One FTSE 100 business that’s already successfully employing artificial intelligence (AI) tech successfully is RELX (LSE: REL). The business may not be an obvious name in the AI race, compared to the likes of Nvidia, for example.
Here’s why investors should be taking a closer look at RELX.
Data and decisions
RELX helps a vast array of organisations turn data into actionable insights, and help them make decisions. Imagine a load of data, records, and publications, all cleaned and then quantified. This data is then given to relevant professionals to help them do their jobs effectively. Machine learning is a big part of its offering, and this is where the AI element comes in too.
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It’s worth noting that RELX shares are up 32% over a 12-month period. At this time last year, they were trading for 2,254p, compared to current levels of 3,391p.
The investment case
Let’s start with the bear case. One big aspect that stood out to me was RELX’s current valuation. The shares trade on a price-to-earnings ratio of close to 36. This is significantly higher than the FTSE 100 average. A couple of things could happen. Firstly, RELX could see its performance dip. The other is if AI sentiment among investors were to fall dramatically. Both issues combined or separately could severely dent the shares.
The other risk is the changing face of academic research, one of RELX’s biggest money spinners. If the current pay-to-read article model continues to pivot towards pay to publish, RELX’s subscription model could take a big hit. This could hurt its performance and investor sentiment.
To the bullish view, I’m buoyed by RELX’s wide coverage geographically, and from an industry perspective. It helps the legal sector with cases, doctors with diagnosing patients, and governments make key decisions, as a few examples. In addition to this, as the world continues to use digital tools more, there’s room for RELX to continue to grow.
Plus, the business has an excellent track record of performance, growth, and returns. The shares currently offer a dividend yield of just under 2%. Furthermore, it’s buying back shares, which is positive.
Finally, the business is now using its substantial profits from impressive margins to drive AI-related growth. This could prove to be a fruitful strategy moving forward, in my view.
Final thoughts
Whenever I see a high valuation, I often think that sometimes paying a premium for a quality business is absolutely fine. However, there is a risk that the hype around AI dies down or RELX can’t deliver the growth it’s targeting.
To conclude, even away from the AI aspect, RELX is a quality business with an excellent reach, great track record, solid balance sheet, and offering a passive income.
Personally, I’d love to buy some shares when I next can, and I’d buy them quicker if they dropped in value slightly. If the AI surge continues, and RELX can capitalise, there could be some good times ahead.
