Microsoft (NASDAQ:MSFT) is making a bold push into artificial intelligence (AI). Last month, the company bought a large stake in OpenAI (the makers of ChatGPT) for $10 billion. Later, it followed up on that move by launching a ChatBot nicknamed “Sydney,” which many users thought created impressive content.
Other users had different experiences, saying that the bot insulted them and gave inaccurate answers to their questions. It’s been a mixed bag for Microsoft, but OpenAI’s own success in getting billions of dollars and hundreds of millions of users has been undeniable.
In this article, I will explore three Canadian stocks that stand to gain the most from Microsoft’s push into AI.
Kinaxis (TSX:KXS) is a supply chain management software company. It makes software that uses AI to help companies manage their inventories, supplier relationships, and similar things. It already uses AI in its own business. Its software uses AI to help people identify risks and opportunities in their supply chains. For example, KXS’s AI can be used to identify times of year when suppliers are most likely to be delayed in shipping things out, so that purchases can be planned accordingly. Kinaxis is already benefitting from Microsoft’s AI in one way: it is partnered with Azure.
Azure is Microsoft’s cloud service, which gives users access to advanced AI tools. This partnership is a big selling point for Kinaxis: the company mentions it extensively on its website. Kinaxis is a pretty expensive stock, trading at 9.3 times sales, but it undeniably participates in the AI opportunity.
Shopify (TSX:SHOP) is a Canadian tech company that uses AI in various ways at its business. Shopify is a pretty fast-growing company, with 26% year-over-year revenue growth in its most recent quarter. The company is already using AI to create product descriptions for its users. This is a classic example of a company using AI to save users time and money.
Beyond that, SHOP has a partnership with Microsoft. The two companies have teamed up to help customers find products using MSFT’s display network and audience network. Microsoft is using AI to improve the accuracy of its ad targeting. Should its efforts bear fruit, they will help more Shopify vendors get discovered. This is all very encouraging, but do note that SHOP is a very expensive stock, trading at 9.3 times sales and 1,600 times next year’s expected earnings.
I wouldn’t buy this stock, unless it comes down a bit.
Last but not least, we have POET Technologies (TSXV:POET). This is a Canadian semiconductor company that makes computer chips used for photonics (i.e., image processing).
Of the three companies on this list, this is likely the one with the most to gain from Microsoft’s forays into AI. KXS and SHOP only benefit from Microsoft’s AI via deals that generate a small portion of their business, POET could end up selling directly to Microsoft’s server business. Should MSFT’s AI ambitions lead it to photography related AI (e.g., colour correction, face recognition), then POET may end up becoming a supplier.
In fact, POET is already selling chips to data centres, so there is potential for it to become a supplier to Microsoft’s Azure fairly soon. Just remember that, like the other stocks on this list, POET has a steep valuation, and it’s not an automatic buy just because it is useful to AI companies.