Canadian investors are wondering how to benefit from the artificial intelligence (AI) boom without adding too much risk to their portfolios. AI tech stocks can deliver amazing returns over a short period of time, but the recent correction is a reminder that gains can also get wiped out very quickly.
One strategy to get access to the growth in AI is to own non-tech TSX stocks that should benefit from the expansion of AI infrastructure or those that can adopt AI tools to make their businesses more profitable.
Enbridge
Enbridge (TSX:ENB) spent billions of dollars in recent years to diversify its asset base to include more exposure to growth in demand for renewable energy and natural gas. The company acquired the third-largest wind and solar developer in the United States and is in the process of wrapping up its US$14 billion purchase of three American natural gas utilities.
AI data centres consume significant amounts of electricity. There are more than 300 new AI data centres currently planned or under construction in the United States. In some areas, power grids might not be able to meet the anticipated surge in electricity demand, and upgrading transmission infrastructure can take more than a decade by the time the required permits are in place and projects are completed. As a result, many firms that are building AI data centres are looking to install standalone power generation for the facilities to ensure reliable power. Where possible, renewables will be harnessed, but companies are also looking at building power plants fuelled by natural gas.
Enbridge’s natural gas transmission network already moves 20% of the natural gas used in the United States, and the addition of the three utilities will make Enbridge the largest operator of natural gas utilities in North America. These assets position the company to benefit from the anticipated jump in natural gas demand from AI infrastructure projects.
Enbridge recently raised its financial guidance for 2024 and has a $24 billion capital program on the go to help drive revenue and cash flow growth in the coming years. Investors can currently get a dividend yield of 6.8%.
At the time of writing, the stock is up about 9% over the past month to around $53.50. It has been on an upward trend since early October last year and more gains should be on the way if the American central bank follows Canada’s lead and starts to cut interest rates. Lower borrowing costs will free up more cash and should boost Enbridge’s profits.
TD Bank
TD (TSX:TD) is a contrarian pick today. The stock fell out of favour in the past year amid concerns that investigations by U.S. regulators into TD’s systems for detecting and preventing money laundering could lead to large fines and slow down TD’s growth in the United States.
TD has already set aside US$450 million to cover potential penalties. Analysts predict the fines could go as high as US$4 billion. At that level, TD would hand over a good chunk of its excess cash pile that could otherwise be used for acquisitions.
The bank will eventually get the issue sorted out, and buying TD on the big dip could prove to be a savvy move over the long haul. Large banks like TD will invest heavily in AI to leverage their client data to speed up approvals and customize product offerings across the various business segments in both Canada and the United States. This should ultimately reduce costs and drive better margins. AI could also help banks with security through better fraud detection and prevention.
TD trades near $78.50 at the time of writing. The stock was as high as $108 in early 2022, so there is decent upside potential. Investors can get a 5.2% dividend yield from TD stock at the current share price.
The bottom line on AI investing
Cautious investors don’t have to make big bets on volatile tech stocks to get access to the expansion of AI. Enbridge and TD are just two examples of other stocks that should benefit from AI’s growth. If you have some cash to put to work, these stocks still look cheap and deserve to be on your radar.
