Artificial intelligence (AI) could be the next big thing when it comes to technology. I believe there are some FTSE stocks out there that could offer investors exposure to this potentially lucrative trend.
I reckon it’s easy to get lured in by the fanfare of AI story stocks. These include Nvidia, Meta, Microsoft, and others. These firms are all vying for dominance, but they can come with hefty price tags too.
One stock I think investors should be taking a closer look at for an entry point to access the revolution is RELX (LSE: RELX).
Information superhighway
RELX is a global provider of information-based analytics and decision tools for professional and business customers. It provides its cutting-edge tools to a number of top professional sectors, such as legal and medical.
The shares are up 23% over a 12-month period from 2,719p at this time last year, to current levels of 3,345p.
Endless possibilities?
When I think of RELX’s potential to capitalise on the AI revolution, a couple of bullish aspects are hard to ignore.
Firstly, its wide coverage, existing standing in professional sectors, and market position are unrivalled. One of its premier products is LexisNexis for the legal sector, which I’ve actually used myself. Helping the legal sector through this excellent tool has helped the firm grow exponentially. It is seen as the standard bearer across the industry.
The other point is that RELX has incorporated AI within some of its tools already, so it possesses experience. RELX has recently generated some proprietary AI to boost its Lexis product. I’ve worked in the field, and I think the potential for AI in the legal field is exciting. Some examples that spring to mind are drafting documents, managing cases, speeding up mundane admin tasks, and more.
Finally, RELX shares currently offer a dividend yield of just under 2% to help boost passive income. This could grow substantially if AI takes off and the business capitalises. However, I’m aware that dividends are never guaranteed.
The bear case and summary
My biggest concern with AI is that it could all be hype, without any substance. What I mean is that there may be a lack of real world applications. Alternatively, investors unable to understand it due to its complex nature could turn away from such stocks, hurting sentiment too. RELX may not be impacted too badly in such an event though, as it already possesses an existing profitable business model.
The other concern I have is that of RELX’s current valuation, which looks like growth may already be priced in. Trading on a price-to-earnings ratio of 36, any bad news or performance dip could send the shares tumbling.
Overall, RELX could offer investors a unique opportunity, in my eyes. On one hand, the AI revolution could take off, and RELX shares and returns could soar. On the other side, the revolution may not happen. However, I think RELX is still a good stock to consider buying, with solid fundamentals.
This post was originally published on Motley Fool
