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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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

Closeup of "interest rates" text in a newspaper
Investing Articles

Interest rates fall again! Here are 3 FTSE dividend growth shares to consider buying

As interest on cash savings becomes increasingly less attractive, Paul Summers has been looking at dividend growth shares for passive…

Read more »

Investing Articles

Up 10% today, I think this FTSE 250 growth share could continue to surge!

Babcock International's flying after upgrading its full-year forecasts. I think the FTSE 250 defence share might just be getting started.

Read more »

Investing Articles

The AstraZeneca share price jumps 5% on today’s strong results – but is it too expensive?

Harvey Jones hails the brilliant long-term performance of the AstraZeneca share price, but wonders whether the FTSE 100's biggest company…

Read more »

Investing Articles

Is this my chance to buy Alphabet shares?

A big step up in AI spending at Google has investors nervous, but has it created an opportunity to buy…

Read more »

Senior woman potting plant in garden at home
Investing Articles

£10k in savings? Here’s how an investor could aim for a monthly second income of £1,200

Mark David Hartley considers how investors could build towards an early retirement plan with a second income from a portfolio…

Read more »

Investing Articles

2 cheap shares to consider buying in a £20k ISA for income of £1,000 a year

Harvey Jones loves buying cheap shares and says these two FTSE 100 stocks look tempting today, especially as they offer…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Is it worth me buying Lloyds shares for 61p after a 49% rise?

Lloyds shares have risen significantly from their one-year traded low seen last February, which could mean no value is left…

Read more »

Investing Articles

I think this FTSE 100 fashion stock could skyrocket in 2025

JD Sports has had a disastrous few months of losses but 2025 looks primed to be the year for this…

Read more »