This is the Best AI Stock to Buy Right Now

This Is the Best AI Stock to Buy Right Now

The problem with buying an AI stock with all the hype in the market is that it becomes difficult to differentiate between temporary and long-term prospects.

Adam Othman

Adam is a value investor who is always on the hunt for fantastic undervalued companies that he can share with Motley Fool readers. He follows Warren Buffett and Charlie Munger's investment advice and has completed the Canadian Securities Course. When he's not investing, Adam can usually be found traveling or skiing.

Published May 22, 2024 8:15 pm EDT

| More on: OTEX

The artificial intelligence (AI) hype train is not slowing down, partly because of the scope and significance of its impact and partly because of constant breakthroughs in the AI industry.

While a prolonged AI hype might offer several interesting investment opportunities and allow investors to benefit from the rapid growth of certain AI stocks, it may also make it difficult to distinguish between short-term and long-term AI prospects.

If you take the long view and wish to buy one of the best AI stocks currently trading on the TSX, OpenText (TSX:OTEX) is a prospect worth considering.

Person uses a tablet in a blurred warehouse as background — Source: Getty Images

The company

OpenText was founded in 1991 by a university project developed to index the Oxford dictionary. It became a global name in the Information Management Systems (IMS) niche and grew both organically and through several acquisitions it has made over the years. It was among Canada’s most promising tech stocks for more than a decade, though its performance in recent years has been less than exemplary.

Since information is OpenText’s primary business, it is naturally positioned for an AI overhaul. As a result, AI has become a core part of many of its most prominent solutions. OpenText’s AI Cloud and Generative AI (Aviator) are just some of the AI-specific solutions it now offers.

The company can leverage its impressive consumer base to promote and distribute these solutions. It has over 120,000 enterprise customers and 31 million public cloud users that can benefit from its AI and AI-augmented services. Most importantly, the company manages 290 petabytes of data, and access to this massive repository of data is ideal for training AI models and growing/empowering its AI tools.

The stock

Between August 2001 and August 2021, the stock rose by about 2,800%. That’s an annualized growth of about 140% and represents the golden era of the company’s growth because right now, it’s in a depressing bear market phase. The stock has been slumping for a while now, and since the beginning of the year, the company has lost about 23% of its market value.

This is alarming because even though 2024 hasn’t been a great year for the Canadian tech sector, an AI stock like OpenText should ideally have outperformed both the market and its sector, but it hasn’t. This makes it unique for an AI stock since it’s not riding the AI hype train and is being evaluated for its fundamentals.

However, its AI prospects are quite strong, and considering its customer base and AI solutions, OpenText may emerge as one of the largest AI players in the corporate world. That may trigger a growth phase that is much more impressive and powerful than its current bear market phase.

Foolish takeaway

One good thing that came out of this discounted state of the OpenText stock is its beefed-up dividend yield. It’s one of the handful of dividend aristocrats in the Canadian tech sector and is currently offering dividends at a 3.3% yield. So, before the stock goes bullish, you can lock in a decent yield if you buy now.