Canadian companies have much to gain as the generative artificial intelligence (AI) train keeps chugging on. Undoubtedly, many investors may go for the so-called Magnificent Seven mega-cap tech titans for their AI exposure.
While there’s no problem with this, I think there are also great AI plays on the TSX Index, many of which may trade at better valuations relative to long-term growth. Indeed, AI stocks aren’t without their fair share of risk. So, Canadian investors should ensure they’re paying close attention to the valuation of firms, even those with rock-solid long-term AI growth strategies.
Top-notch AI innovations cost money to build. And unless there’s a good chance of enhanced profitability prospects in the future, investors may wish to hold off until the price of a given stock is in a better spot.
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These Canadian AI stocks are worth buying and holding
In this piece, we’ll consider two Canadian companies that could be riding on big AI tailwinds. While they may not have ChatGPT-like large language models (LLMs) or small language models (SLMs) for the public today, I certainly would not count them out as they look to steadily improve their footing on the front of AI-driven technology.
Consider shares of media and information juggernaut Thomson Reuters (TSX: TRI) and Shopify (TSX: SHOP), two Canadian firms with bigger AI chops than you’d think. Though AI tailwinds could take a few years to really drive the results, I do think that each firm is worth stashing on a watchlist in case a market-wide pullback grants investors an opportunity to pay two or three quarters to get a full dollar, so to speak.
Right now, each firm looks more or less fully valued. However, if things go right with their AI plans, perhaps they may prove deeply undervalued right here. In any case, let’s check out the two names.
Thomson Reuters
Thomson Reuters stock has been on a red-hot rally of late, up more than 74% in the past two years. After a strong first quarter result (and sales guidance hike for the full year) and ambitious AI plans, it should be no mystery why shares of TRI are trading at a slight premium nowadays. At 32.5 times trailing price-to-earnings (P/E), the price of admission is getting a tad steep.
That said, Thomson Reuters isn’t just a firm in the business of delivering the latest news. The company’s CEO, Steve Hasker, was quite clear in noting that “We’re a tech stock, not a media stock.” He’s right.
If anything, Thomson Reuters is more of an AI-driven tech stock that could compete with the heavyweights south of the border. As Hasker and company pull the AI growth lever, perhaps a richer multiple is justified for shares.
Shopify
Shopify isn’t just an e-commerce company; it’s an AI-driven tech innovator that can expand market share by leaps and bounds over the next four to five years. Indeed, Shopify has been in the AI game for more than a year now. However, recently, the firm launched more new AI features across its suite. Indeed, the AI features sprinkled here and there probably won’t cause merchants to pay markedly higher monthly fees.
However, as Shopify’s AI toolkit swells in size, I think Shopify may just be able to convince its users that its AI innovations are more than worth the added costs. Seeing as AI is helping so many small businesses save time and money, I view Shopify’s take on AI as one that could really move the needle in the long term. Regarding AI-enabled e-commerce firms, Shopify has to be close to the top of the list.
