Move Over, Blackberry: This AI Stock is the Real Deal for Canadian Investors

BlackBerry stock has had way too many ups and downs, which is why this AI stock offers more stability.

| More on:
The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.

Source: Getty Images

BlackBerry (TSX:BB) and OpenText (TSX:OTEX) both represent unique opportunities for investors in Canada’s tech sector. However, when examined side by side, it’s clear why one might perceive BlackBerry stock as a riskier choice. Meanwhile, OpenText appears more stable and promising for long-term investors. Let’s unpack the respective positions, diving into their recent earnings, past performance, and future outlook to understand the risks and rewards they bring to the table.

BlackBerry stock

BlackBerry, once a symbol of cutting-edge smartphone technology, has had to transform radically to survive. Today, it focuses primarily on cybersecurity and Internet of Things (IoT) solutions. While this pivot seems strategically sound in an increasingly digital world, execution remains a challenge. BlackBerry’s latest quarterly earnings showed revenues of $143 million, a year-over-year decline from $152 million. The company attributed this drop to weakness in its Secure Communications division, offset somewhat by growth in IoT revenues.

The challenge for BlackBerry lies in its profitability. The company continues to operate at a loss, reporting a net loss of $11 million for the quarter, compared to $21 million in losses during the same period last year. While this shows some progress, the persistent negative earnings are a concern for investors looking for stability. BlackBerry’s Cylance unit, a high-profile acquisition for $1.4 billion in 2019, has struggled to meet expectations, further adding pressure. The company is reportedly exploring strategic options for Cylance, including a possible divestiture. This signals internal difficulties, which could unsettle investor confidence.

Adding to the complexity is BlackBerry’s financial structure. The company holds $211 million in cash but carries $250 million in debt, resulting in a debt-to-equity ratio of 34.2%. With an operating cash flow of negative $74 million over the trailing 12 months, BlackBerry’s financial flexibility is limited. Investors who prioritize balance sheet strength might find these figures discouraging.

OpenText stock

In stark contrast to BlackBerry’s struggles, OpenText has emerged as a powerhouse in enterprise information management. Its fiscal 2024 results reflect its leadership in the space, with total revenues reaching $5.8 billion – a 29% year-over-year increase. While its revenue growth was fuelled partly by acquisitions, OpenText has demonstrated a knack for effectively integrating new businesses. This has bolstered both its scale and profitability.

Profitability is where OpenText truly shines. The company reported a net income of $465 million in fiscal 2024, translating to earnings per share of $2.49. This solid performance is complemented by an earnings before interest, taxes, depreciation and amortization (EBITDA) margin of 27%, showcasing operational efficiency. Moreover, OpenText’s free cash flow of $928 million highlights its ability to generate strong liquidity, which it uses for shareholder friendly initiatives such as dividends and share buybacks.

OpenText’s management demonstrated its commitment to shareholders through consistent dividend increases. The company recently announced a 5% hike in its annual dividend, now yielding 3.7%. Plus, a $300 million share repurchase program reflects confidence in its long-term prospects. These moves not only enhance shareholder value but also signal financial stability and growth potential, thus making OpenText an attractive choice for income-focused investors.

Where value lies

BlackBerry stock’s forward price-to-earnings (P/E) ratio of 37.7 reflects the market’s cautious optimism about its ability to turn things around. However, such a high valuation for a company with persistent losses might indicate speculative enthusiasm rather than grounded confidence. Meanwhile, OpenText’s forward P/E ratio of 7.8 suggests that the company is undervalued relative to its earnings potential, thus making it a compelling buy for value-oriented investors.

Looking forward, BlackBerry stock’s success hinges on its ability to stabilize its core businesses and capitalize on the growing demand for cybersecurity and IoT solutions. However, with a track record of inconsistent execution and profitability challenges, the road ahead is uncertain. For investors with a higher risk tolerance, BlackBerry stock might offer upside potential if it successfully executes its turnaround strategy. Still, the risks remain significant, particularly in a volatile tech sector.

OpenText, on the other hand, appears to be a safer bet for investors seeking steady returns. Its diversified revenue streams, robust cash flow, and disciplined approach to growth position it well for long-term success. As the company continues to expand its presence in enterprise software and cloud services, it is likely to benefit from the ongoing digital transformation of businesses worldwide.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Tech Stocks

Skiier goes down the mountain on a sunny day
Tech Stocks

Meet the Canadian Stock That Continues to Crush the Market 

It's normal to beat the market once or twice while riding a trend. But this stock has been crushing the…

Read more »

Hourglass and stock price chart
Tech Stocks

2 Brilliant Growth Stocks to Buy Now and Hold for the Long Term

Growth stocks are amazing, but only when they have a true growth outlook. Luckily, these two match right up.

Read more »

Tech Stocks

Why I’m Bearish on Celestica Stock, and What I’m Buying Instead

Celestica stock has exploded in share price, but the future doesn't look as certain. So why not consider this stock…

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Tech Stocks

Investing in Canadian AI Stocks for Maximum Gains in 2025

Artificial intelligence stocks look strong for the future, but Kinaxis stock could be the best buy out there.

Read more »

how to save money
Tech Stocks

Best Canadian Stocks to Buy With $7,000 Right Now

Some of the best stocks to buy today are tech stocks like Blackberry, due to their potential for growth in…

Read more »

space ship model takes off
Dividend Stocks

TSX on the Rise: 2 Momentum Stocks to Buy Immediately 

The TSX Composite Index started marching upwards in mid-January. Among the stocks that rallied, a few are picking up momentum.

Read more »

Technology
Tech Stocks

Shopify: Buy, Sell, or Hold in 2025?

Shopify stock has long been known for giving investors a wild ride. But could that be over in 2025?

Read more »

Positive Person 2
Tech Stocks

Why Artificial Intelligence Stocks Broadcom, Alphabet (Google), and Marvell Technologies Are Rising Today

Earnings season is in full swing, and investors are reacting.

Read more »