Don't Miss AI's Third Wave
Investing in small-cap stocks with solid fundamentals and strong growth potential can be an excellent way to generate substantial long-term returns. Small-cap stocks are more volatile and pose a greater capital risk because they lack the liquidity of large-cap stocks. However, more risk can mean greater rewards for investors if the underlying company’s success helps the stock make big strides in the stock market.
A well-chosen small-cap stock can be a great investment for multi-fold returns down the line. However, the rise of artificial intelligence (AI) technology in recent years has opened up opportunities to invest in large-cap stocks with the potential for substantial returns in the long run.
Big opportunities for AI stocks
The AI revolution is upon us, and investors worldwide are looking to position their portfolios for the long term by investing in companies with good exposure to this space. Of course, picking the top AI stocks to this end is challenging. A lot of the growth stocks focused on AI technology are trading at multiples that seem simply too high to consider viable investments.
Fortunately, there are a few AI stocks that can be worth considering. Getting in early and investing in the right AI stock before it climbs high can be a great strategy to amplify the returns from your self-directed portfolio.
An example of a small-cap stock that’s made it big
Constellation Software (TSX:CSU) is a tech stock that I can present as a good case study for investing early to leverage substantial gains in the long run. The software company completed its initial public offering (IPO) in May 2006 with a meagre $386 million market capitalization. The company’s leadership used proceeds from the IPO to bring together various specialized software businesses under its banner.
The businesses it focused on had limited, niche markets but generated plenty of cash. It also helped that the businesses were often cheap acquisition targets. The company kept reinvesting money generated from successful acquisitions to acquire even more businesses. Almost two decades later, Constellation Software stock is up by almost 27,000%.
Granted, it might be a good investment for long-term growth even now. However, it cannot provide the kind of multi-fold returns early investors received.
A large-cap stock that can still move the needle faster
Most AI stocks attract investor attention through speculative growth and flashy (and untested) innovations. OpenText (TSX:OTEX) is the opposite of those companies. OTEX is a $9.81 billion market cap software company that has been providing enterprise software solutions for several decades. It is leveraging the rise of AI technology by steadily integrating the new technology into its offerings.
Instead of being a higher-risk entry-level company in the AI space, OTEX is only making its already reliable business better with AI integration. One of the reasons OTEX is a standout AI stock among other Canadian AI stocks is its quick and strategic AI adoption.
The company is launching a new platform that will integrate security, cloud, and AI technology into a single, seamless solution. The company is establishing itself as a viable avenue for enterprises to transition to an AI-integrated era.
Foolish takeaway
OpenText stock has solid fundamentals that mitigate the risks that come with typical high-growth stocks. The stock can also comfortably offer quarterly dividends of $0.2625 per share, while most AI stocks reinvest whatever is possible into expansion.
OTEX stock is a more stable investment, and the company’s growth potential remains strong. It might not be the most exciting stock to invest in, but that’s not the goal here. The key is to invest in something that can deliver long-term success in the AI space. To this end, OTEX stock can be an excellent long-term holding for your self-directed portfolio.
