If I said I thought investors looking for artificial intelligence (AI) shares to buy should consider Tesco (LSE:TSCO), you might think I was mad. And you might be right.
As far as I’m aware, the company isn’t working on a chatbot or anything of the sort. But I think it might still be a big winner from the emergence of AI.
AI shares
Investors face a dilemma when it comes to AI. The strongest companies (like Microsoft and Nvidia) look expensive and the weaker ones (not naming names) aren’t worth owning.
There suddenly seems to be a lot of tech experts around, but I’m wary. Accurately assessing the merits of ChatGPT against Gemini takes a lot of technical knowledge that I don’t have.
Warren Buffett points out that risk comes from not knowing what you’re doing. And – like Buffett – I don’t know what I’m doing in this space.
Even without deep technical knowledge though, I think there are opportunities to invest in the rise of AI. And Tesco looks like one of them.
Tesco: the AI beneficiary
Ok, what does Tesco have to do with AI? The answer is data – the commodity needed to train and develop large language models (LLMs).
The UK’s most obvious AI stocks are probably Experian and RELX. In both cases, their biggest asset is the vast data reserves they have.
I think something similar is true of Tesco, but it might be going unnoticed at the moment. Its Clubcard scheme provides it with proprietary data about the shopping habits of over 20m members.
That’s 2m more than Sainsbury’s has signed up to its Nectar card initiative. And this could be a valuable resource if supermarkets find a way to integrate AI into their businesses.
Investment risks
Tesco’s big challenge comes from Aldi and Lidl. And with low switching costs for customers, it’s hard to win that battle decisively.
That’s a risk investors need to consider. And the best way to try and minimise this is to avoid overpaying for the stock.
Tesco shares trade at a price-to-earnings (P/E) ratio of 11. That isn’t expensive compared to RELX (36) and Experian (37).
On top of this, the company’s been growing its market share recently. For the time being at least, it’s competing well against its rivals.
Investing in AI
There are a few ways to invest in AI. But without specialist knowledge, identifying the most promising tech companies looks like a risky business at today’s prices.
I’m not saying that investing in Nvidia, Microsoft, RELX, or Experian isn’t going to work out well. I think it probably will, but those stocks look fully-valued to me right now.
Further down the chain, AI could help retailers understand their customers better. If it does, the size of Tesco’s Clubcard scheme could give the company a big advantage.
If it doesn’t, then buying the stock today involves paying 11 times earnings for a business with a market-leading position in a defensive industry. That could be a lot worse.
The post Looking for AI shares to buy? Consider this FTSE 100 giant appeared first on The Motley Fool UK.
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy — and discover:
Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
How to potentially get paid by the weather
Electric Vehicles’ secret backdoor opportunity
One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
More reading
Up 6.3%, where will the Tesco share price go next?
Here’s how much income I’d get if I invested my entire £20k ISA in Tesco shares
How much passive income could I earn if I buy Tesco shares today?
If I put £10,000 in Tesco shares today, how much passive income would I receive?
Why I’m confident Tesco shares can provide a reliable income for investors
Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian Plc, J Sainsbury Plc, Microsoft, Nvidia, RELX, and Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
