My best AI stock to buy for growth, dividends, and share buybacks

Stephen Wright thinks a FTSE 100 data and analytics company might be the best stock to buy to profit from the rise of artificial intelligence.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

artificial intelligence investing algorithms

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Finding an AI stock to buy at the moment is difficult. After Nvidia’s (NASDAQ: NVDA) impressive earnings, share prices might already be on their way to bubble territory.

Despite this, I think there’s a FTSE 100 stock that could be a great investment at today’s prices. And the company has been in the AI game for years already.

An AI bubble?

Are AI stocks in bubble territory? Sung Cho, co-head of Tech Investing for Fundamental Equity at Goldman Sachs argues they’re not.

According to Cho, AI stocks aren’t there yet because their share price increases have been supported by growth in earnings and forecasts. That’s true to a point, but I’m not convinced.

Taking Nvidia as an example, the company might have increased its earnings by 75% over the last six months. But its share price is up 121%, comfortably outpacing earnings growth.

Of course, the company is likely to grow its earnings further in the future and the share price should reflect this. But even with that in mind, today’s price looks expensive to me.

According to Nasdaq, the most optimistic analyst forecasts anticipate Nvidia making $7.62 per share in 2024, rising to $12.05 by 2026. I don’t think that makes the stock cheap at today’s prices. 

YearEarnings per share (low)Earnings per share (average)Earnings per share (high)
2024$3.24$6.09$7.62
2025$4.27$8.48$12.91
2026$6.39$10.1$12.05

Nvidia’s current share price is $392. If the company hits the higher analyst targets, that’s a 1.9% earnings yield next year and a 3.1% return three years from now.

Whether or not AI stocks are in a bubble is an open question. But Nvidia’s current share price doesn’t convince me they aren’t.

A FTSE 100 pick

In general, AI shares look expensive to me. But RELX (LSE:REL) is a stock I’d consider buying at today’s prices.

The FTSE 100 data and analytics firm has been using artificial intelligence for years. And management expects to benefit further from the rise of generative AI.

As I see it, the biggest risk with RELX comes from the possibility of a data breach. This would do significant damage and I don’t see any way for the company to eliminate it entirely. 

Despite this, I think there’s a good investment case to be made here. The stock doesn’t look too overpriced, the business is growing, and management is returning capital to shareholders.

Today’s share price implies an earnings yield of 3.3%. That means returns from RELX today are higher than the most optimistic predictions about Nvidia’s returns in 2026.

Furthermore, the company is growing well. All four of the firm’s operating divisions reported higher revenues and profits at its trading update in February.

Right now, the stock has a dividend yield of 2.13%. And on top of this, the company has been buying back shares at a rate of 1.5% for the last decade.

Bank of America recently identified RELX as one of its top stocks to cash in on the artificial intelligence boom. I agree – it’s also my top FTSE 100 stock to buy at the moment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Stephen Wright has positions in Bank of America. The Motley Fool UK has recommended Nvidia and RELX. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Newspaper and direction sign with investment options
Investing Articles

When cheap markets meet favourable conditions, sentiment flips very quickly

London’s stock market is cheap — some sectors, even cheaper. Given a change in sentiment, the uprating could be substantial.

Read more »

Investing Articles

Empty Stocks and Shares ISA? I’d snap up these 3 stocks to start with!

Sumayya Mansoor explains how she would start to build wealth from scratch with an empty Stocks and Shares ISA and…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

7.7% yield and going cheap! Why is this unknown FTSE 250 stock flying?

It's no household name, but there's one FTSE 250 stock with a high dividend yield and booming profits that looks…

Read more »

Photo of a man going through financial problems
Investing Articles

I’d stop staring at the Nvidia share price and buy this FTSE 100 stock instead

This writer reckons there is a smarter way to invest in Nvidia today without taking on stock-specific risk. Here is…

Read more »

Young lady working from home office during coronavirus pandemic.
Top Stocks

5 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »