In the ever-electrifying world of Canadian tech stocks, few rival the audacity of Shopify’s (TSX:SHOP) ascent over the past decade. From its humble beginnings as founder Toby Lutke’s snowboarding gear online store in 2006 to a $269 billion behemoth powering millions of businesses by 2021, Shopify became synonymous with e-commerce enablement. But can the $141 billion Canadian growth stock, which is recovering from a significant drawdown in 2022, keep pace with the likes of Elon Musk’s US$610 billion ($805 billion) Tesla (NASDAQ:TSLA), and even surpass it in the next decade?
Image source: Getty Images
Shopify’s tailwinds: A perfect stock for e-commerce growth
Several factors are likely to propel Shopify stock’s market cap growth trajectory over the next decade.
Shopify is a significant player in a fast-growing global e-commerce market. A late 2023 research report by the Boston Consulting Group forecasts that e-commerce could capture 41% of global retail by 2027, up from just 18% in 2017 – to mark a decade of strong growth. Shopify is participating in this growth as it powers all sizes of merchants’ businesses.
Most noteworthy, Shopify is employing generative artificial intelligence (AI), the latest breakthrough technology that could significantly increase customer retention through “compelling” product recommendations and cross selling.
Further, the company’s omnichannel dominance should propel revenue growth forward. Shopify bridges the gap between physical storefronts and e-commerce. Brick-and-mortar stores’ adoption of Shopify’s “Buy Online, Pick Up In-Store” meets the Gen Z and Gen X evolving consumer preferences. The company’s platforms are increasingly more relevant in an evolving business landscape.
Lastly, Shopify’s subscription-based business model generates predictable recurring revenue – a valuable stock attribute in volatile markets. The company’s cash flows may show less cyclicality.
Bay Street analysts project a 50.8% long-term earnings growth rate for Shopify.
Tesla stock’s roadblocks: Challenges in a maturing EV market
While Tesla is still a leader in the electric vehicle (EV) industry revolution, the company’s path forward is increasingly fraught with significant hurdles.
Competition is intensifying. Telsa recently lost its number one position as the biggest seller of electric vehicles by volume to Chinese EV maker BYD. Traditional automakers are rapidly ramping up their EV offerings, and some have already surpassed Tesla in battery technology, cost, and range. A new wave of EV superpowers is emerging from unlikely sources – mostly Chinese. Resultantly, Tesla’s market share is under attack from left, right, and centre.
Secondly, potential recessions and global geopolitical scuffles could dampen consumer demand for Tesla’s high-priced vehicles.
Most noteworthy, Tesla’s high valuation defies traditional metrics and could be vulnerable to a correction if market sentiment sours. Tesla stock fetches a price-to-sales (P/S) multiple of 6.9 while an average car manufacturer is valued at a comparable multiple of 0.7.
The EV leader’s premium could be attached to its high-tech innovation track record, and the “Elon Musk factor.” However, competitor Mercedes Benz beat Tesla to a licensed Level 3 autonomous driving vehicle in 2023. And Elon Musk could still leave the company at some point.
Wall Street analysts forecast a 15.6% average long-term growth rate on Tesla’s earnings – a much slower rate compared to Shopify’s 50.8%.
The 2034 showdown: Shopify stock’s dizzying race to the top
This writer has no crystal ball, but here’s a possible scenario:
On one hand, Shopify’s e-commerce advantage, industry growth, and a resilient revenue base could propel its value higher. Its AI-powered e-commerce and payments platforms should continue to gain global traction and break language barriers, solidifying SHOP’s dominance in the global e-commerce space, resulting in sustained revenue, earnings and cash flow growth – and a steadily rising stock price.
On the other hand, Tesla’s maturing business and its recent loss of the EV crown might decelerate revenue growth and dampen investor enthusiasm. Increasing competition, geopolitical risks, and macroeconomic headwinds may put pressure on Tesla stock’s valuation.
Investor takeaway: A bold, but not unthinkable possibility
Will Shopify stock’s market capitalization surpass Tesla’s by 2034? It’s a bold claim, but not an entirely improbable one. Explosive growth in e-commerce, sustained innovation, and a recurring revenue model could propel Shopify stock to unprecedented heights over the next decade. Meanwhile, Tesla is losing its crown, and may face the headwinds of a maturing market and intensifying competition.
That said, the race to the top could be a thrilling spectacle. The valuation gap between the two contenders is still wide, and Tesla will remain a moving target that can rally ahead if the EV pioneer embarks on another AI- and tech-driven innovation marathon.
Both stocks are capable investments to add to a diversified growth-oriented retirement plan portfolio.
