Some bearish pundits doubted the sustainability of America’s new bull market. Undoubtedly, whenever you have a nearly year-long bearish move, it’s hard to be a contrarian. Last year also saw more than its fair share of bull traps! Eventually, a turnaround was sustained, and the new bull seems to be running strong going into the later summer. However, it is notable that August has brought forth a bit more volatility. In any case, I’d view any such dips as more of an opportunity for prudent investors to punch their ticket to run with the bulls.
Indeed, chasing stocks is never a good idea. But given the S&P 500 is still off its all-time high, I wouldn’t necessarily call the broader basket of stocks overvalued, even if most of the upside in recent months has been driven by multiple expansion. Undoubtedly, whenever price-to-earnings (P/E) multiples swell, it’s a good idea to head back to the drawing board and ask oneself why such loftier multiples are being rewarded.
Soft economic landing or not, it’s a good time to be a new investor
At this juncture, I think it’s pretty much a given that the next recession will be a subtle jab (the so-called soft landing), rather than a knockout blow (a hard landing for the economy). Regardless, investors should insist on value and not lose sight of traditional valuation metrics. Remember, multiple expansion is only warranted if there’s a fundamental positive shift in the long-term growth story or if earnings are expected to be a heck of a lot better over the year or two ahead.
When it comes to various tech stocks, artificial intelligence (AI) has been the name of the game. It’s not just a trend or a bubble. It’s a technology that could be monetized very quickly. Whether it be through the automation of certain tasks or the enhancement of existing pieces of software, the potential boost from AI has the potential to be profound.
As with most hot technologies, we will likely reach a point where hype and expectations exceed what’s reasonable. I don’t think we’re there yet. Further, there are plenty of great stocks whose AI upside, I believe, is undervalued.
Shopify stock: Getting into the AI game could drive meaningful upside
Take Shopify (TSX:SHOP) as an example. It’s a tech-savvy e-commerce company that has a lot to gain from the rise of generative AI. In numerous prior pieces, I’ve urged investors not to overlook the firm’s seemingly minor moves into the realm of AI. Tiny AI-backed features may not be a game changer today. But as the pace of AI innovation accelerates, everyday tech companies, like Shopify, may soon be viewed more as AI plays.
Competition in e-commerce is fierce. But I like Shopify’s ecosystem, especially should the firm continue introducing new AI innovations over the coming years. At $75 and change, SHOP stock is a name I’m starting to like on the dip. I have no idea if shares have bottomed from their August slump. Regardless, I like the roadmap for the next 10 years out.
Sure, over the timespan you’re very likely to witness drops of 20%, 30%, or even 50%. So, do be prepared for volatility and be ready to keep at it with the homework as new developments emerge! Given the volatility in a name like Shopify, it’s arguable that most huge downside moves tend to be exaggerated.