Shopify (TSX: SHOP) is trying to make sure the next online store doesn’t look like a store at all.
It could be ChatGPT, Google’s Gemini, Microsoft’s Copilot, Meta’s Muse, or an artificial intelligence (AI) agent not even around yet.
Shopify wants to get paid at whichever door shoppers use. That’s a huge opportunity, and the stock price already knows it.
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Build the plumbing
AI shopping changes one basic piece of e-commerce. Consumers may no longer start at a merchant’s website; however, they can tell an agent what they want and let software search for it.
For merchants, that creates a new problem. Their products need accurate descriptions, inventory, pricing, payments, taxes, and a checkout available to machines as well as humans. Shopify has been spending to build that infrastructure.
Its Catalog organizes billions of products into data AI can understand. Its Universal Commerce Protocol, co-developed with Google, provides a standard for agents to discover products and complete transactions.
On September 28, Shopify expanded that approach again. Browser-based AI agents can now use structured tools to move through Shopify checkout and Shop Pay, including completing purchases once customers authorize them. That’s much more interesting than attaching an AI chatbot to a storefront.
Spending without losing discipline
Shopify doesn’t disclose one neat line called “AI spending.” Research and development expense did rise to US$445 million last quarter from US$394 million a year earlier. Total operating expenses climbed about 21% to US$1.2 billion.
Normally, that would make me watch margins carefully. Yet revenue grew much faster. Second-quarter revenue jumped 34% to US$3.6 billion, while operating income surged 68% to US$488 million. Free cash flow reached US$654 million, up from US$422 million, producing an 18% margin.
That tells me Shopify isn’t currently choosing between AI investment and financial discipline. It’s doing both. For investors interested in Canadian growth stocks, that’s the part of the AI story I’d focus on.
Follow the merchants
The biggest number has been, and always will be, gross merchandise volume (GMV), meaning the value of products sold through Shopify. GMV rose 32% to US$115.6 billion last quarter. Merchant-solutions revenue grew 37% to US$2.8 billion.
That’s important because Shopify increasingly makes money when merchants make money through payments and other transaction services. If Muse, ChatGPT, Gemini, or tomorrow’s AI shopping agent sends more transactions through Shopify, the company doesn’t necessarily need to own the consumer relationship. It can own the commerce infrastructure underneath it.
Meta’s Muse is already integrated with Shopify, while Shopify supports commerce through ChatGPT, Google, and Microsoft. This week’s expansion to browser-based agents widens that funnel again.
The uncomfortable number
Shopify recently traded at about $210. The shares trade around 68 times forward earnings and nearly 79 times trailing free cash flow. That’s expensive. Therefore, Shopify could deliver excellent results and still disappoint shareholders if growth slows enough for investors to stop paying such a premium.
AI shopping is in its early days. Consumers may hesitate to let agents make purchases. Amazon has already pushed back against third-party agents accessing its platform, demonstrating that the future of agentic commerce won’t develop without a fight.
That’s why I wouldn’t chase Shopify after every AI announcement. I’d build a position gradually when buying stocks in Canada and give the thesis several years to develop.
Bottom line
Shopify is spending to make itself the checkout counter behind AI shopping. So far, the investment isn’t wrecking profitability. Revenue, operating income, and free cash flow are all growing while the company expands where merchants can sell.
I think the business is worth owning. Yet at nearly 70 times forward earnings, I’d make the stock earn every additional purchase.
