There’s no shortage of value in the market, even as some grow worried that valuations are getting up there. Of course, perhaps it makes sense to pay a bit of a higher multiple, given the market’s resilience and the giant productivity-boosting wild card that is AI and, more specifically, agentic AI.
Of course, AI shows plenty of promise, but the big question, for now, is what the timeline will be before the most remarkable productivity gains work their way through the broader economy. Is it a slower technological shift than the market is currently baking in? Probably. But, at the same time, it might also be faster than the expectations of the pundits and bears who think we’re in an “AI bubble.”
In short, if you’re an investor who’s committed for the next 10 years, I think it makes sense to invest, even if markets are overvaluing AI a bit in the near term (perhaps a whole lot less after Friday’s fumble of a session for the tech sector) and severely undervaluing it over the long term. For long-term thinkers, having skin in the game today makes a lot of sense. But what’s most important is continuing to stay the course and add to a position, like adding water to a potted plant, consistently and steadily over time.
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Exploring what’s out there in a hot market
For those with an extra $2,000 to invest, I do think that it’s worth exploring opportunities from a top-down lens. Notably, I do think that the financials are an area where AI could work wonders over the next five to eight years. Whether we’re talking about AI’s role in the insurance business or how it can level consumer and corporate banking, I do think that the Canadian financials, in particular, might still be underestimating the long-term benefits of incorporating agents and all the sort.
Indeed, some big banks are already well on their way to achieving real financial gains at the hands of AI tech. Whenever you have industry players that are leveraging a technology to save money and time, drive business, improve the overall customer experience, or even break into new market categories, there might be an opportunity to do incredibly well over time.
Royal Bank: A great bet if I had an extra $2,000 or so
In my view, I think a name like Royal Bank of Canada (TSX: RY) stands out as a brilliant high-tech banking bet as the AI era matures. Is AI going to reach a massive productivity inflection point overnight? Probably not. But, over time, I do think a name like Royal Bank is well-positioned to reap the benefits as the technology continues to improve. Any way you look at it, Royal Bank isn’t just testing things out with AI.
They score impressive grades when it comes to Canadian banks that are banking big on AI. The firm hopes to generate $700 million to $1 billion in enterprise value from AI benefits by 2027. That’s big. In other words, the transformation is already happening. And while it’s not a jaw-dropping figure, I do view it as a realistic one. And, what’s most exciting is that it might be just the tip of the iceberg as the bank shows the world that AI can, in fact, deliver real ROIs.
In short, Royal stands out as a high-tech bank, and one that’s worth the premium 17.7 times trailing price-to-earnings (P/E) multiple.
