ChatGPT, the generative artificial intelligence (AI) platform developed by OpenAI, has taken the internet world by storm, while Microsoft’s subsequent upsized investment (estimated at US$10 billion) in OpenAI rejuvenated investor interest in AI stocks in January 2023. Growth-oriented Canadian investors looking for top artificial intelligence stocks to buy right now will find some interesting AI plays on the TSX today.
Canada is investing heavily, and diligently in building an AI innovation ecosystem and the country already ranks near the top on global AI leadership indexes. However, like any other nascent industry, most pure-play AI projects are start-ups (and high-risk experiments) that may be unavailable to the investing public — for now. That said, investors will find a good number of relatively low-risk artificial intelligence-powered stocks on the TSX that have proven business models, are growing at a double-digit clip, and generate positive cash flow.
Here are three top AI stocks that I believe have a good chance of generating positive returns for investors in 2023. The first two keep reporting record revenue and earnings. AI successes will only accelerate their growth, create and entrench new competitive moats, and make the investing community happier.
My long-time favourite Canadian AI stock, Kinaxis (TSX:KXS), is back to its profitable ways, and its highly recurring subscription-based revenue model generates strong visibility into its cash flow-positive business that’s growing at a double-digit clip.
Kinaxis is a sales and operations planning and supply management software vendor. Its AI-powered RapidResponse platform is a favourite tool for organizations with complex supply chain systems. Users benefit from real-time recommendations from the predictive AI models within the flagship system, and they usually sign up for long-term contracts. The company has an average 100% revenue-retention rate that speaks volumes about how its AI-infused platform solves real-life problems.
Kinaxis’s full-year 2022 revenue grew 46% year over year, and the company emphatically came back from a $1.2 million loss in 2021 to report a $20 million net profit last year. The company’s operations are profitable, and the company generates positive free cash flow, even as it reinvests in more capacity. Management guidance is for 25-27% growth in software-as-a-service revenue in 2023.
Shares have gained 10% so far this year.
ATS Corp. (TSX:ATS) is a robotics and industrial automation firm that’s using AI to enhance its market offerings to a growing client base with unique needs. The $5 billion company has invested heavily in machine earning and AI capabilities — yet it doesn’t market itself as an AI stock. Its largest markets include a growing life sciences industry and a hot electric vehicle (EV) battery manufacturing industry that’s buying its high-tech automation systems like hotcakes.
The company’s order book grew 45.3% year over year to $2.14 billion by January 1, 2023. Life sciences and automotive customers are placing larger orders. Sales for the most recent quarter increased by 18.5% year over year and quarterly net income surged by 20.4%. ATS is growing at a nice clip, enabled by innovation and powered by AI and digital-twin technologies and high-tech acquisitions.
ATS stock has gained 29% in value so far this year. This is a proven, profitable, and cash flow-positive business with a growing customer base and lower execution risk. You may wish to buy ATS stock and hold it as it harnesses AI to provide super-intelligent, high-speed automation solutions that a growing number of customers love.
Shares attract a forward price-to-earnings multiple of 20.8 times — they aren’t too cheap, but they are reasonably priced given the company’s potential to keep growing its order book, and sales and increase its power to generate positive earnings and retain growing cash flow.
Global X Robotics & Artificial Intelligence ETF
To reduce the individual risks each AI stock may pose to your portfolio, you may simply buy an index exchange-traded fund (ETF) and diversify investment risk across several holdings. Global X Robotics and Artificial Intelligence ETF (NASDAQ:BOTZ) offers geographically diversified exposure to 44 holdings of AI stocks, robotics, and machine learning plays, providing a more complete play on the budding AI industry and its applied offerings. The ETF has a reasonable expense ratio of 0.68% and has US$1.6 billion in net assets.