The AI revolution has really captured the attention and investment dollars of Wall Street. And while retail traders might find it worth the while to invest in the trend using margin, I think that investors should realize the dangers of leveraging, especially when it doesn’t even take a crash or blow-up to spark a margin call.
Any way you look at it, hyped AI stocks could go either way over the near to medium term, and if you’re borrowing to invest, or worse, bet on options, you might be at risk of overextending yourself on risk and having to start all over again. Of course, young investors should take risks, but there’s a difference between smart risks after putting in ample due diligence and setting oneself up for trouble.
Perhaps the best way to go about building wealth is to buy and hold shares of solid firms over the span of many years while topping up positions on the inevitable bumps along the way. Indeed, having cash on the sidelines, in my view, beats borrowing to invest, especially in seemingly unstoppable bull markets. Whenever you can feel great when the market does its thing, including moving lower in a hurry, I think that you’ll be best-set to do well over the long haul.
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There’s still value in AI stocks
When it comes to AI stocks, there’s a lot of hype and severe overvaluation, even bubbles out there. But at the same time, deep value can coexist as well.
Whether we’re talking about shares of Alphabet (NASDAQ: GOOG), the search giant behind Google Gemini that’s currently going for an absolutely ridiculous 17.25 times trailing price-to-earnings (P/E) multiple (perhaps there was a reason Warren Buffett bought shares for his firm in recent quarters), or some of the less-talked-about AI winners here on the TSX Index, I think there are rewards for stock pickers who can show restraint and insist on huge margins of safety.
Shopify and Celestica stand out
In other words, steering clear of hype and gravitating towards AI-capable firms with more modest multiples could be the play. In my view, Shopify (TSX: SHOP) and Celestica (TSX: CLS) are two Canadian AI stocks that ought to be at the very top of investors’ radars. Shares of the two innovators are up 118% and 550% in the past two years.
And while they’re two very different ways to play AI at different parts of the stack (Shopify in the application layer) and Celestica at the very bottom of the stack in hardware, I think both names might be underhyped compared to some of the red-hot U.S. names that have been hogging the headlines.
Indeed, Celestica stock is off to the races again after blowing away another quarter. It’s an essential component supplier of the data centre buildout, and with “very strong customer demand” along with “new program wins,” it’s hard not to feel hyped as management chimes in on the near future and where the firm could go next. As much as I dislike chasing performance, I find it hard to dismiss CLS stock at just over 27.0 times forward price to earnings. In my view, that’s value and hyper-growth rolled into one.
As for Shopify, the agentic commerce catalyst, I think it could set the stage for bigger beats. Investors were wrong to doubt the e-commerce enabler over AI disruption fears. As AI starts driving the results, I think SHOP stock stands out as a timely breakout play. Will Shopify rise to become Canada’s first $1 trillion company? I have no idea. Perhaps in a decade or more, the firm is sure to be a favourite.
