Why AI Stocks Should Be in Every Canadian Investor's Portfolio

Why AI Stocks Should Be in Every Canadian Investor’s Portfolio

AI stocks continue to be one of the best options out there for long-term investing, especially when considering Canadian options.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published November 4, 2024 9:00 pm EST

In the world of investing, few trends are as captivating as artificial intelligence (AI). Canadian investors are finding a wealth of opportunity in AI stocks, which are revolutionizing industries worldwide. One standout stock in this arena is OpenText (TSX:OTEX), a company with a solid history in information management and a growing emphasis on AI-driven solutions. OpenText is becoming a go-to for Canadian investors looking for a stable, forward-thinking investment in the tech sector. Today, let’s explore why AI stocks deserve a place in every Canadian portfolio, with a closer look at why OpenText is particularly exciting.

The letters AI glowing on a circuit board processor. — Source: Getty Images

The AI transformation

To start, AI’s transformative potential is undeniable. From healthcare to finance, AI is reshaping industries by automating processes, predicting trends, and enhancing decision-making. For investors, this means that AI stocks have robust growth potential as the technology becomes indispensable across sectors. Canadian investors who jump on this trend early can benefit from the expanding demand for AI innovations. OpenText, with its strong foundation in information management and a clear pivot towards AI, is in a prime position to capitalize on this demand.

OpenText’s recent earnings only add to its appeal. In the first quarter (Q1) of fiscal 2025, OpenText reported revenue of $1.27 billion, showing resilience amid an 11% year-over-year decrease — partly due to its divestiture from AMC. Net income rose by 4.3% to $84.4 million, and earnings per share (EPS) outperformed expectations at $0.32. Additionally, OpenText maintained its commitment to shareholder returns, with $570 million projected to be returned in fiscal 2025. Plus, 7.72 million shares were repurchased and cancelled in the past two quarters. These financial highlights show that OpenText is not only growing its core business but is also committed to rewarding its investors.

Continued competition

The AI sector is highly competitive, yet OpenText stands out with its focus on Business AI and information management solutions. The firm’s ability to integrate AI into its products while keeping a tight rein on operational costs underscores its strategic approach to AI. A balance that bodes well for long-term investors.

From a financial perspective, OpenText’s valuation metrics also suggest a good buying opportunity. With a forward price-to-earnings (P/E) ratio of 8.18, OpenText is trading at a reasonable multiple, especially given its growth potential in AI. Its dividend yield of 3.62% is another reason it’s attractive to investors looking for income, providing a rare mix of growth and dividends. This dual benefit is something every Canadian investor can appreciate.

Continued growth

OpenText’s 15 consecutive quarters of cloud revenue growth showcase the company’s ability to adapt and thrive. As AI and cloud solutions continue to converge, OpenText’s cloud business, which now represents 83% of its total revenues, is a testament to its forward-thinking approach.

Beyond financials, OpenText’s investment in AI-based innovation sets it apart. As businesses increasingly rely on AI for analytics, cybersecurity, and customer insights, OpenText’s commitment to expanding its AI capabilities keeps it competitive in this evolving landscape. Investors who recognize this growth potential early stand to benefit as AI becomes more embedded in everyday business operations.

Foolish takeaway

For Canadian investors, the appeal of AI stocks like OpenText is about both future growth and present stability. OpenText’s steady performance, reliable dividend, and strategic focus on AI-driven innovation make it a solid addition to any portfolio. As the world embraces AI, OpenText’s position as an information management leader in Canada aligns well with long-term trends that promise to reshape entire industries.

All in all, AI stocks aren’t a trend, these are a game-changing force that’s here to stay. Canadian investors looking to capitalize on this technological wave should consider adding AI stocks to their portfolios OpenText stands out as a particularly strong candidate. With its commitment to growth, solid financials, and forward-thinking approach to AI, OpenText is well-equipped to deliver value over the long haul. So, whether you’re new to investing in AI or looking to deepen your exposure, OpenText is worth a closer look.