Every once in a while, tech stocks gather momentum, and Shopify (TSX:SHOP) stock stands to gain. Just two months back, the stock jumped 36% after it released its first-quarter earnings. Usually, the first quarter is seasonally weak for the e-commerce company. While its earnings were slightly higher than its guidance, the 36% jump came as Shopify used the magic word AI, or artificial intelligence.
Shopify stock sets the sail for AI
Shopify launched OpenAI’s ChatGPT API-powered AI shopping assistant. You tell the assistant what you are looking for, and it gives relevant product recommendations from Shopify merchants. The objective of a shopping assistant is to enhance customer experience and lure more consumers to the platform. The mention of ChatGPT sure got investors’ hopes high and pushed the stock up.
Shopify also talked about its various offerings like Shopify Audiences and Commerce Components. With all these products, Shopify wants to hook the user, cross-sell offerings and increase average revenue per user (ARPU). Its attach rate (an increase in the number of offerings a user uses) increased by 25 basis points to 3.04%. And let’s not forget the 25% revenue growth.
But were these fundamentals attractive enough to boost the price of an already inflated stock by 35%? The macro-environment looks gloomy for the 2023 holiday season as rising interest rates, inflation, and high credit might impact consumer spending.
Shopify’s 25% revenue growth shows a slowdown in its average growth rate of 50-65%. If Shopify has to justify its $111.6 billion valuation, it has to grow its sales 14-fold in the long term, which looks difficult at the moment.
Is this stock a buy today?
While Shopify is a good stock with growing revenue and market share, it is overvalued. It has already doubled since its December 2022 dip. With the fear of recession looming and weakness in the economy, I would suggest staying away from a stock highly dependent on consumer spending and a strong economy for its growth.
Shopify has offloaded its logistics arm and fired 1,000 people to keep its expenses in line with its growth. If you own Shopify stock, now is a good time to sell and buy a stock with a diverse customer base and multiple secular trends other than e-commerce to tap.
A tech stock I would buy over Shopify
Instead of a loss-making company, I would put my money on a profit-making company like Nuvei (TSX:NVEI), which has more than one growth driver. Nuvei is a payments platform company that earns more than 80% of its revenue from e-commerce transactions. Even though it diversified into digital products and financial services, they account for a small portion of its revenue due to lower transaction volumes.
Just this week, Nuvei stock made a vertical move of 14% after falling 37% between May and June. The stock fell as Nuvei, once again, became a target of short-seller Spruce Point Capital, who questioned the platform’s exposure to the bankrupt crypto exchange FTX. But now the short-seller has confirmed that it has completely exited its position in Nuvei.
It has set the course for the stock to ride on the growth wave as its Paya acquisition wins non-e-commerce enterprise clients. Nuvei became the payments partner of mobility solutions provider inDrive for payouts to its drivers in Latin America. Paya has enabled Nuvei to integrate its platform with large companies’ enterprise resource planning software and provide seamless global payments.
Enterprises bring higher transaction volumes and diversification beyond e-commerce, opening new growth avenues for Nuvei. The company is also profitable, except for the one-time acquisition charge, because of which it reported a net loss in the first quarter. The stock could see a 20-30% jump in the short term.
