The first phase of artificial intelligence (AI) was about building the infrastructure. This has benefited companies like Nvidiawhich makes AI chips for data centers. We now move on to the second stage of technology however, where businesses deploy AI capabilities and thereby gain new customers. With that in mind, here are two UK stocks that I think will do well during this phase.

Working with Microsoft

The industry that is most likely to benefit from the second phase of AI is software. Already, American software publishers like Sales force And ServiceNow have deployed AI “agents” – which can serve customers autonomously – 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 of these companies is London Stock Exchange Group (LSE: LSEG).

This company provides financial data to banks and investment management companies around the world. And in recent years, it has worked closely with the tech giant Microsoft to develop AI functionalities.

If these features – which are expected to roll out over the next 12 months or so – are effective, the company could be able to capture market share against competitors such as Bloomberg and Set of facts. 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 schedule is on track.
LSEG Q3 Update

However, this stock has a high valuation (like most software stocks). Currently, the price/earnings ratio The (P/E) ratio is around 29. That doesn’t leave much room for a misstep (like deploying unimpressive AI solutions).

I think the stock will continue to perform well in the years to come despite this high valuation. So I think it’s worth considering for the long term.

It should be noted that analysts of Morgan Stanley just increased its target price to 13,300p. That’s about 18% above the current share price.

AI for small businesses

Another UK software company rolling out AI features is Wise (LSE: SGE). It specializes in accounting and payroll software for small and medium-sized businesses.

Earlier this month, Sage announced that its new AI product “Sage Copilot” was now available to early adopters, initially in the US and UK on Intact sage. The goal is to transform the way accounting and finance teams approach their daily challenges, from quickly highlighting budget variances to providing clear answers to critical practical questions.

This is an exciting development. I think this could lead to increased sales in the coming years as companies look to improve efficiency. That said, Sage faces stiff competition. Other players in this market include Intuition And Xeroand these companies also have great products.

This one is also expensive. Currently the P/E ratio is around 31. I think the stock is worth considering despite this high earnings multiple. I don’t view this valuation as a deal breaker, given the company’s track record and growth prospects.

Analysts at J.P. Morgan currently have a price target of 1,500p here (15% above current share price). They named Sage as one of their top picks in the European software sector.