Artificial intelligence (AI) has been one of the big investing themes for 2023. Some argue that without the AI frenzy, the tech heavy NASDAQ index would have performed a lot worse. Despite most of the large players in this area (e.g., Nvidia) being located in the US, there are some UK shares that are involved in this space. Here are a couple for investors to consider.
Making use of tech for groceries
Ocado Group (LSE:OCDO) is a company that I’ve had history with. Years ago I thought the business was great, but struggled to get my head around the valuation. For the best part of the last two years, I flipped and have been more bearish.
The grocery division still accounts for the bulk of the group revenue, and this area has massively underperformed. High inflation has eaten into profit margins. UK customers hit by the cost-of-living crisis have turned to cheaper alternatives. The share price has fallen by 15% over the past year.
Despite all this, the group has a strong connection with AI. For example, it uses the Ocado Smart Platform. This system makes predictions on purchases and adjusts stock levels and supplier requests as a result. It also has Customer Fulfilment Centres, which are full of robots picking items and fulfilling orders that have been placed.
Even though I’m sceptical about the grocery side of the company, the AI side is very impressive. For investors that think AI could help the overall firm become more efficient in years to come, it’s definitely a stock to consider buying.
AI in cyber security
Another option is Darktrace (LSE:DARK). The cyber security company has been heavily involved in technology since inception. After the IPO, excited investors pushed the share price close to 1,000p in 2021. However, problems at the firm mean the share price has fallen by 38% over the past year, down to 334p.
AI is extensively used at the business to not only improve the software packages but even in the product offering itself. This includes elements such as real-time adaptive incident response where AI strives to deal with the threat.
The software can also allow AI to prioritise the risk of different incidents and a host of other useful tools that minimise human interaction.
Clearly, the risk here is that Darktrace is so AI focused that it could be, or become, overly reliant on it. This doesn’t worry me too much, rather I want to see improving financials before getting too excited.
Yet in terms of the chicken or the egg, being an AI sector leader should lead to better revenue further down the line.
Given that AI is still going through a lot of development, I think investors will do well to hold a host of different AI shares going forward. This diversifies the risk involved in just holding a couple of names and reduces pressure on trying to pick just one winner.
The post Which are the best UK shares for artificial intelligence (AI)? appeared first on The Motley Fool UK.
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More reading
- Rolls-Royce shares and Ocado are smashing the FTSE 100. Can they still make me rich?
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- Could Ocado shares be a winning long-term investment?
- Up 43% in a week! But what would I have if I’d bought Ocado shares 3 years ago?
- Why Ocado soared 12% higher in the FTSE 100 today
Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia and Ocado Group 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.
