How to Invest in Canadian AI Stocks for Long-Term Gains

AI stocks don’t have to be risky. In fact, there are some offering superb long-term gains.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published January 28, 2025 8:30 pm EST

When analysts embark on the quest to identify valuable stocks poised for long-term gains, they meticulously examine a multitude of factors to ensure their investment decisions are sound. At the forefront is a company’s financial health, where metrics such as revenue growth, profit margins, and return on equity are scrutinized. A consistent upward trajectory in these areas signals a robust and thriving enterprise.

But what about artificial intelligence (AI) stocks? Market position within the AI industry is another critical consideration here. Analysts assess whether a company is a pioneer with innovative solutions and if it holds a significant market share. Companies leading in AI development or offering unique products often stand out as promising investment opportunities. So let’s dive into what makes AI stocks tick for investors.

The letters AI glowing on a circuit board processor. — Source: Getty Images

What to watch

For AI stocks, the caliber of a company’s management team also plays a pivotal role. Seasoned leadership with a clear vision for AI integration can be a strong indicator of future success. Furthermore, strategic partnerships are evaluated for their potential to enhance a company’s capabilities and market reach. Collaborations with tech giants, research institutions, or industry leaders can lead to accelerated innovation and access to new markets. These are favourable for long-term growth.

Investment in research and development (R&D) is a telltale sign of a company’s commitment to staying ahead in the AI game. High R&D spending indicates a focus on innovation and the development of cutting-edge technologies. Market trends and the overall demand for AI solutions are also considered. Analysts evaluate how well the company’s products or services align with current and anticipated market needs. Companies that cater to high-demand sectors or offer scalable AI solutions are often viewed as attractive investments.

The regulatory environment and compliance are crucial as well. Firms that proactively address regulatory challenges and adhere to compliance standards mitigate potential risks. Customer base and retention rates provide insights into a company’s market acceptance and the effectiveness of its AI solutions. A growing and loyal customer base suggests that the company’s offerings are meeting market needs and delivering value.

Lastly, financial projections and future earnings potential are scrutinized. Analysts look at forecasts and models to assess whether the company’s growth trajectory is sustainable and if it aligns with their investment goals. Now, let’s delve into why Kinaxis (TSX:KXS), Docebo (TSX:DCBO), and CGI (TSX:GIB.A) are considered strong options in the AI stock landscape.

The stocks

Kinaxis specializes in AI-driven supply chain management solutions. In the third quarter of 2024, the AI stock reported total revenue of $121.5 million – a 12% increase from the same period in 2023. Software as a Service (SaaS) revenue grew by 16% to $78.6 million. And the adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin reached 25%, up from 21% in the previous year. The AI stock also raised its profitability outlook for the third consecutive quarter, highlighting its strong financial performance. In the fourth quarter of 2023, Kinaxis achieved 19% growth in SaaS revenue and an 18% increase in annual recurring revenue. The AI stock reported a record backlog, providing strong visibility into future performance.

Docebo offers AI-powered learning management systems. In the third quarter of 2024, the AI stock reported revenue of $55.4 million, reflecting a 19.2% increase from the same period in 2023. Gross profit reached $45 million, accounting for 81.1% of total revenue. In previous years, Docebo has demonstrated consistent growth, with significant increases in its revenue and customer base. The AI stock’s focus on innovation and expanding its product offerings have positioned it well in the competitive AI-driven learning solutions market.

Finally, CGI is a global IT and business consulting services firm that integrates AI into its solutions. In the fourth quarter of fiscal 2024, CGI reported revenue of $3.7 billion, representing a year-over-year growth of 4.4%. Diluted earnings per share increased by 8.5%, indicating strong profitability. Over the past fiscal year, CGI has continued to expand its service offerings and client base, leveraging its expertise in AI to drive digital transformation for its clients.