Generative artificial intelligence (AI) remains a very big opportunity on the stock market today. While the “easy money” in names like NVIDIA, Meta, and Taiwan Semiconductor Manufacturing has been made, there are plenty of overlooked AI names out there as well — many of them trading on the Toronto Stock Exchange. In this article, I will share the “best” AI stocks on the TSX, as measured by the extent to which they use AI in their products and services.
Kinaxis
Kinaxis (TSX:KXS) is a Canadian supply chain management software company. It uses AI to help users keep track of supply chain variables like inventory, inputs, and customer data. The company is seeing a lot of success with its product offerings. For example, its Maestro (formerly RapidResponse) platform is used by some of the world’s largest and most successful manufacturing companies and retailers.
Kinaxis is growing a lot thanks to its AI product offerings. For example, over the last 12 months, its revenue grew 18.5% and its free cash flow grew 650%. It also had a 61% gross profit margin and a 32.7% free cash flow margin. The company’s stock is quite pricey, of course, trading at about 54 times earnings. But sometimes paying a premium for innovation is worth it.
OpenText Corp
OpenText (TSX:OTEX) is a Canadian content management software company. It develops apps that let people create and analyze text, build and test software, and analyze large amounts of data. The company wasn’t really a fast grower for most of the last five years, but it experienced a growth spurt when it rolled out and started publicizing its AI offerings in 2023. It increased its revenue growth rate to 11% and even achieved a 205% earnings per share (EPS) growth rate in the TTM period.
It’s not clear that this will last; there was something of an AI arms race in the period after ChatGPT launched, where companies would throw money at AI SaaS services fairly indiscriminately. Nevertheless, OTEX is stock is cheap, trading at just 7.3 times earnings. It may be worth a look.
Shopify
Shopify (TSX:SHOP) is another Canadian company that is doing big things in AI. Specifically, it is using AI to help businesses sell more products. The company’s core platform is an e-commerce website builder that includes a payment processing platform. Companies use it to host their own websites and sell products on them.
The company recently added generative AI features to its platform, such as a large language model, which helps users create compelling product descriptions. This feature saves businesses countless hours or dollars they’d otherwise spend on creating marketing content. It helps businesses sell more products with less marketing spend, and that fact keeps said businesses coming back to Shopify year after year.
The bottom line
The bottom line about Canadian AI stocks is that they remain among the best opportunities in the market. Many of the “obvious” AI players’ shares are already priced for perfection, with little potential for superior returns. The overlooked gems are where you want to be looking.
