Given the speculation about the impact of artificial intelligence (AI), I’ve been looking for UK shares likely to benefit from the anticipated fourth industrial revolution. And to be honest, it’s been a bit of a struggle.
Of course, all businesses are likely to be impacted in some way. But I’m seeking companies that are heavily engaged in using the technology to increase their revenue and earnings.
My starting point was specialist AI investment funds.
More of the same
All of the ones that I came across had positions in some very familiar names. It’s almost as if there’s an unwritten law that requires fund managers to include the Magnificent 7 in their portfolios.
Worryingly, another common theme is an absence of UK stocks. In my opinion, this will have to change if the country’s going to overcome its underlying poor productivity issue.
Understandably, given the amount being spent by the tech giants, US stocks dominate. But there are other European and Asian companies that have attracted the interest of these funds. However, I could only find one with a significant holding in a British stock.
This is the Polar Capital Artificial Intelligence Fund that has RELX (LSE:REL), the FTSE 100 provider of information-based analytics and decision tools, as its seventh-biggest holding.
Data’s the new oil
RELX has four divisions, the largest of which helps companies manage risk. The detection and prevention of online fraud is one element. Personally, I believe the group’s well positioned to provide the high-quality information that’s essential for large language models and other aspects of AI to perform effectively.
But there are challenges. It could be vulnerable to a disruptive cyber attack and there are privacy issues associated with the data it holds.
At 26.9, its forward (2025) price-to-earnings ratio is on the high side. But it’s not that expensive for a high-margin technology stock that’s growing. Compared to the same period in 2024, its first-half results for the year showed a 7% increase in revenue and a 9% rise in underlying operating profit. The group also increased its interim dividend by 7%.
For these reasons, those who believe we are on the verge of another technological revolution could consider adding RELX to their portfolios.
More searches
To try and find more domestic AI shares, I looked at some of the stock market indexes tracking the sector.
The THNQ/ROBO Global Artificial Intelligence Index comprises stocks that represent the “global value chain of AI technologies”. But it only includes one British company – Raspberry Pi, the FTSE 250 manufacturer of single board computers, accessories and semiconductors.
The STOXX Global AI Adopters and Applications Index “is designed to reflect the performance of a set of companies that are benefiting from the advancement of Artificial Intelligence”. The solitary UK stock included was — much to my surprise — Barclays. Although not an obvious technology stock, the bank sees AI as a “strategic augmenter” and a way of creating “tangible benefits” for its customers and staff.
Disappointingly, other than these three stocks, I didn’t find any that appear to be embracing AI in a truly meaningful way. More precisely, I only found three listed British companies that have convinced fund managers or administrators of stock market indexes that AI’s significantly going to boost their earnings.
