Canadian investors looking for long-term growth should embrace the tech sector. However, they should also be careful not to chase the overheated and overvalued plays that may very well be overdue for a sudden correction or crash going into 2025.
Of course, the stakes tend to be quite a bit higher in growth investing. While paying up a higher multiple may be justified if the growth narrative and underlying fundamentals are sound (or better yet, improving), I still think it’s a bad idea to leave your valuation tools behind as you take a deep dive into the world of investing in growth stocks.
Indeed, some of the same rules that apply to old-fashioned value stocks still apply in the hyper-growth scene. It’s just harder to value such stocks if you can’t get a good gauge of the technology at hand and the market opportunity over the medium term (think the next two to three years) as well as the longer term (a decade and beyond). Does that mean you shouldn’t have as much growth stock exposure if you’re a beginning investor?
If technology is something you fundamentally understand and you’re young enough to stomach the high risks (and elevated volatility in the growth stock scene), I think it makes sense to own the growth names, perhaps with a bit of an overweight position if you’re sure a name is undervalued relative to its growth profile. In this piece, we’ll have a look at two classic tech titans, Apple (NASDAQ: AAPL) and Shopify (TSX: SHOP), to see which name is the better fit as their momentum looks to carry over into a new year.
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Apple
Apple isn’t necessarily a growth stock, but its current valuation multiple seems to suggest it’s experiencing a growth renaissance of sorts on the back of its Apple Intelligence rollout (iOS 18.2 just rolled out a ton of intriguing new features, including artificial intelligence (AI) image generator Image Playgrounds, Genmoji, AI Writing Tools and the ability to use ChatGPT through Siri).
Additionally, there’s mixed reality, which could yield greater growth in the longer term (think more than five years from now). Of course, Apple Vision Pro is off the minds of many investors. However, I still think the product category will open up many growth pathways in the distant future. As such, Apple’s continued investment in mixed reality, I believe, is wise, even if the rewards won’t come in until many years down the road.
Either way, it’s all about Apple Intelligence right now. And if you haven’t had the chance to give the new features a go, I’d strongly encourage you to do so to gain a better understanding of the angle Apple is aiming for with its AI strategy. I think it’s a good one that justifies the 40.72 times trailing price-to-earnings (P/E) multiple.
Shopify
Shopify is another company that has many potential use cases that AI can take on going into the new year. Indeed, from AI customer support bots to assistants that can help merchants make more sales, Shopify seems to be in the right place at the right time as it looks to top what’s been a strong rebound year for the stock.
Of course, Shopify is a riskier growth company, with its 108.7 times trailing P/E multiple. Further, its stock is up more than 66% year to date, making it a way hotter momentum play than Apple. To justify its premium, Shopify needs to excel at AI. And a bounce in consumer spending can’t hurt either. Though the $212 billion firm still has many high-growth days ahead of it, I view it as a riskier play than Apple at current prices. As such, I’d side with AAPL over SHOP shares this December.
