It’s now widely accepted that artificial intelligence (AI) is going to have a profound impact on the world over the next decade. Thanks to ChatGPT, society has woken up to the power of this amazing technology.
Now, while many of the most prominent AI companies are listed in the US, there are lots of ways to play this theme on the London Stock Exchange. With that in mind, here’s a look at three top UK AI stocks I’ve been buying for my portfolio.
Broad exposure to the theme
For broad exposure to AI, I’ve gone with Scottish Mortgage Investment Trust (LSE: SMT). It’s an investment trust with a focus on disruptive technology companies.
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A look at Scottish Mortgage’s holdings reveals that the trust has significant exposure to AI. For example, right now, the top six holdings include AI chip designer Nvidia, chip manufacturing equipment maker ASML, e-commerce and cloud computing powerhouse Amazon, and electric vehicle maker Tesla. All of these companies are major players in the AI ecosystem.
Other AI-related companies in the portfolio that are worth highlighting include data storage business Snowflake, social media giant Meta Platforms, and streaming company Netflix. All in all, I’m getting plenty of exposure to the technology with this trust.
Now, this product is higher risk. I expect it to be volatile. Therefore, I have kept my position size quite small to minimise the risk of capital losses.
Partnering with Microsoft
For a more direct play on AI, I’ve gone with London Stock Exchange Group (LSE: LSEG). It’s a major player in the financial data space, delivering data to over 40,000 institutions globally today.
Around 14 months ago, the Group announced that it had entered into a 10-year, multi-billion dollar strategic partnership with AI powerhouse Microsoft. Through this partnership, the two businesses plan to develop powerful new generative AI-based solutions for financial services firms.
We can expect to see these new AI solutions – which will allow firms to gain more insights and value from their data – rolled out this year. They could be a growth driver for the company and potentially help it capture market share from industry leader Bloomberg.
Like many tech stocks, London Stock Exchange Group has an above-average valuation. Currently, its P/E ratio is about 24. This adds some risk.
I’m comfortable with the multiple, however, given the growth potential.
A data centre play
Finally, for a ‘picks-and-shovels’ play on AI, I’ve invested in Volex (LSE: VLX). This is a small UK manufacturing company that generates a decent chunk of its revenues from the production of high-quality data centre cables.
Data centres play a major role in the AI ecosystem as they house the massive amount of data that is needed to train AI models. So, I expect this area of technology to grow rapidly in the years ahead.
Volex is well placed to benefit. Its most recent results, for the six months to 31 October, showed that the data centre side of the business now makes up around a quarter of total revenues. And revenues from this segment were up a whopping 30% year on year to $101m for the period.
Increasing investment in artificial intelligence technology requires intensive data processing, an application that is ideally suited to the cutting-edge products that Volex has developed.
Volex H1 results
Volex shares currently trade on a P/E ratio of just 12.6. I think that’s a steal.
This is a smaller company, however. So, the stock could be volatile.
