An AI (Artificial Intelligence) Stock That Could Supercharge Your TFSA

This AI-focused Canadian stock could help TFSA investors earn solid returns in the long run.

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Are you looking for a great way to boost your Tax-Free Savings Account (TFSA)? If yes, you should consider adding some fundamentally strong artificial intelligence (AI) stocks to your portfolio. AI is fast emerging as one of the most disruptive and innovative technologies of our time, and it has the potential to transform various industries and create new business opportunities and value. That’s why investing in an AI stock at the right time will give you exposure to this fast-growing and lucrative market while also diversifying your TFSA holdings.

In this article, I will introduce you to one of the most attractive AI stocks in Canada that could supercharge your TFSA in the long term.

A top Canadian AI stock for TFSA investors

While there are many Canadian companies today that are leveraging AI technology to innovate and disrupt their industries, not all of them might be suitable for TFSA investors as they could increase your risk profile. That’s why TFSA investors should look for companies that have a proven track record, a strong competitive advantage, and a clear growth strategy.

One such company is OpenText (TSX:OTEX), the Waterloo-headquartered information management company that primarily focuses on providing software and services to help enterprises manage, secure, and analyze their data.

It currently has a market cap of $11.3 billion as its stock trades at $41.46 per share. After posting 39% gains in 2023, this AI-focused Canadian stock has seen about 24% value erosion so far in 2024, making this stock look even more attractive to buy on the dip based on its long-term fundamental outlook. The recent declines in OpenText’s share prices have also made its annualized dividend yield look even more attractive, which currently stands at 3.3%.

Top reasons to buy this AI stock now

The ongoing long-term growth trend in OpenText’s financials looks impressive. In the first three quarters of its fiscal year 2024 (ended in March 2024), the software company’s total revenue surged by 47.2% YoY (year over year) to US$4.4 billion with the help of continued improvement in its cloud revenues and enterprise cloud bookings. During these nine months, the company’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) also jumped by 51% YoY to US$1.5 billion. Similarly, its adjusted EBITDA margin in the latest quarter stood strong at 32%, far better compared to 29.3% from a year ago.

Besides organic growth, OpenText’s operational strategy to focus on significant acquisitions and AI-driven enterprise cloud solutions brightens its long-term growth outlook. For example, at the start of 2024, the company introduced the latest advancements in its OpenText Aviator platform. This update emphasized AI-driven improvements in secure information management across various knowledge bases by offering scalable analytics and reducing operational costs with efficient data management.

Another key factor that makes this AI-focused Canadian stock really attractive for TFSA investors is its continued focus on debt reduction. Last week, OpenText completed a significant debt reduction of US$2 billion, which highlights its management’s focus on minimizing long-term risks while maintaining AI-focused investments. Given all these positive developments, you can expect this AI stock to yield solid returns in the long run.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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