Artificial intelligence (AI) is causing a lot of uncertainty, with some FTSE 100 stocks like RELX and Rightmove falling off a cliff in recent months. Will the technology disrupt whole industries? Can the hefty capital investments being made in AI ever pay off?
Only time will tell. However, I still have a lot of faith in these two FTSE 100 stocks in my portfolio, no matter how weird things get with AI.
Focusing on adaptability
Not many companies think more about the implications of AI than Scottish Mortgage Investment Trust (LSE:SMT). The growth-focused trust saw the potential of chipmaker Nvidia in 2016, the year it launched the world’s first deep learning supercomputer (DGX-1).
CEO Jensen Huang personally delivered the very first DGX-1 to OpenAI, an obscure non-profit AI research lab founded by Elon Musk, Sam Altman, and others. The AI boom followed a few years later.
But where does Scottish Mortgage see AI heading in future?
Well, manager Tom Slater says the next two decades “will be marked by a speed and intensity of transformation that makes the last 20 look steady by comparison. Artificial intelligence is at the heart of this. It is not just another technology trend but a new foundation for the global economy“.
As a result, Scottish Mortgage focuses on companies adaptable to change. It says those that successfully harness AI will “surge ahead“, while others that don’t will fall “irretrievably behind“.
Looking at Scottish Mortgage’s portfolio today, I see tech companies at the extreme forefront of AI, including Nvidia, Amazon, Meta, and Anthropic. But the trust is searching for newer companies that are being built on top of this AI infrastructure — the potential massive winners of tomorrow.
Of course, there’s a risk the managers back the wrong horses. And as we hurtle deeper into the age of AI, I expect this stock to be very volatile at times.
However, the trust offers me thoughtful stewardship and exposure to game-changing private companies like Anthropic, SpaceX, and Stripe that I can’t get in the public market.
With the shares trading at a 6.7% discount to net asset value, I think Scottish Mortgage is worth considering today.
An anti-AI stock
In contrast, Games Workshop (LSE:GAW) sells Warhammer boardgames and armies of figurines, which customers use to do battle with each across a table.
Therefore, it has nothing to do with AI and that’s why I like it. No matter how weird AI gets, Warhammer devotees will still be meditatively painting their miniatures and immersing themselves in the rich lore the company has built over four decades.
I see Games Workshop as a mini-Marvel. Beyond simply making toys, it possesses valuable intellectual property (IP), similar to Disney. Warhammer 40,000 and Age of Sigmar are as deep and character-rich as Marvel or Star Wars.
Low capital requirements and a high-margin product (including licensing income) translate into extremely high profit margins. This all supports generous dividends.
Unsurprisingly, high margins result in a high valuation, with Games Workshop stock trading at 28 times earnings today. Were growth to underwhelm moving forward, the stock could fall sharply.
Despite this risk, I remain bullish on Games Workshop’s opportunity to monetise its IP via video games and its Amazon partnership. I also think the stock’s an option to think about.
