As an investor, especially one with a healthy level of risk tolerance, it’s natural to be intrigued by artificial intelligence (AI) stocks. It’s a new phenomenon in the market, and considering the meteoric growth of companies like Nvidia, it can also be highly profitable. However, there are risks involved.
Choosing a safe AI stock can be challenging if you need help understanding the underlying technology, business model, and, by extension, its prospects.
One way to balance out the risks is to diversify, and instead of pouring all the capital (that you have set aside for this purpose) into one AI stock, divert some of it to a more trusted growth stock. You can do that without going out of the tech sector.
An AI stock
Calling Telus Digital (TSX:TIXT) an AI stock might be a bit of a stretch because that’s not its primary focus. Their original forte is customer experience (CX), but since it heavily leverages data and, to an extent, algorithms and solutions that fall under AI, we can put it in this category.
They also offer a range of AI solutions and services, including chatbots, and have their own enterprise-grade generative AI engine called Fuel iX.
Ironically, despite having a significant amount of AI DNA at its core, Telus Digital is in a perpetual bear market phase. Apart from a few disparate bullish phases, the stock has mostly gone down and is currently trading at a massive 88% discount from its price at the inception.
However, the company is still afloat, and insiders have trust in its prospects, as evidenced by its director’s recent purchase of 100,000 stock in the company.
While it’s not a traditional vote of confidence, the parent company, Telus, still has massive holdings in Telus Digital, and we might even say that it has helped keep the stock afloat.
A conventional tech stock
If you are looking for a traditional tech stock that may offer consistent returns and have an impressive performance track record, Constellation Software (TSX:CSU) is arguably a top pick.
The stock is constantly reaching new heights, and even though its current pace is a fraction of its long-term annualized growth, it’s still among the top growth stocks in Canada. The stock rose by about 220% in the last five years.
It pays dividends as well, but the yield is tiny — 0.12% at the time of writing this. The stock is quite dangerously overvalued. However, its compelling and consistent performance undermines these danger signals.
The stock has pushed through unfavourable conditions in the past as well, and unless something fundamental to the company changes, it may keep outperforming the general market, even the vibrant tech sector, in the future.
Foolish takeaway
The two tech stocks offer two completely different types of growth opportunities. Constellation Software offers tried and tested growth, while Telus Digital offers the early bird advantage, assuming the stock would take off.
Both stocks carry different types of risks as well. Another significant fall or period of slump might crush the confidence of Telus Digital investors. In contrast, the main risk with Constellation Software is slow or no growth.
