Investing in artificial intelligence (AI) stocks on the TSX offers Canadian investors a promising avenue for growth. The emergence of DeepSeek, however, introduced new dynamics into the market. Let’s delve into what this means for investors and why Kinaxis (TSX:KXS) stands out as a compelling AI stock option.
What happened?
DeepSeek, a Chinese startup, has recently made headlines by launching a free AI assistant that operates using lower-cost chips and less data. This innovation challenges the prevailing belief that advanced AI development necessitates high-end hardware and substantial data resources. The immediate market reaction was significant. Major tech stocks experienced notable declines as investors reassessed the future demand for high-performance computing in AI applications.
The ripple effects of DeepSeek’s introduction were felt globally, with markets reacting to the potential shift in AI development paradigms. The TSX was not immune. Tech investors re-evaluated their positions in light of this new, cost-effective AI model. This development underscores the importance for investors to stay informed about technological advancements that can disrupt existing market leaders and influence stock valuations.
Where does Kinaxis stand?
Amidst this evolving landscape, Kinaxis emerges as a noteworthy contender in the AI sector on the TSX. Specializing in supply chain orchestration solutions, Kinaxis leverages AI to enhance its offerings, providing clients with tools to make swift, informed decisions in complex supply chain environments. This focus on practical AI applications positions Kinaxis favourably in the market.
Financially, Kinaxis has demonstrated robust performance. In the third quarter of 2024, the AI stock reported a 16% growth in Software as a Service (SaaS) revenue, reaching $78.6 million, and a 12% increase in total revenue, amounting to $121.5 million. The adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin also saw an uptick. Standing at 25%, reflecting a 32% growth. These figures highlight the AI stock’s strong market position and effective business strategy.
Looking ahead, Kinaxis has raised its profitability outlook for the third consecutive quarter, signalling confidence in its growth trajectory. The AI stock’s annual recurring revenue grew by 14% year over year, reaching $347 million. This consistent upward trend indicates a solid foundation and a promising future for potential investors.
Still a good buy?
In terms of market valuation, as of writing, Kinaxis holds a market capitalization of approximately $4.99 billion, with a trailing price-to-earnings (P/E) ratio of 173.62 and a forward P/E of 37.74. These figures suggest a premium valuation. The premium evaluation, however, also reflects the market’s expectations of continued growth and profitability.
The company’s commitment to innovation is evident in its product milestones. Notably, over 100 customers are utilizing Kinaxis’s Maestro AI chat agent. Plus, the Enterprise Scheduling product has been successfully deployed at a global consumer products company. Such advancements underscore Kinaxis’s dedication to integrating AI into its solutions, enhancing value for its clients.
Analyst projections for Kinaxis are optimistic, with expectations of earnings growth at an annual rate of 42.9% and revenue growth at 12.9%. These forecasts suggest that the AI stock is well-positioned to capitalize on the increasing demand for AI-driven supply chain solutions.
Bottom line
The advent of DeepSeek introduces new considerations for AI investors. Now, Kinaxis presents a compelling opportunity. Its strong financial performance, commitment to innovation, and strategic application of AI in supply chain management make it a standout choice for those looking to invest in AI stocks on the TSX. Investors should conduct thorough due diligence, as always. Plus, consider their individual risk tolerance when making investment decisions.
