The second phase of AI has begun. I expect these UK stocks to gain

The first phase of Artificial Intelligence (AI) was about building infrastructure. This has benefited companies like Nvidiamaking AI chips for data centers. We are now moving into the second phase of technology, where companies are rolling out AI features and gaining new customers as a result. With that in mind, here are two UK stocks that I believe will do well in this phase.

Working with Microsoft

The industry most likely to benefit from the second phase of AI is software. Already, US software companies are interested Salesforce again Service Now we have released AI ‘agents’ – which can serve customers automatically – and these companies are seeing a lot of interest in these new features.

The good news is that the UK is home to several software companies with their own AI capabilities. One such company London Stock Exchange Group (LSE: LSEG).

The company provides financial data to banks and investment management companies around the world. And in recent years, it has been working closely with the tech giant Microsoft developing AI features.

If these features – which should be rolled out within the next 12 months or so – are successful, the company may be able to take market share from competitors such as Bloomberg and FactSet. So it’s an exciting time to be an investor here (I’m an investor myself).

Our partnership with Microsoft continues to make strong progress and our product timeline is on track.
LSEG Q3 update

Now, this stock is overpriced (like most software stocks). Currently, the price-to-earnings (P/E) ratio is around 29. That doesn’t leave much room for a wrong move (like the release of undesirable AI solutions).

I think the stock will still do well in the coming years despite this high valuation though. So I believe it is worth considering for a long time.

It is noteworthy that analysts at Morgan Stanley they recently raised their price target to 13,300p. That’s about 18% above the current share price.

AI for small businesses

Another British software company that makes AI features Sage (LSE: SGE). Specializes in accounting and payroll software for small and medium-sized businesses.

Earlier this month, Sage announced that its new AI product ‘Sage Copilot’ is now available to early adopters in the US and UK. Sage Intacct. This is designed to transform the way accounting and finance teams tackle their day-to-day challenges, from quickly highlighting budget variances to providing clear answers to key questions.

This is an exciting development. I think it could lead to higher sales in the coming years as businesses look to improve their efficiency. That said, Sage faces a lot of competition. Other players in this market include Intuit again Zeroand these companies also have good products.

This one is expensive too. Currently, the P/E ratio is around 31. I think the stock is worth considering despite this massive acquisition though. I don’t see the valuation as a deal breaker, given the company’s track record and growth prospects.

Analysts at JP Morgan he currently has a price target of 1,500p here (15% above today’s share price). They named Sage one of their top picks in the European software industry.