Shares of Shopify (TSX:SHOP) have been quite resilient this past month, gaining just over 9%, even in the face of potential valuation concerns. With an outstanding quarter behind it and a recently inked deal with none other than Sam Altman’s OpenAI, it seems like Shopify is one of Canada’s biggest and best long-term artificial intelligence (AI) beneficiaries. Of course, I referred to Shopify as an AI stock a long time ago. The latest OpenAI deal, which allows Shopify merchants to sell their goods via large language model ChatGPT, could be a massive needle-mover on growth over the medium term.
Indeed, just about any AI partnership is enough to move a stock higher. And while the headline was exciting, powering shares of SHOP to a very impressive single-digit percentage gain, I think many analysts and investors are still at risk of underestimating the magnitude of the deal and what it could mean for Shopify’s fundamentals.
Shopify’s AI potential is significant: That justifies a premium!
Being able to sell on ChatGPT could grant merchants exposure like never before. And while time will tell how the collab goes, I think it’s a win-win that has very little downside risk. Indeed, even if ChatGPT users aren’t biting on Shopify goods, there’s not much harm in testing out the uncharted waters with an intriguing business model that could be the way of the future, especially as search engines lose share to ever-advancing language models.
While the deal could provide benefits right off the bat, I think it’s the longer-term potential that should have investors staying the course on shares of Shopify, even at today’s seemingly frothy levels. At $208 and change per share, SHOP stock goes for 83.5 times trailing price to earnings (P/E), which is a bit too steep to get behind. When you consider all the AI innovation underneath the hood, though, perhaps the seemingly expensive valuation isn’t so expensive, after all.
What if the tech market sells off?
Of course, Shopify stock’s fate will be closely tied to that of the tech sector and the AI trade. Indeed, a lot of smart money managers have voiced concern about valuations and the potential for a bubble to form at some point in the future. Indeed, it’s hard to ignore such successful investment legends when they strike a bearish tone.
While there might be pockets of severe froth in parts of tech, I’m not so sure the entire sector is anything close to a bubble. But that doesn’t mean the sector can’t fall into a bear market or AI winter for some period. Such a decline would probably weigh heavily on tech names, including Shopify. If such a plunge does happen, SHOP stock is a sure name to buy on the dip, as it won’t slow its AI progress down just because investors run into a bit of a growth scare.
The bottom line
At the end of the day, Shopify remains a great Canadian AI holding that deserves a spot in a Tax-Free Savings Account alongside the likes of a Magnificent Seven name. Of course, it’s always cautious to do one’s buying gradually over time to smooth the bumps in the road. With SHOP stock nearing new highs again, steady, incremental buying is how I’d play the AI winner in a seemingly expensive market.
