With the TSX Index steadily soaring higher, Canadian investors may wish to consider a class of so-called “quiet” artificial intelligence (AI) winners that may stand to benefit from improved fundamentals and potentially improved earnings over the longer term.
Indeed, it may make some new investors a bit nervous that so many big-name money managers are sounding skeptical, even outright bearish, about the state of the market and its ultimate outcome, given that some describe the market as expensive. Some of the bigger bears on Wall Street seem to think the broad stock market is just a bit pricier than expensive, going as far as to use the term bubble to describe the state of the shares of top AI companies.
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Don’t scare yourself out of top AI stocks
It’s always important to be skeptical and insist on getting a price of admission into a stock that implies a discount, or, at the very least, doesn’t entail paying a significant premium that runs the risk of overpaying. Indeed, at the end of the day, it’s all about getting the most value for your dollar. And while I do think it could be dangerously risky to buy stocks without putting in any homework, just because your friends have made big money, it could have the potential to end in pain, and, yes, even tears.
The big question is what kind of boost to earnings, sales, and cash flows will be in the cards. And, perhaps more importantly, when will such a boost come into effect to justify the current market price of a heated AI stock?
Sure, it’s easy to scare yourself out of markets just because some billionaire says he doesn’t think the bull market will end well. These folks are brilliant, but not even billionaire money managers know with certainty where stocks are headed over the near term.
As always, the question of whether we’re in a bubble remains a complex one, and someone’s hunch shouldn’t prompt investors to rush to the hills as they load up on cash and bonds ahead of what they think will be a repeat of the meltdown that followed the turn of the millennium.
Here’s one name I expect can keep doing well.
Thomson Reuters: AI innovation hiding in plain sight?
Enter shares of Thomson Reuters (TSX:TRI), a tech and media play that’s really played its AI cards well. Over time, I expect Thomson Reuters’s AI moat will only widen as the firm spends money opportunistically. The stock recently plunged close to 28% from its recent all-time highs.
Indeed, the firm has faced challenges, and the valuation is still quite hefty, depending on who you ask. At the time of writing, shares trade at 42.8 times trailing price to earnings (P/E). On a forward-looking basis, shares don’t look all too much cheaper at 34.3 times forward P/E. While I do not view the valuation as unreasonable, I think it bakes in a lot. And after posting a second quarter that many investors weren’t happy with (net earnings were down year over year), it’s clear that a lot of the froth has now been taken off the name.
With the firm focused on betting big on AI agents for its legal and financial businesses, I think the latest bearish descent represents a golden opportunity to buy for Canadian investors who want AI innovation at a discount. Not only is Thomson Reuters an intriguing AI play, it’s an agentic AI play, and one that could really make up for lost time in a few quarters from now. With a pretty good management team that knows what it stands to gain in this AI revolution, I’d stash the name on a watchlist this October.
