Don't Miss AI's Third Wave
Shopify (TSX:SHOP) got walloped on Tuesday’s turbulent session of trade, shedding more than 12% of its value in a single day. That’s about as fast as stock corrections come! And though a round of pretty good (clearly not good enough for investors, however) quarterly earnings helped drag SHOP stock lower on what was a horrid day for the broader tech scene (and the markets as a whole), I view the recent slip as a tad overdone.
At the end of the day, Shopify is continuing to innovate, with the willingness to test and experiment with nascent new technologies, ranging from generative artificial intelligence (generative AI) tools to intriguing metaverse-like visions of futuristic storefronts.
Undoubtedly, I view the horrid 12% decline as having more to do with the broader market’s distaste for high-multiple, high-growth tech plays than to do with the actual quarterly numbers themselves. Had it been a good day for markets, Shopify stock probably wouldn’t have been down by double digits. In any case, let’s look at two factors that I think every Shopify investor has to have in mind.
Shopify stock can boom and bust in a hurry
Shopify stock always seems to be in a rush to get somewhere. When all is well, and investors are feeling good about the company’s prospects and the tech scene in general, the stock’s momentum can be hard to stop. In the many years prior to the devastating 2021-22 crash in shares of Shopify, the stock seemed to be a winner that just kept winning, despite its rising price-to-sales (P/S) multiple. Indeed, when rates rose and profitability became a bigger concern among growth investors, Shopify naturally tanked to much lower levels.
Earlier this year, when it became increasingly likely that rates have finally hit their peak (perhaps a retreat is coming soon?), Shopify stock began to really pick up traction. Though there have been bumps in the road over the past year’s rally, I’d argue that the recovery still seems to be in a good place.
Compared to two years ago, Shopify looks to be in a better spot. It’s walked away from the logistics side and has an opportunity to score higher margin growth from the so-called AI boom.
Shopify stock is one of Canada’s most impressive innovators
Indeed, Shopify is a Canadian AI stock that can use its talents to outpace some of its competitors in the e-commerce platform scene. Over the long run, this could help push Shopify towards a nice profitability push. In the meantime, it seems like rate fears and valuation concerns could begin to take centre stage again.
The same story as back in early 2022? Perhaps not as drastic of a pullback is in the cards, but I wouldn’t be surprised if shares fall more than 20-30% from its 52-week peak.
If the stock plunges below $95 per share, I’d be more interested in pursuing the name. Until then, it may be wise to wait for the boom to run its course and a potential bust to take its place.
The Foolish bottom line: Shopify stock is a great long-term buy, but mind the short-term bumps!
Shopify stock’s latest slip is a tad concerning, but from a long-term perspective, I think investors have little to fear other than fear itself. The company’s valuation could contract over the nearer term as hotter inflation pushes out rate cuts by a few months or even quarters.
