The Canadian tech scene may not get as much attention these days, but Canadian investors seeking value without having to exchange their loonie for greenbacks at today’s rate (it’s close to US$0.71 as of this writing) may wish to give some of the names a second look as we head into the fourth and final quarter of the year. Indeed, when it comes to Canadian tech stocks, most probably think of shares of Shopify (TSX: SHOP).
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There’s more to Canadian tech than Shopify
It’s the largest name, and it appears to be riding high on the AI tailwind going into the new year. But there’s more than just Shopify out there, and for investors looking to build up a nice Canadian tech portfolio, I do think a name like Descartes Systems (TSX: DSG) is worth checking out. It’s a fraction of the size of a Shopify, boasting a market cap just north of the $11 billion mark. Still, it’s an up-and-coming grower, and one that still stands to benefit from the long-term advancement of generative AI technologies. While shares of DSG probably won’t make the headlines nearly as much as the likes of Shopify – unless, of course, there’s a needle-moving quarterly earnings result – I still think it makes sense to consider picking up a few shares on the latest pullback.
Indeed, the global tech scene might be getting a bit overheated, but not every technological innovator is trading at valuations that are lofty enough to bring about the “AI bubble” conversation. Indeed, it’s easy to talk about AI bubbles and how things could rhyme with how things eventually unfolded close to 25 years ago.
However, I still think there’s a risk of missing out on the biggest profitable winners at the hands of AI. Additionally, some pundits argue that AI might have more potential than the rise of the internet in the 1990s. Indeed, there’s certainly a lot of promise and hype. But with so much skepticism and subtle fears that AI might be in a bubble, if not today, perhaps in a year or two down the road, I don’t think investors should hold their breath for a catastrophic implosion like the one endured back in the sell-off of 2000–01.
Descartes stock looks like an underrated AI play to buy while it’s in a bear market
Of course, a bear market could certainly show up and severely punish the overheated names that have gotten ahead of their skis on valuation. However, for most investors who aren’t buying unprofitable stocks with a sky-high (or lacking) price-to-earnings (P/E) multiple, I don’t think exiting markets over AI bubble speculation is all too good an idea.
In any case, back to Descartes, which looks like a value gem after plummeting more than 25% from its peak. The company acquired PackageRoute a few months ago in a deal worth US$2 million. I think that’s a nice addition at a dirt-cheap price of admission. It’s these smaller tuck-in deals, I think, that stand to really add to the company’s moat.
Indeed, supply chain and logistics software is likely to advance by leaps and bounds as AI disrupts every corner of the supply chain. And Descartes looks well-equipped, as it continues to innovate while leveraging smaller-scale acquisitions. At 43.9 times forward P/E, shares still seem a bit pricey, but I am bullish on the firm’s ability to stay ahead as the AI boom moves ahead.
