over the next three years.

I asked Tengler about the bear case that free cash flow is falling at some hyperscalers. She pushed back, calling it "a false flag."

Tengler said capital spending used to be read as management finding attractive investments, and that margins sometimes slip because companies are investing for the future. She said projections show free cash flow turning around in the next couple of years, and that it would only be a problem if it were a permanent state.

Tengler does not think higher bond yields will derail the rally. She said stocks produced strong returns in the 1990s with higher yields and inflation, and cited a Goldman Sachs study that found no correlation between higher yields and lower stock prices.

In her view, what matters is the rate of change and why yields are rising, and she said robust economic growth is a big reason. She expects inflation shocks from tariffs, the AI buildout and oil to fade, and Opening Bell Daily has also covered why stocks are ignoring bond yields at 19-year highs.

Tengler argued AI is already showing up as disinflation. She said Chevron expects to produce a barrel of oil with 25% less capital spending this year, and that JPMorgan brought proxy voting in-house after writing an AI program.

She also pointed to SpaceX's announced purchase of Cursor, which she said was a four-year-old company with about $100 million in revenue and 20 employees, bought for $60 billion. Tengler said it shows how much cheaper it is to start a business, which she sees as a flywheel for productivity.

Tengler said she still likes Walmart for its pivot into digitization, cloud computing, AI and robotics, and holds AMD because of its position in inferencing and its CEO. She said she added to Quanta Services on weakness because of its enormous backlog, and called CrowdStrike essential to AI growth.

On Tesla, she said patience is required and called it "a narrative name," not a valuation name, adding that a potential SpaceX merger is part of why she owns it. She said she is less sanguine on D.R. Horton, admitted she was wrong about the housing market and said she would not chase it yet.

Tengler said Alphabet is a three-to-five-year hold across her large cap strategies, and that Amazon is "probably my personal top pick." She said Amazon trades below a 20 multiple against about 20% earnings growth, though she acknowledged it "may be a 2027 story."

Tune in to the full conversation with Nancy Tengler on YouTube, Spotify and Apple Podcasts.

For more on how investors are handling the market's biggest worries, read Investors have gotten used to climbing the wall of worry with bond yields and oil, and subscribe to the free Opening Bell Daily newsletter for a daily briefing on stocks, macro and Wall Street.

This article is for informational purposes only and is not investment advice. The views expressed are those of Nancy Tengler, whose firm, Laffer Tengler Investments, manages strategies that hold several of the stocks discussed.