Buy this FTSE 100 artificial intelligence (AI) stock, says Goldman Sachs

Goldman Sachs is bullish on this FTSE 100 share and expects generative AI to strengthen its competitive advantage. But should I buy it today?

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Every week, brokers release research notes on a wide range of stocks for their clients. Some of these naturally involve FTSE 100 shares, offering investors an insight into whether analysts are bullish or not on individual blue-chips.

One stock they’re overwhelmingly positive on right now is data analytics company RELX (LSE: REL).

Here, I’ll look at why it’s getting the thumbs up and consider whether I’d buy it for my own portfolio.

An upgraded Footsie stock

Last Wednesday (4 October), Goldman Sachs analyst Lisa Yang upgraded her rating on RELX to Buy from Neutral. She also raised the price target from £30.46 to £34.05, which is 19% higher than the current share price of £28.61.

Why is she so bullish?

Well, one big reason is that the firm appears “well positioned” to apply generative artificial intelligence (AI) across its products. This could accelerate revenue growth, Yang believes, leading to profit margin expansion.

RELX operates four business segments: Scientific, Technical and Medical; Risk; Exhibitions; and Legal. The latter is a provider of legal, regulatory and business information and analytics that help customers improve productivity and decision-making. One of its best-known products is LexisNexis.

It’s this division that the analyst thinks could benefit greatly from generative AI. To take an example, the company’s recent Lexis+ AI product has been trained on LexisNexis’s vast database of legal content. It can automatically draft legal (and reliable) documents, just like ChatGPT can create content itself.

This could offer potentially radical efficiency savings for its customers. RELX plans to extend this technology across other areas of its business.

Not swept up in the AI hype

Many AI-related stocks have shot up this year, leading to stretched valuations.

However, I don’t see RELX shares as particularly overvalued. Granted, they’re not exactly cheap on a forward price-to-earnings (P/E) ratio of 25.6. But that multiple is the same as it was back in 2016.

This suggests to me that the share price hasn’t got ahead of itself.

The data revolution

Tellingly, star fund manager Nick Train has RELX as the largest holding in his popular Finsbury Growth & Income Trust. He’s said of it: “We continue to regard RELX as one of the most attractive growth companies in the world, let alone the UK.”

Meanwhile, other analysts beyond those at Goldman Sachs are bullish. Indeed, of the 15 brokers currently covering the stock, 10 rate it as a ‘Strong Buy’. There aren’t many other FTSE 100 stocks around today for which analysts have such high regard.

Of course, this alone doesn’t mean I should rush out and invest. Brokers could quickly sour on the stock if RELX misses earnings estimates. This risk is heightened when the shares carry a premium valuation.

Nevertheless, I find the positive consensus encouraging. And I like the diversified and high-quality nature of the company’s revenue — around 54% is subscription-based and recurring.

Finally, there’s a dividend. Admittedly, the yield is modest at 2%, but the payout has grown at an average of 6.7% a year since 2017. So this adds to the investment case for RELX shares, I feel.

Overall, I think the firm is poised to continue benefiting from the ongoing global data revolution. I’d be buying the stock today if I had spare cash to invest.

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.

Ben McPoland has positions in Finsbury Growth & Income Trust Plc. The Motley Fool UK has recommended Finsbury Growth & Income Trust Plc 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.

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