It’s been a bumper year so far for global markets, but with conflicts and trade tariffs threatening volatility. Since artificial intelligence is a hot topic, I thought I’d asked ChatGPT which UK shares it thinks could benefit in the coming years.
It said investors looking for high-growth opportunities should look at global defence spending, the renewable energy transition and rising demand for critical metals. It then provided three British companies as examples.
I decided to see if they’re worth considering ahead of the next stock market rally. My verdict on ChatGPT? Not bad, but not good enough!
Riding the defence boom
BAE Systems (LSE: BA.) stands out among European aerospace and defence contractors as a critical player within the current geopolitical landscape. It’s the largest of its kind in Europe and with the Ukraine conflict boosting defence budgets, demand for its equipment is surging.
The company has built up a large order backlog exceeding £65bn, promising strong revenue for years. This comes as several European governments increase defence spending, reinforcing its long-term prospects.
But it’s a high-risk business, at constant threat from cyberattacks, supply chain disruptions and political changes. Its profits rely heavily on overcoming these issues and retaining lucrative defence deals. In 2023, it reported healthy earnings growth and continued to raise its dividend but many factors out of its control could reverse that performance in future.
Still, with strong government contracts and steady cash flow, I think BAE is a good stock to consider.
The green energy powerhouse
As governments accelerate their push for green energy and net-zero targets, SSE (LSE: SSE) stands out as a major beneficiary. The company is one of the UK’s largest renewable energy producers, focusing on wind and hydro-power.
It invests heavily in offshore wind farms and benefits from stable, regulated income, supported by UK and EU climate policies. With energy transition efforts gaining momentum, its long-term growth prospects remain strong.
At the same time, this reliance on government support is a risk. Policy changes such as reduced subsidies could impact profitability. Equally, lower power prices or increased competition in the renewables sector could squeeze margins.
A key attraction is the 4.2% dividend yield, making it attractive for passive income. However, I think National Grid is a better pick as it also stands to benefit from green energy transition, with a higher dividend yield and better growth potential.
Supplying the world’s critical metals
Rio Tinto (LSE: RIO) is well-positioned to benefit from a rising demand for critical minerals as global supply chain disruptions and China’s economic slowdown threaten mining stocks.
The company is a leading supplier of copper, lithium and aluminium — key materials for electric vehicles, renewables and defence technologies. As Western nations seek alternative metal sources, a reduced reliance on China could boost its revenues.
However, this is also a key risk, as China is one of its largest customers for iron ore. US trade tariffs compound this issue, along with supply chain disruptions, which could increase costs and hurt profits.
In addition to growth potential, it also offers a high dividend yield of 6.3%, making it a good one to consider for an income-focused portfolio, ChatGPT says.
Unfortunately, I think it’s ignoring the potential risks from Rio’s history of sometimes controversial mining practices that could mean losses from fines and penalties.
