Technology and artificial intelligence (AI) companies are changing the world. In fact, AI is increasingly delivering cost savings and efficiencies far beyond what we could have imagined only a few years ago. Open Text Corp. (TSX:OTEX) and CGI Inc. (TSX:GIB.A) are both helping their clients harness the power of AI. But which is the best stock to buy right now?
Without further ado, let’s compare and contrast these two information technology companies.
CGI: A $32 billion IT services and consulting giant
CGI’s stock price performance over the last 20 years has been nothing short of amazing. As you can see from the price graph below, the stock has risen from $7.28 per share to the current $140.70 per share.
Today, CGI’s stock trades at 17 times this year’s expected earnings, which are expected to grow by 9%. But this alone doesn’t make CGI the best stock to buy right now. Let’s dig deeper.
With a long history that dates back to 1979, the IT consultancy remains well positioned to continue to capitalize on its scale and global presence. In its latest quarter, revenue increased 3.3% to $4 billion, while adjusted earnings per share (EPS) increased 7.6% to $2.12. These results were driven mainly by acquisitions.
In terms of profitability, CGI posted a 15.4% return on capital. This was complemented by strong cash flow from operations of $438 million, or 11% of revenue. Also, strong margins in the quarter were evidence of efficient operational management. Finally, strong backlog of $31 billion, or twice the company’s revenue, was evidence of strong demand and a bright future.
Looking ahead, CGI’s focus will be on AI and generative AI, cybersecurity, the cloud, and IT services. Clients are interested in digitization with an emphasis on using AI to garner more cost savings and efficiencies at a lower cost. Likewise, CGI’s bottom line is also benefitting from the use of artificial intelligence in its operations.
Open Text: An $11 billion information management company
Open Text trades at a lower earnings multiple than CGI (11 times vs 17 times). And its stock price performance over the last 20 years is also very strong, just not as high as CGI’s (+973% vs 1,830%).
In its latest quarter, revenue declined 2.9% but free cash flow increased 7% to $374 million with a 30% free cash flow margin. The company has honed in on costs and efficiencies in order to increase the company’s value. And we can expect this to continue.
To do this, artificial intelligence strategies will be the focus. Like CGI, Open Text understands that the future of its business is in artificial intelligence. This means that the business AI, cloud, and technology developer will do everything with AI leading the way.
For example, Open Text’s AI Aviator is a suite of AI solutions embedded across Open Text platforms. It can take human tasks that require many screens and many days of work and reduce the time to minutes with the use of just one screen.
The company expects this to usher in a new era of operational excellence. The benefits in terms of time, money, efficiency, and quality are significant. This has the potential to provide material cost savings as well as to improve the company’s competitive advantage.
The bottom line
Open Text has some positive catalysts (a big cost savings program) that should drive the stock higher in the short term – and it’s cheaper. CGI is the best stock to buy right now however, because of its unmatched scale, expertise, diversification, and geographic reach.
