NatWest (LSE:NWG) shares have tripled in value over the past 2.5 years — that’s just a low point I’m using for comparison purposes. That’s a huge run-up, especially for a financial institution. Banks have even outperformed booming technology stocks over the same period.
So what’s driven this remarkable rally? A combination of factors has worked in NatWest’s favour. Rising interest rates boosted net interest margins, the bank shed its legacy government stake from the 2008 bailout era, and management delivered consistent cost-cutting results that impressed the market.
More recently, artificial intelligence has played its part too. NatWest has leaned into AI to streamline operations, improve fraud detection, and enhance customer service through digital channels. These efficiency gains have fed directly into stronger profit margins, giving investors further reason to pile in.
AI to disrupt
The technology that’s currently padding NatWest’s bottom line could become its biggest threat.
As AI adoption accelerates across the UK economy, mass white-collar redundancies are very possible. The UK is also particularly exposed to this as we’re heavily reliant on the services sector — financial services, legal, accounting, and administrative roles that sit squarely in AI’s crosshairs.
Here’s how it could play out.
AI displaces significant numbers of UK jobs. Mortgage holders can’t meet repayments. Credit card balances spiral. Small business loans sour as consumer spending collapses. Unlike globally diversified banks, NatWest’s loan book is overwhelmingly tied to British households and businesses — there’s nowhere to hide.
Making matters worse, the UK government has historically been reactive rather than proactive on economic shocks.
And while forward-thinkers like Elon Musk have discussed a universal basic income or even large-scale retraining programme, this won’t come quickly in the UK, if at all.
That means any AI-driven employment crisis would hit household incomes hard before any policy response materialises.
I think this is the kind of event that markets aren’t pricing in.
What to make of this?
As my colleagues here and I have discussed, this is a credible threat to the sector. However, if we do see AI replacing jobs at a steady pace, any serious fallout could be prevented.
The danger lies in a tipping point — a moment where AI capability leaps forward and companies across multiple industries cut headcount simultaneously. That’s when defaults could cascade faster than any policy intervention could contain them.
For now, at least, NatWest remains a relatively attractive proposition, especially for income investors. The dividend yield sits around 5.6% and this could rise to around 6.3% in 2027 based on projections and the current share price.
At 8.9 times forward earnings, it’s pricier than it has been in recent years. To me, this suggests limited room for near-term appreciation.
And for the record, I still think the stock is worth considering. However, investors should keep an eye on AI risk. They may also find better value stocks away from the FTSE 100.
