A company can spend years talking about artificial intelligence (AI) while investors wait for the cash to catch up. I’d rather own a technology business that helps customers solve expensive problems and gets paid for doing it. Between a services company and a software owner, the better long-term purchase comes down to how much improvement the price demands. My preference is the steadier operating case, even with a smaller dividend.
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Two ways to sell
Companies need help connecting old systems, protecting information, and putting new software to work. That creates business for consultants as well as software vendors. The shareholder gets a different experience from each. Services depend heavily on contracts and skilled people. Software can generate repeat revenue, with debt and product relevance adding their own complications.
CGI (TSX: GIB.A) provides consulting, systems integration, and managed technology services. It can earn when a client wants existing operations to run better, rather than needing every client to fund a grand new invention. Government contracts also give it exposure beyond private companies’ discretionary technology budgets.
Its fiscal third-quarter adjusted earnings rose 9% to $2.29 per share. That growth exceeded its revenue growth, showing that shareholders benefited from more than simply adding sales. I’d still distinguish gains from efficiency and repurchases from stronger customer demand, since the latter helps keep future work arriving.
Contracts need to become cash
CGI’s trailing 12-month bookings were about 108% of revenue. In everyday terms, it signed more work than it billed during that period. That supports the workload ahead, although signed contracts can be delayed, changed, or delivered at disappointing margins.
At the recent close of $114.98, four quarters matching the latest adjusted earnings would imply roughly 12.6 times earnings. That’s a rough annualized-quarter comparison, not a full-year forecast. It gives me a more grounded entry point than paying for a dramatic acceleration that hasn’t happened.
The risk is that AI reduces the hours clients need to buy, while competition limits what CGI can charge. I’d want new automation work and longer-running services to offset that pressure. Acquisitions also have to improve earnings per share after integration costs.
A different kind of patience
OpenText (TSX: OTEX) sells software for managing information, transactions, security, and enterprise workflows. Its attraction is the information already embedded in customers’ operations. AI tools need reliable business data, giving the company a reason to remain relevant as customers change how they work.
Today’s fiscal first-quarter release showed revenue falling 4%. That leaves an investor buying improvement rather than an established return to overall growth. Free cash flow rose, but I’d want stronger customer spending to join the cost and financing progress before giving the recovery a larger valuation.
The company also reduced debt after the quarter. That can leave more future cash available for shareholders, with interest taking a smaller bite. It doesn’t automatically solve the product-growth challenge. A software owner can be financially tidier while its customers are still spending less.
Compare the price of patience
At $37.09 recently, OpenText costs much less per share than CGI. That alone says nothing about value. Shares divide businesses into different numbers of pieces, so a smaller sticker price doesn’t mean a cheaper company.
The income difference is real. CGI’s quarterly Canadian-dollar dividend is $0.17. OpenText declared US$0.28 quarterly, so a Canadian investor’s receipts change with currency conversion. I’d keep those currencies separate rather than turning the bigger payment into an automatic verdict.
For buying Canadian stocks with a 10-year horizon, I’d choose CGI’s current earnings progress and contract base. OpenText could deliver a stronger recovery if sales stabilize, but it asks me to accept more uncertainty about when that happens. I’d keep either position alongside other industries.
Bottom line
CGI gets my next long-term technology allocation, held inside a Tax-Free Savings Account (TFSA) where personal room permits. I’d buy gradually and let profitable contract delivery justify the holding. OpenText would earn a second look when its improving cash position is joined by a clearer return to customer-led growth.
