The rise of artificial intelligence (AI) over the past year has been a key theme in the stock market. However, most would look to the US where Nvidia is the company leading the charge on this front. Yet there are some FTSE 100 stocks I’ve found that could stand to gain in a large way from the adoption of AI in their businesses.
Smart software
One example that I’ve noted is Sage Group (LSE:SGE). The business provides finance, HR and payroll software to other firms, with a variety of add-ons that can be included.
Sage has a successful track record with over four decades of operating, well before AI came along. However, it’s starting to make good use of the new technology. In the half-year results, the CEO commented that the firm is “resolutely focused on innovation [as] we continue to introduce new AI-powered products and services that deliver enhanced productivity and insights.”
This includes using AI-driven predictive analytics to help businesses with financial planning and budgeting requirements. Further, the Intacct platform can now be used to automate a lot more previous manual accounting tasks, thanks to AI.
This likely translates to a higher share price over time. The better software should help to retain existing clients but also attract new clients. This should boost revenue from the software sales and help to filter down to more profit.
A risk is that the amount of new investment to develop the systems could put major pressure on costs. In the short term, this could negatively impact finances.
With the stock up 12% over the past year, it’s doing well. However, given the amount of potential use of AI in Sage, I believe there’s much further to go.
Shaking up another sector
The second idea I like is BP (LSE:BP). This might surprise some, as a global oil and gas company doesn’t fit the bill of a company that can make strong use of AI. But I disagree.
I recently read a piece detailing how various large oil and gas firms are using AI with regards to predictive maintenance. What this means is that due to deep learning, models will be able to tell us when a machine is likely to fail, before it fails. It can also be used to forecast when maintenance is due on rigs.
BP will be able to benefit from this via lower costs from maintenance and reducing downtime. As a result, it should make the company more efficient, safer and in general, better run. All of these factors should filter through to a stock that’s in demand from investors.
I do acknowledge that (in contrast to Sage), BP still hasn’t really tapped into the power of AI. Even over the next year or so, the share price is likely going to be driven more by the changes in energy prices than AI enhancements.
However, the firm has been active in AI investments. Back in 2019 it invested $5m in this area, so it’s not shy to get involved. With further progress in this area, I think it could be a smart long-term play. I’m considering adding both to my portfolio to pivot it more towards this new technology.
