It’s been a magnificent run for the broader tech space lately, with shares of Shopify (TSX:SHOP) surging rapidly following the release of its latest earnings results. The numbers themselves were ahead of expectations, but they weren’t phenomenal. With the rise of AI and operational efficiency-driving efforts, Shopify stands to gain a lot as it looks to wind back and pay a bit more emphasis on where cash is flowing.
There’s nothing wrong with spending aggressively to unlock future growth. However, the broader basket of big tech stocks is showing us that investors can have their cake and eat it, too. When it comes to tech, it is possible to get solid growth and improved margins. Though Shopify is still very much a hyper-growth company compared to many of the mega-cap tech companies that hog the headlines south of the border, I do see a pathway to profitable growth in the not-so-distant future.
Shopify: Moving on from a nasty sell-off
The leadership team led by CEO and founder Tobias Lütke acknowledged they made mistakes. They overhired and perhaps overestimated the magnitude of the pandemic-era tailwind. Though rates have served as a bit of a rude awakening, I do think Shopify remains one of the companies that investors should give the benefit of the doubt, even when the economic environment gets a bit stormier.
We’ve seen Shopify move through good times. And now we’ll get a chance to see how the firm navigates a potential recession. My guess is that Shopify will be far more resilient than many expect. It’s not just another speculative tech company that will stay depressed after it’s been knocked down. Though the rate-driven plunge in tech has come so fast, I do think investors are ready to focus on the next step.
After inflation passes (it could take at least another year for inflation to fall to the 2–3% range) and the recession ends, Shopify could be one of the biggest beneficiaries of the next business cycle. At this juncture, it seems like AI could be the bigger driver of growth through the decade. And you can bet Shopify will do its best to introduce new AI functionality where it can.
Shopify isn’t an AI company. But as every technology company looks to ChatGPT for inspiration, I think chatbots (especially those with custom plug-ins) could become a serious game-changer for firms across the board.
Bullish on the future, but don’t count out a near-term correction
With AI potential thrown into the mix, Shopify, the company, has arguably never looked this intriguing, even when shares rocketed higher in 2020 and 2021. Though I’m a big fan of the longer-term risk/reward, I can’t say I’m in a rush to initiate a position after a more than 30% move following the firm’s latest earnings.
Since peaking on May 10, shares have come in by around 6%. In any case, some analysts think that there’s already too much baked in with shares going for $82 and change per share. I think they’re right. Shopify stock’s spike, I believe, is at high risk of reversing over the short term.
Back in January 2023, Shopify stock surged by double-digit percentage points, only to give up the gains in February. Eventually, shares climbed higher again, but those who chased the sudden spikes were left with a bad taste in their mouths.
If Shopify stock does fall back below $75 per share, though, I’d be ready to reconsider the name. For now, it’s worth keeping tabs on, as the stock is bound to be far more volatile than the TSX, with its 2 beta.
