I think it’s fair to say that, in 2025, artificial intelligence has gone from strength to strength. After recently reading about the rapid rise in so-called AI girlfriends, I’m not surprised that Nvidia stock has enjoyed a booming year. The share price is up 37% and we haven’t even got to Halloween yet! I believe it is a testament to the FTSE 100 that so many stocks have outperformed the US giant.
A total of 14 Footsie stocks have risen more than Nvidia in the year so far. None of them have the peculiar growth avenue of replacing human romantic relationships with robots, either.
Some of these fast-growing FTSE 100 stocks are in areas you might expect. Defence stocks like Rolls-Royce and Babcock are surging, to the surprise of absolutely no-one at all. But even some of the more traditional, mature, and you might even say boring stocks are rocketing higher too.
Good year
One stock to enjoy such a barnstorming year is Lloyds (LSE: LLOY). The UK’s third-biggest bank is up 55% in 2025, outperforming most of the FTSE 100, and indeed, Nvidia.
Why has the stock done so well? The main reason is a favourable business environment in regards to interest rates. When rates are higher, banks have more room to work with in their margins. All the big UK banks have been performing better of late and increasing what is known as their net interest margin – the difference between what they lend and what they borrow.
The real difference maker this year has not been the rates themselves – they’ve been falling – but how long they’re expected to stay at current elevated levels. The Bank of England was hoping to get back to its target level of 2% inflation as soon as possible. But because inflation has remained sticky, rates aren’t falling as fast as expected.
I’ll mention that a favourable verdict in a lawsuit about car financing gave the shares a boost too.
Lettuce problems
Are the shares worth considering today? I’d say so. The banking sector dropped into a prolonged slump since 2008, but we might now be seeing the first green shoots of better times.
The Common Equity Tier 1 ratio, a metric brought in to prevent the conditions that led to the global financial crisis, looks healthy. Lloyds boasts a CET1 ratio well above the minimum. This means it has a lot of high-quality capital on hand in the event of unforeseen issues.
The signs suggest we’re in for higher rates over the long term. The 10-year gilt yields, perhaps the best predictor of longer-term borrowing, stands at 4.7%. That’s higher than when folks were likening Liz Truss to a rotting lettuce.
A drawback to consider is that the recent success has prompted talk of a windfall tax on banks. On balance, however, I think Lloyds shares look in a better position than they have for years.
