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How AI is Powering Industry Transformation & Dividend Growth in My Stock Portfolio

Writer's picture: Matt WolodarskyMatt Wolodarsky

Updated: Jan 11

As I wrote in my Investor's Guide to Profiting from the AI Boom last October, my investing strategy for the AI era is to ride and adapt to the waves of AI value creation. This means riding each progressive phase, capitalizing on growth as it migrates from the AI ecosystem to the industries and societies it helps reshape.


As I continue to invest in opportunities within the AI ecosystem (phase I), especially in the AI tech stack and software, I am also looking for companies that are strategically investing in AI to transform their industries (phase II).


I am building a portfolio of companies applying AI to their business in a differentiated manner that will transform the industries they compete in and provide alpha for these companies to pass on to their investors in the form of dividends. Why focus on dividend paying companies? I believe the biggest rewards for non-technology-based companies effectively applying AI to their business will be an increase in profitability, allowing dividend growers to super charge their annual dividend increases.

I will only add companies to my AI-driven industry transformation portfolio that meet the following criteria:

  1. AI leadership: Is the company leading their industry in applying AI to their business in a differentiated manner?

  2. AI performance: Will the alpha generated by the companies AI investments improve their profits and boost their cash flow?

  3. Dividend growth: Is the company likely to pass on the AI driven cashflow improvements to their investors in the form of increasing dividend payments? Does the company have a track record of paying and increasing dividend over time?

  4. Valuation: Is the company stock price reasonably valued? 


I found four companies worthy of being added to my AI-driven industry transformation portfolio. Let's review the rationale for their portfolio inclusion.


  1. JP Morgan (NYSE: JPM)

Stock price (as of January 10, 2025): $239.87

JP Morgan is a powerhouse in the U.S. banking industry, leading the way across investment banking, commercial banking, credit cards, retail banking, and asset and wealth management - setting the standard for dominance in every category.


JPM caught my eye for two main reasons:


  1. Tech & AI Pioneer: They're not just dabbling in technology and AI - they're leading the charge with significant investments and a head start

  2. Future Growth: The operational enhancements and business expansion driven by AI will boost their cash flow, likely setting the stage for faster dividend growth


JPM is making substantial investments in artificial intelligence (AI). In 2024, the bank allocated $17 billion to technology, marking a $1.5 billion YoY increase. A significant portion of budget is dedicated to AI initiatives aimed at improving efficiency and innovation.


The bank has established a dedicated team of over 2,000 AI and machine learning (ML) experts and data scientists to leverage AI technologies across its operations.


CEO Jamie Dimon created one of the most robust technology research departments outside of Silicon Valley, starting with the hire in 2019 of well-known Carnegie Mellon researcher Manuela Veloso.


CEO Dimon mentioned Dimon mentioned ChatGPT in his 2022 shareholder letter, long before anyone was talking about it
CEO Dimon mentioned Dimon mentioned ChatGPT in his 2022 shareholder letter, long before anyone was talking about it

JPM key AI initiatives include:


  • COiN (Contract Intelligence) Platform: This AI-driven system automates the analysis of legal documents, significantly reducing the time and errors associated with manual reviews

  • LOXM Trading System: An AI program designed to execute trades with optimal speed and pricing by learning from historical trading data, thereby improving client outcomes

  • IndexGPT: A generative AI tool under development intended to provide personalized investment advice, showcasing the bank's commitment to leveraging advanced AI for client services

  • LLM Suite: An AI assistant deployed to support 60,000 employees in tasks such as document summarization and problem-solving, enhancing productivity and operational efficiency.


As society and the financial services industry moves into the AI era, where AI advancements are happening so fast, the opportunities for the largest bank in the US to apply AI to drive outsize operational efficiency is immense.


No financial institution is betting more on the future. And, as recognized by the industry's leading benchmark - the Evident AI Index JPM is the top AI leader in banking by Evident's AI Index.


JPM is an execution machine. JP Morgan holds a leading share position in most of the categories in which it competes, thanks to its strategic focus on investing heavily in organic growth opportunities and enhancing its distribution platforms. These investments are expected to drive significant market share gains over the next decade, solidifying JPMorgan's status as a top competitor among its peers. The company has demonstrated impressive financial performance, with a revenue compound annual growth rate (CAGR) of 14.44% over the past five years, and a return on equity (ROE) of 15%.


Dividend

JPM is a generous dividend payer with lots of room, and hopefully future AI generated cash flow improvements, to grow its dividend. For more information on how I evaluate dividend paying companies, see How to Choose the Right Dividend Stocks | The Wealthy Owl


Valuation

You could make a strong argument that JPM is slightly overvalued. But great companies are NOT cheap.

  1. Nextera Energy Inc. (NYSE: NEE)

    Stock price (as of January 10, 2025): $67.38


Nextera Energy is good for retail investors seeking exposure to the growing renewable energy sector, as the company is well-positioned for growth with its world-leading renewable energy generation business and its regulated utility business that benefits from constructive regulation in Florida.


Nextera Energy is investing in a diversified portfolio of energy solutions to capitalize on the increasing electricity needs of data centers - They have a 300 GW pipeline of renewable projects, with data centers accounting for 18% of their backlog. - They are doing it quickly - They successfully deployed over 1 GW of co-located battery storage in California to meet the needs of data centers within a short timeframe of approximately 24 months.


Perhaps more important in an industry where prices are heavily regulated, they are a leader in applying AI to drive operational efficiencies and deliver growing profits.


Nextera Energy utilizes AI in several key areas:


  • Predictive maintenance to monitor equipment health and enable proactive maintenance across power generation facilities, including wind turbines and solar farms.

  • Renewable energy optimization to enhance energy production, schedule maintenance, and integrate renewable sources into the grid using real-time data analysis.

  • Grid management for real-time monitoring, resource allocation, and outage management through Power Distribution Control Centers.

  • Customer service with features like the Account Summary that uses AI to provide customers with easy access to bills and payment options

  • Energy management solutions such as Optos, offered by NextEra Energy Resources, to help businesses with energy savings, consumption optimization, and sustainability efforts


Are these AI investments paying off?

While the research I did (with help of AI ;)) did not explicitly quantify the degree to which AI-powered initiatives have contributed to NextEra Energy's performance relative to competitors, there is evidence suggesting that their investments in AI are playing a crucial role in their success.


NextEra Energy Resources' 2023 wind and solar fleet O&M costs were 26% and 38% better than the industry median, respectively. This accomplishment is likely due in part to the company’s commitment to data and technology, including AI. The company also performs daily in-house analysis of over 560 billion data points.


Dividend

As a dividend aristocrat, Nextera Energy has a 30-year streak of raising its dividend each year. Nextera Energy has committed to growing their dividend 10% through at least 2026. This dividend growth expectation is supported by their projected adjusted EPS growth rate of 6% to 8% and their plan to maintain a payout ratio of roughly 60%.

Valuation

I'm concluding that the stock is slightly undervalued.


  1. Lowe's (NYSE: LOW)

    Stock price (as of January 10, 2025): $247.90

Lowe's ranks as the world's second-largest home improvement retailer. By consistently emphasizing core retail principles—such as excellence in merchandising, operational efficiency, supply chain enhancements, and customer engagement—Lowe's has effectively managed expenses while preserving its low-cost status. The company keeps a portion of the cost savings it realizes and shares the remainder with its customers by offering everyday low prices.


Lowe's leverages advanced AI and digital twin technologies to enhance customer experience and operational efficiency. AI-powered customer service tools streamline routine inquiries and ensure compliance, allowing teams to focus on higher-value tasks while building trust with customers. Through its collaboration with Nvidia, Lowe's has developed digital twins of its stores, enabling better planning and execution of store layouts, inventory management, and augmented reality (AR) applications to support restocking and resets. Additionally, Lowe's has introduced a generative AI tool, the "Lowe's Product Expert," which provides personalized product recommendations, simplifying the shopping experience for customers and boosting engagement.


Lowe's has also partnered with Palantir to develop AI solutions aimed at improving customer service and operational efficiency. This collaboration focuses on optimizing work queues and enhancing agent satisfaction, leading to more efficient customer interactions.


Lowe's investor conference, 2024
Lowe's investor conference, 2024

These innovations position Lowe's as a leader in combining AI with practical solutions to optimize its retail operations and customer interactions.


Dividend

A dividend aristocrat, Lowe’s has raised its dividend for 25+ consecutive years and grown it at a 15.8% annualized rate over the last five years.


Valuation

  1. Deere & Co. (NYSE: DE)

    Stock price (as of January 10, 2025): $408.57


Founded in the mid-19th century, the original John Deere built the steel plow and transformed farming. Over 180 years later, the company bearing his name is now undergoing a digital transformation that is revolutionizing the same industry. Deere is the world’s leading manufacturer of agricultural equipment.

Deere & Co has built a platform business, much like Apple achieved with the iPhone, but for the agriculture business. They have an integrated offering of world class hardware and software, locking customers into the Deere ecosystem with a consistent user interface and new software advances such as AI, computer vision and autonomous. Deere can also unlock the value of their customer’s farm related data by using machine learning and other analytical technologies to offer insights and custom guidance, such as recommendations for new fertilizer seed and chemical treatments. To create network effects around their platform, Deere has invited 3rd parties to build on its platform to better serve customers with agriculture related apps and services. To continue the Apple analogy, it's like an Appstore for the agriculture industry.

In addition to their technology advantages Deere has other ways to differentiate in an oligopoly-based market, including being one of the world’s most valuable brands and its vast worldwide dealer network.

Deere has close to a two-century innovation track record, and now they have embraced AI.


Deere is using AI, in automation and autonomy in particular, to grow their TAM and driving greater efficiencies/yield for their customers and shareholders.


2025 Investor Presentation
2025 Investor Presentation

Here are some specific applications of AI that Deere is applying across their business:


Autonomous Machinery

At CES 2025, John Deere unveiled fully autonomous vehicles, including tractors and a robot lawn mower, designed to address labor shortages in agriculture, construction, and landscaping. These machines utilize advanced AI, computer vision, and sensor technologies to operate without human intervention, aiming to increase efficiency and reduce reliance on manual labor.


Precision Agriculture

John Deere's "See and Spray" technology employs computer vision and machine learning to identify weeds and apply herbicides only where needed. This approach reduces chemical usage by up to 95%, lowering costs and minimizing environmental impact.


Machine Vision in Harvesting

The company's Combine Advisor system uses cameras and AI to monitor grain quality during harvesting. It makes real-time adjustments to machinery settings to minimize grain damage and loss, thereby improving yield and profitability.


Generative AI in Equipment Design

John Deere has established an AI lab focused on designing farm equipment for a more sustainable future. By leveraging generative AI, the company aims to develop machinery that meets modern sustainability and food production challenges.


These AI investments are beginning to deliver business value. The autonomous machinery addresses labor shortages, potentially increasing productivity and safety in various sectors. The precision agriculture technologies, such as "See and Spray," help farmers reduce input costs and improve yields, directly impacting their profitability. However, the agricultural machinery sector faces challenges, including falling commodity prices and higher interest rates, which may affect large equipment purchases.


Dividend

While they have a low yield and inconsistent annual dividend increase track record, Deere has grown its dividend considerably over the last five years (16.3%)



Valuation



 

As with any investment decision you make it’s important to complete your own due diligence and assess if the investment matches your risk profile. Like any individual stock there is risk. You are entirely responsible for your own investment decisions.

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