When it comes to investing, Canadians love investing in their own companies. A recent survey by Vanguard found that Canadians currently allocate 50% of their equity exposure to Canadian companies. This is 18 times higher than the percentage of Canadian assets in the global equity market, which is around 2.7%.
Yet despite a growing appetite for global equities, Canadian investors may not know where to begin beyond, say, the “Magnificent Seven.” Today, we’re going to look at one strong and popular stock, C3.ai (NYSE:AI), and why it’s a strong long-term investment for Canadians.
Why C3.ai
Canadian investors might consider buying C3.ai for several compelling reasons. The artificial intelligence (AI) market is expanding rapidly. C3.ai is well-positioned to benefit from this growth, with the AI hardware and services market projected to reach US$90 billion by 2025. This significant market potential can drive C3.ai’s revenue and stock price higher as more businesses integrate AI into their operations.
C3.ai has shown impressive revenue growth and has a diverse and growing customer base. For example, the company reported an 18% year-over-year revenue increase in the fiscal third quarter (Q3) of 2024 and an 80% increase in customer engagements compared to the previous year. The partnerships with major organizations like Boston Scientific, T-Mobile, and the U.S. Department of Defense highlight their strong market presence and potential for continued growth.
What’s more, C3.ai has a first-to-market advantage in enterprise AI, which allows it to capitalize on the increasing demand for AI solutions. Their diverse applications, including predictive maintenance and generative AI, cater to various industries, enhancing their market reach and stability.
Despite some financial challenges, the AI sector’s rapid growth could result in substantial returns for investors. Analysts and market experts suggest that C3.ai’s stock has the potential to reach significant price targets, offering the possibility of high returns over the long term.
How to get started
So, how does a Canadian investor get started? The easiest way is through a Tax-Free Savings Account (TFSA). Any capital gains, interest, and dividends earned within a TFSA are tax-free, meaning you don’t have to pay taxes on the investment income, which can significantly enhance your overall returns.
Furthermore, when you sell U.S. stocks at a profit within your TFSA, you won’t be subject to capital gains tax, unlike in non-registered accounts. Plus, TFSAs offer flexibility in terms of withdrawals. You can withdraw funds at any time without tax penalties and can re-contribute the same amount in the following year.
Finally, U.S. stocks held in non-registered accounts are subject to higher taxes compared to the 15% withholding tax on dividends in a TFSA. This makes TFSAs a more tax-efficient vehicle for holding U.S. stocks. However, note that U.S. dividends in a TFSA are subject to a 15% withholding tax by the Internal Revenue Service. Despite this, the benefits of tax-free growth and withdrawals generally outweigh this minor tax leakage for many investors.
