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Most FTSE 100 stocks aren’t exactly known for being at the forefront of the artificial intelligence (AI) boom. However, this revolutionary technology has the potential to eventually make nearly all companies more profitable.
For example, a report in The Guardian today (30 June) cited figures showing that generative AI chatbots like ChatGPT might be starting to impact the jobs market. According to job search site Adzuna, vacancies for various jobs — spanning graduate-level, apprenticeships, internships, and entry-level roles that require no degree — have fallen 32% since the launch of ChatGPT in November 2022.
Meanwhile, nearly every tech firm I follow says it’s planning to use AI to streamline operations over the next few years. Powerful AI agents are on the way, while AI chip giant Nvidia is predicting that physical AI (humanoid robots and self-driving cars) could become the biggest market of all.
For investors wanting to invest in AI, I think these two FTSE 100 stocks are worth considering.
Investment trust
I’ve been saying this like a broken record for some time now, but I think the best way to play this global AI theme is through Scottish Mortgage Investment Trust (LSE: SMT). Three key reasons make me say this.
Firstly, the investment trust is invested in various AI pioneers. Whether that’s chipmakers like Nvidia and Taiwan Semiconductor Manufacturing Company (TSMC), or cloud computing giant Amazon, the portfolio offers ample exposure to this theme.
Second, buying Scottish Mortgage shares is arguably less risky than trying to pick individual winners, especially when the US market is at an all-time high. The ready-made portfolio of approximately 95 stocks offers instant diversification.
Finally, the shares are currently trading at a 10.2% discount to the underlying net asset value (NAV). Again, I find this attractive, given that the market is at a record high.
This stock isn’t risk-free though. It can be incredibly volatile, and could drop sharply were a global recession to unfold later this year. And there’s no guarantee that the NAV discount will close — it could even widen at some point.
RELX (LSE: REL) might not be immediately recognisable to most people on the street, but it’s far from a minnow. Indeed, with a £72bn market cap, it’s currently the seventh-largest listed firm in the UK!
So, what does RELX do? This data company operates across four segments: Risk, Legal, Scientific, and Exhibitions. AI is embedded in everything from fraud detection algorithms to legal search tools to research analytics.
RELX is probably best known for LexisNexis, which is used by legal professionals and scholars worldwide. It has integrated powerful AI-powered tools to help lawyers rapidly find precedents, summarise case law, and even draft basic filings.
In Q1, there was growth across all four units. But RELX highlighted Protégé, its recently launched next generation generative AI assistant in the Legal division, which it says has been positively received by customers. Further AI tools are being rolled out.
One risk here is valuation, as the stock trades at nearly 29 times forward earnings. If growth slows unexpectantly, the stock could sell off.
Still, top-notch AI products need high-quality data to be trained on, and this is where RELX’s competitive advantage lies. I think the stock is well set-up for further gains in the years ahead.
