Shopify (TSX:SHOP) stock is arguably one of the most exciting growth companies on the entire TSX Index. Shares had a vicious spill last year, but in recent quarters, the waters seem to have settled, with shares gravitating steadily higher this year. Whether the waters are safe enough to dive back in remains to be seen. Indeed, the stock has become more expensive (SHOP stock goes for 14.3 times price to sales) in recent months.
Though Shopify is fresh off an amazing quarterly number, with a plan to move back to its core business and away from logistics, I still do not think enough has changed about the long-term story to justify the magnitude of multiple expansions we’ve witnessed over a year-to-date basis. After Monday’s 2% bounce, shares of SHOP are now up an applaud-worthy 82.6% year to date!
Of course, the pace of the gains can’t continue forever. However, momentum in itself is not enough reason to throw in the towel. Investors must have an idea of the fair-value price for a stock they own. With the recent surge of enthusiasm hitting AI stocks, one may wish to weigh how much long-term value AI could provide to a firm.
Shopify: How much value can AI innovations add?
Indeed, Shopify isn’t an AI company. However, it’s a high-tech firm with proven innovators running the show and a lot to gain from the continued ascent of generative AI technologies. Indeed, large language models (LLMs) or chatbots are a huge field that could help Shopify really re-accelerate its growth rate, even in a recession!
Even in the face of recession headwinds, it’s been hard to stop the tech rebound and the heating up of the AI trend. While AI is a big deal, it’s also not clear how much any given firm stands to benefit.
For Shopify, a chatbot could really enhance the customer experience while saving merchants plenty of cash. Now that Shopify’s pulled back from the capital-intensive and less-than-innovative business of logistics, it has more money to spend on hot AI innovations that the firm could very easily monetize.
While I do not doubt Shopify’s AI talents, I’m also not so sure how much of a premium investors should be paying for the stock. As mentioned earlier, Shopify stock has already enjoyed a great deal of multiple expansions since its lows of last year. Clearly, investors expect quite a bit from the firm, as it turns the tide for itself.
Further, I’m not so sure how much AI enthusiasm is baked into the stock. My guess is not that much. It’s a less-obvious way to play the rise of AI. Nevertheless, it’s one that could benefit profoundly if management invests in the right places. Shopify may or may not be in a spot to conduct even more layoffs from here. Regardless, don’t expect any such moves to curb the company’s continued move into the generative AI waters.
The bottom line on Shopify stock
The company has a lot to gain, and one has to imagine that AI could evolve to become the next big growth engine for the firm following the recent sale of its logistics business.
Though shares are getting pricey, I think there’s a chance shares could get even pricier in the months ahead. Personally, I’m waiting for a correction before I’d consider punching my ticket into the name. The medium- and long-term trajectory looks promising. In the near term, I’d argue Shopify shares are long overdue for a mild pullback.
