Missed the AI Rally? 2 TSX‑listed Winners I’d Buy Instead

Worried you missed out? Stop worrying and instead consider these two AI stocks with recurring revenue.

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 September 17, 8:45 pm EDT

| More on: CLSDCBO

It can be hard to feel as if you missed the boat on a great investment, especially if you’re sitting on the sidelines while you saved up your cash during this volatile period. Yet now, when you’re ready to jump back in, everything looks overpriced!

But that’s the thing, there are still plenty of opportunities for investors out there, including in the artificial intelligence (AI) space. So let’s look at three winners to buy instead of those big tech names.

Celestica

First up, we have Celestica (TSX:CLS), which rides the AI hardware buildout. While not an AI company, it’s a direct beneficiary of AI spending. Its revenue from hardware platform solutions (HPS) jumped 82% during its most recent earnings to $1.2 billion. This showed how demand for AI servers and data centres continues to grow. And that makes Celestica critical to this AI boom.

Furthermore, its operating margin improved as well to 7.4%, which was a company record. Adjusted earnings per share (EPS) beat expectations, and this all added up to an increase in guidance. The AI stock now expects $11.6 billion in revenue and $5.50 in EPS. Share buybacks are ongoing as well, showing management continues to believe in the future of Celestica.

Now shares are up 400% in a year, and that has left it trading at about 37 times earnings – rich for any cyclical hardware company. It’s also quite concentrated on a few hyperscaler clients, making it sensitive to spending. And with a 1.6 beta, it’s more volatile. However, if you’re looking for a pure-play into AI infrastructure, this could be the AI stock to beat.

Docebo

Then we have Docebo (TSX:DCBO), which is more related to AI through its software-as-a-service (SaaS) for learning and training. This is an AI-first enterprise software company, with a learning management platform embedding AI for personalized learning. It’s guided by workflows and analytics, with 94% of revenue from subscriptions. That means one thing: recurring income.

And income has certainly been recurring, with annual recurring revenue (ARR) up 13% year-over-year to $233 million. Its average contract value (ACV) was up 11.6% to $59,000, proving large customers are now deepening their commitments. Furthermore, its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) hit 15%, with free cash flow at $11 million.

Now the valuation is also quite steep, trading at 22 times earnings, but that’s reasonable for a SaaS firm. Enterprise software also has long sales cycles, but churn or expansion can swing ARR. And unlike Celestica, DCBO is down 28% in the last year, with shares vulnerable to sentiment shifts. Even so, it’s an attractively valued AI stock compared to its growth potential, making it a more reasonable entry compared to previous highs.

Bottom line

If you’re looking into AI stocks, now could be the time to get in on these winners. Together, both offer a way to get into AI stocks without chasing the mega-cap names. If you’re looking for more momentum, Celestica could be a great option. If you’re looking at future value, Docebo could be the one for you. But in either case, each offers one thing every investor loves: recurring revenue.