The generative artificial intelligence (gen AI) boom has been the hot, go-to trade over the past year or so. As impressive as ChatGPT (and its GPT-4 model) is, the explosive rally has driven up price-to-earnings (P/E) multiples by quite a bit across the board in the tech scene. Depending on which metric you look at (the P/E ratio is just one example), the broader stock market certainly does look a tad on the frothy side, even if gen AI helps fuel a productivity boom for the ages.
While AI and its benefits could certainly fuel greater gains for investors through 2024 and 2025, investors must be aware of the valuation gauge and not just hand over their investment dollars without conducting a very thorough valuation. Perhaps that would entail forming a discounted cash flow model that analyzes each one of the variables that gen AI could help jolt over the next five years and beyond.
Markets feel wobbly once again. Don’t overpay for AI exposure!
In any case, I think it’s hard to argue that we’re overdue for a bit of a mild market correction. Whether markets take a breather going into March remains to be seen. Regardless, I’d view a pullback as akin to cutting the froth right off the top of a mug of beer. It’s not exactly a bad thing. In fact, it could be a good thing for investors who have extra cash sitting on the sidelines, waiting to be put to work on more attractive opportunities.
Without further ado, let’s check out one Canadian stock that stands to be a big AI beneficiary over the long run. And if shares pull back alongside the rest of tech and the market, they may prove an intriguing opportunity on a dip. Let’s get right into the names.
Thomson Reuters: Harnessing the power of AI
Thomson Reuters (TSX:TRI) isn’t exactly a firm that comes to mind when one thinks of the hottest gen AI tech and tools. The company is a multinational information conglomerate and has become a trusted brand in the media landscape. The firm recently clocked in some solid fourth-quarter results, alongside a nice dividend hike.
Looking ahead, the firm could leverage AI in a way to jolt its top and bottom lines. The firm already makes pretty good use of AI. And if management can find success with their recent gen AI platform, I think it will be tough to stop the long-term momentum in the stock as growth has a chance to go into overdrive.
At 27.1 times trailing P/E, I view TRI stock as cheap, even if shares are just shy of all-time highs. The company is innovating in the AI scene and could stand to be one of the bigger Canadian AI beneficiaries. At the end of the day, information and data are powerful forces as we move forward with the global AI boom. At the end of the day, Thomson Reuters is a king among men when it comes to information.
I’d encourage investors to give Thomas Reuters and their AI ambitions a look if you seek relative value in the scene. I find shares to be a tad on the undervalued side following a stellar Q4 — one that could precede more exceptional quarters.
