Generative artificial intelligence (AI) has been a big theme in the market over the last two years. Ever since ChatGPT launched and wowed the world with its human-like essays, drawings and Python scripts, investors have been throwing money at everything AI-related with reckless abandon. To an extent, there’s a logic to this: disruptive technologies often grow rapidly. ChatGPT was the fastest-growing app in history when it launched, for example (though it was later eclipsed by Threads). So, there’s a lot of growth potential in the generative AI space.
With all that being said, many of the “obvious” AI plays, notably the big U.S. tech companies, are getting pricey. Some are worth trillions of dollars while not yet turning a profit on their AI investments. Going “all-in” on this space right now seems questionable. However, the Canadian AI space still has some overlooked gems that might be worth the investment. In this article, I will explore three such companies that trade on the TSX.
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Constellation Software
Constellation Software (TSX:CSU) is a Canadian technology conglomerate that mainly supplies enterprise software to businesses and governments. Its clients are usually big, established organizations that can keep paying large bills for long periods of time. The company is run by Mark Leonard, who takes a “venture capital” approach to his investments, buying companies when they are relatively small (market value of $5 million to $10 million) and integrating them into his firm. He has done well with this strategy, having propelled CSU stock to a gain exceeding 10,000% since 2006. Constellation Software integrates AI into many of its products, most notably its marketing/content creation suite, which uses AI to help businesses create compelling marketing content.
Shopify
Shopify (TSX:SHOP) is a Canadian e-commerce stock that recently went on a rally after putting out a very good earnings release. The release showed the company doing 26% revenue growth year over year and making $344 million in profit. The profit figure included some gains on the company’s investment portfolio, so perhaps it is not indicative of the long-term trend. However, the free cash flow figure of $421 million was even higher, indicating high-quality earnings.
Shopify has a lot of things going for it. It tends to be used by vendors of high-quality branded products, which limits the competitive threat from Chinese e-commerce platforms like TEMU and AliExpress. It also has a lot of celebrity vendors, such as Jeffree Star, Adele, and Drake. Finally, its chief executive officer, Tobi Lutke, appears very motivated and passionate about running his company, which is always a good thing. All in all, Shopify has a lot of potential.
Kinaxis
Kinaxis (TSX:KXS) is a Canadian supply chain management software company. Its Maestro (formerly known as “RapidResponse”) platform is one of the world’s best-known supply chain management SaaS services. It helps businesses keep track of key supply chain variables like inventory, raw inputs, customer purchasing patterns, and more. It employs AI to help users analyze and forecast these variables more quickly and efficiently than they could without KXS’s tools.
Like many AI stocks, KXS is quite pricey, trading at 52 times earnings and 8.5 times book value. However, it’s hard to deny that the company’s operations are seeing success.
