Reliable, long-term passive income doesn’t come easy. Investing in popular ‘flavour-of-the-month’ AI stocks might net me some short-term gains but can crash as fast as they rise.
But AI is now becoming ingrained in our everyday live,. So. I’m looking at two promising growth stocks that I think could profit from the technology in the long term.
Here are two UK shares I think fit the bill.
Crunching the data
RELX (LSE:REL) is a global data analytics firm that uses AI to provide organisations with informative, actionable insights.
It hosts large databases comprising over 40 petabytes of digital information. That includes everything from public records and legal documents to news items and scientific publications. By harnessing the power of AI and machine learning, it converts this raw data into detailed statistical information.
This information helps inform business strategies, legal decisions, and even medical treatments.
The RELX share price has shot up 36% in the past year, leading to estimates that it’s overvalued by almost 20%. But its price growth has slowed recently. This is no surprise as earnings and revenue are now estimated to increase by ‘only’ 9.2% and 5.8% per year, respectively.
Yet what I’m looking at is the company’s future return on equity (ROE). Forecast to be 63.4% in three years, it’s way above the industry average of 10%. As such, I’m putting RELX on my upcoming buy list as I believe it would make a promising addition to my passive income portfolio.
In it for the long haul
London Stock Exchange Group (LSE:LSEG) is a company I feel could provide slow but consistent returns for years to come.
It may not seem like an AI-related stock but I was surprised to hear it has entered a 10-year deal with Microsoft to develop generative AI tools. And as the company that owns and manages the London Stock Exchange, its position in the capital markets industry is well-established.
The integration of AI into its operations is part of a plan to better use the data it has available and expand its services. CEO David Schwimmer said the company has already begun conversations with customers about new opportunities to use its vast amount of data.
Looking at the balance sheet, the group’s equity far exceeds its debt, leading to a low 35% debt-to-equity (D/E) ratio. Furthermore, earnings and revenue are forecast to grow faster than the industry average, at 21% and 5.5% per year respectively.
I see it as a stock that could benefit from AI without solely relying on it for profit. For that reason, I’m adding it to the list for my next buying round.
AI-related risks
I have to keep in mind that despite promising developments, AI remains a nascent technology. It could face unforeseen issues at any moment. Any investment in AI is at risk of losses due to regulatory reforms, political upheaval, or evolving technology.
Highly charged debates are going on globally as to the future of AI and the potential threat it poses to humanity. Many experts are calling for limitations on its development until further safety assessments have been carried out.
This could affect the share price of any company that’s invested in or benefits from the technology.
Nonetheless, I do believe that there’s plenty of potential for stocks linked to AI to perform strongly in the near and distant future.
The post 2 promising UK-based AI stocks I’d buy for long-term passive income appeared first on The Motley Fool UK.
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Mark Hartley has positions in Microsoft. The Motley Fool UK has recommended Microsoft and RELX. 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.
