Which stocks to buy for the artificial intelligence (AI) revolution is all some investors seem to be talking about at the moment. Given the performance of a number of businesses that operate in the space, it’s fairly easy to see why.
I’ve picked out two companies that are linked to AI. Should investors consider buying them today?
AI darling
You can’t talk AI and not talk Nvidia (NASDAQ: NVDA). The stock has been on a tear. In the last five years, it has returned 2,082.9%. In the last decade, an investment in the chip-maker would have returned a staggering 20,421.2%.
But now at $921, is there any value left to squeeze out of its share price?
Well, there is a chance that Nvidia has more to give. That’s especially true when you consider the growth analysts expect the firm to continue generating in the next few years.
For 2025, analysts expect revenue to surpass $110bn. That’s significantly higher than the $60.9bn it recorded for 2023, which was already a 126% jump from 2022. If it carries on posting these incredible numbers, there’s no reason for its share price to slow down.
But I’m cautious. Talk of a bubble surrounds the stock and I can see why. Nvidia is now one of the most traded stocks on the market. But I think all that attention could be negative.
For example, the stock looks expensive. It trades on 77.2 times trailing earnings. That’s way above any of the other Magnificent Seven. I think there’s a threat that its share price has been pushed up too high, too soon.
A promising partnership
While Nvidia is capturing all the spotlight at the moment, London Stock Exchange Group (LSE: LSEG) seems to be going under the radar with the work it’s doing in the AI space. In the last five years, its share price is up 82.1%.
In 2022 the firm signed a 10-year partnership with Microsoft that will see it build generative AI-based solutions for its customers.
The first products from the partnership will be used in the first half of this year, according to its recent Q1 trading update. The company has said the venture will “transform how financial markets participants communicate, research, analyse data and trade”.
That’s exciting. The firm already offers cutting-edge insight to over 40,000 institutional customers and is a leader in multiple asset classes. This partnership will only further enhance its capabilities.
The stock trades above the FTSE 100 average, so it looks slightly on the expensive side. The business also had around £6bn of debt on its balance sheet at the end of last year, a small rise from 2022. Given higher interest rates, this is something to bear in mind.
My verdict
I already own Nvidia shares. But if I didn’t, I’d be steering clear of the stock right now. There’s plenty of hype surrounding it. But any sign of a slowdown in growth could send its share price quickly tumbling.
On the other hand, I reckon London Stock Exchange Group could be a smart long-term play. It’s not a conventional AI buy. However, I think its partnership with Microsoft could see the firm develop into a strong player in the industry in the years to come.
The post Should investors consider buying these stocks to get exposure to the artificial intelligence (AI) revolution? appeared first on The Motley Fool UK.
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Charlie Keough has positions in Nvidia. The Motley Fool UK has recommended Microsoft and Nvidia. 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.
