The Lloyds (LSE:LLOY) share price is once again pushing near 60p a share. The UK banking stock has rewarded investors in 2024, with the share price rising by 35.6% over the past six months.
However, the stock made headlines last week after it poached Amazon Web Services executive Rohit Dhawan to lead its artificial intelligence (AI) strategy.
So, what does this mean for Lloyds, and will AI lift the share price higher?
New hire
On 5 August, amid a global stock sell-off, Lloyds announced that it had appointed Dhawan as its first group director of AI and advanced analytics. Dhawan, with a PhD in AI, previously led AWS’s data and AI strategy in the Asia-Pacific region.
Reporting to chief data and analytics officer Ranil Boteju, Dhawan will oversee AI integration across Lloyds’ operations, establishing an AI Centre of Excellence. His role includes enhancing customer and operational processes with AI, aligning with the bank’s strategy to scale AI use.
What does AI mean for Lloyds?
AI is poised to touch almost every aspect of modern life, transforming industries such as healthcare, finance, education, and transportation.
Banking is no different, as AI is revolutionising the industry by improving customer service, enhancing security, and optimising operations.
Lloyds, two years into a strategic transformation, has hired 1,500 tech specialists and is testing 50 AI use cases to improve customer support, chatbots, and fraud detection.
The FTSE 100 bank says it’s using machine learning algorithms or income verification when customers take out mortgages and to help prioritise customers’ call. In the former’s case, the process of verification has been reduced from three weeks to a matter of seconds.
Lloyds also used AI to register insurance claims following storms in January. This freed up time for urgent phone calls from customers.
From the outside, it’s very hard to quantify exactly what this will mean for Lloyds. But as AI constantly improves, it seems likely that it will deliver meaningful cost benefits.
Moreover, banks that incorporate AI most efficiently could also benefit from stronger customer retention rates. Morgan Stanley was one of the first lenders to hire an AI chief in March. Lloyds doesn’t appear to be far behind.
Investing for AI
AI could well deliver as yet unquantifiable benefits, but I wouldn’t invest in the bank because of AI.
But before I come to why I invest in Lloyds, it’s neccessary to accept there are always risks, even when investing in companies with strong credentials.
With Lloyds, I accept that it’s something of a bellwether for the UK economy, and while things are looking up, the nation remains vulnerable to economic shocks including rising oil prices and the potential to import inflation.
This could have a profound impact on demand for mortgages and potentially keep interest rates higher for longer. In theory, this may result in higher impairment charges.
However, the base case scenario is positive. The UK economy is expected to grow and there’s an acute lack of homes. We also now have a government that’s prioritising building them. This is certainly positive for the UK’s number one mortgage provider — around 66% of the bank’s loans are UK mortgages.
Moreover, the stock remains inexpensive at 8.2 times expected earnings for 2025 and with a 4.7% dividend yield. If I didn’t already have a strong weighting towards UK banks, I’d buy more.
This post was originally published on Motley Fool
