Two days ago, Prime Minister Kier Starmer announced plans to “mainline” artificial intelligence (AI) “into the veins” of the UK to boost productivity in public services and fuel future economic growth. Looking at the details, I reckon two FTSE stocks could benefit from this ambition to make the UK an “AI superpower“.
FTSE 250
The first share is Kainos Group (LSE: KNOS). This is a medium-sized FTSE 250 technology firm that helps private and public sector organisations transform digitally. It specialises in the deployment of products from Workday, the cloud-based platform for HR and finance.
Kainos stock has performed well over the long term, but has more recently fallen on hard times. It’s now trading for 768p, which is 62% lower than the 2,052p price it was at in November 2021.
So how will Kainos benefit from the government’s AI proposals? Well, the IT provider has a strong track record of working with public sector clients, including the NHS and Department for Transport. So it’s already a trusted partner.
Plus, Kainos is already leveraging AI to benefit its customers. In the six months to September, it won nearly 40 AI & Data projects across the public, healthcare, and commercial sectors, taking the total so far to over 140. I expect that to motor much higher in future after the latest AI plans were announced.
Naturally, the firm faces a lot of competition to win contracts in this area, while public finances remain stretched. And it’s struggling for revenue growth right now in a challenging trading environment.
These issues are worth bearing in mind, as AI benefits aren’t going to happen overnight. Longer term, however, Kainos looks incredibly well positioned to benefit from these AI-driven public sector productivity plans.
With the stock trading at a fairly reasonable 19 times earnings for FY25 (which ends in March), and yielding 3.7%, I think it’s worth considering.
FTSE 100
Besides being powerful, AI is also notoriously power-hungry. Indeed, Big Tech’s energy consumption right now is outpacing entire countries!
To power his plans, Starmer also announced the establishment of an AI Energy Council to explore innovative energy solutions, including small modular reactors (SMRs). These are mini-nuclear reactors built in factories that offer scalable, low-carbon energy.
One of the frontrunners in developing SMRs is Rolls-Royce (LSE: RR). The FTSE 100 firm has a dedicated subsidiary and this venture remains in pole position to win a competition to deploy SMRs across the UK.
In September, Rolls-Royce SMR was selected by the Czech Republic as its preferred supplier for mini reactors. It said this “strengthens Rolls-Royce SMR’s position as Europe’s leading SMR technology”.
Unfortunately, it will be the early 2030s before this technology begins to be deployed widely. And despite the outcry it would cause in the UK, it’s possible Rolls-Royce isn’t chosen this year as one of the two winners from four contenders.
Meanwhile, the FTSE 100 stock isn’t cheap after surging 86% in a year. It’s trading at 26.5 times this year’s forecast earnings, which is quite pricey.
Nevertheless, the long-term opportunity appears massive. According to estimates, the global SMR market could top $295bn inside 20 years. This will be driven by European nations aiming to reach net-zero targets and rising energy demand from AI data centres.
This post was originally published on Motley Fool
