Artificial Intelligence (AI) has been generating plenty of buzz in recent years and investors have been scouring Canadian stocks for the next great Canadian AI stock. In today’s world, AI is becoming increasingly relevant and consumers regularly interact with AI-powered technology.
What is AI? Simply put AI is:
“...a field, which combines computer science and robust datasets, to enable problem-solving. It also encompasses sub-fields of machine learning and deep learning, which are frequently mentioned in conjunction with artificial intelligence.”
IBM is a global AI leader and its roots date back to 1997 when IBM’s "Deep Blue" beat world chess champion Garry Kasparov. Today, IBM's Watson, the world renown supercomputer has evolved into an enterprise AI-driven technology that “gives enterprises the AI tools they need to transform their business systems and workflows, while significantly improving automation and efficiency.”
AI has now become so prevalent that any newly introduced technology worth its value makes use of AI, and the industry, and thus ai companies, will continue to grow exponentially for years to come.
Many investors who think of tech and AI look south of the border. Companies like Microsoft, Amazon, Netflix, Nvidia, Facebook (Meta). However, there are some rock solid options here at home you may not have known about.
So how can investors take advantage of Canadian AI stocks?
There is no easy answer. If you are invested in data or software-as-a-service (SaaS) companies, then it is likely you already have indirect exposure. Companies like Shopify (TSE:SHOP) and Kinaxis (TSE:KXS) leverage AI within their flagship products.
Another way to look at investing in AI, is to look for companies that are helping others transform their businesses through the use of AI. In Canada, there aren’t too many companies like IBM but there are a couple that stand out.
So what are the best Canadian artificial intelligence stocks to buy now?
- CGI Group (TSE:GIB.A)
- Opentext (TSE:OTEX)
- Kinaxis (TSE:KXS)
- Fobi AI (TSV:FOBI)
CGI Group (TSE:GIB.A)
CGI Group (TSE:GIB.A) is a global IT-service provider. It is one of the largest tech companies in Canada and operates in more than 40 countries.
While it may not get as much attention as some of its high-flying peers, CGI Group has been an outstanding stock to own. Over the past decade, CGI Group has returned ~315% and has a compound annual growth rate of 15%.
Delivering those types of returns over a full decade is no easy feat.
CGI Group dubs itself a “trusted AI expert” in that it helps clients implement end-to-end AI solutions. From identifying opportunities, designing and building AI platforms to implementation and quality improvement. CGI guides clients on their AI journey.
A good example of CGI’s respective expertise is the company’s contract win in 2020 with the European Space Agency (ESA). In November of 2020, CGI was awarded a contract to “to develop an innovative Artificial Intelligence (AI) enabled platform and a series of solutions for the global satellite communications (satcom) marketplace as part of the Autonomous Satcom Solutions (AUTSS) programme.”
The company also made an acquisition of Umanis in 2022, a leading data, AI, and business solution firm in France.
Given its expertise and trusted reputation, CGI Group is well-positioned to win similar contracts across a wide range of industries for years to come, along with making key acquisitions to grow its overall reach.
Unlike many SaaS companies which provide industry-specific products, Open Text (TSE:OTEX) is an SaaS giant with products that support a wide range of industries. It is an excellent capital allocator and routinely adds to its impressive portfolio of assets through acquisitions.
Much like CGI Group, OTEX is not a flashy stock but it does deliver consistent returns. Outside of 2022, it has rarely had a down year and has delivered a total return CAGR of 13% over the past decade. As an added bonus, it is one of the few TSX-listed Canadian Dividend Aristocrats in the Technology sector. Although it yields relatively little, don't discount this company's ability to grow the dividend.
The current drawdown due to an acquisition I'll talk about in a bit is nothing more than an opportunity, in my opinion, to add shares on the cheap.
Launched in 2017, Magellan is Open Text’s AI and analytics platform. Magellan offers businesses a “comprehensive set of AI and analytics tools that help enterprises overcome data challenges”. It leverages machine learning algorithms and integrates all forms of data including but not limited to voice, text, and video.
As an open platform, it gives customers the ability to customize their enterprise information management systems. For those looking for quick, out-of-the-box solutions, Open Text also provides preconfigured AI solutions to get companies started on their AI journey.
The company spent $6 billion to acquire Micro Focus International in 2022. Micro Focus brings meaningful revenue and operating scale to OpenText, with a combined total addressable market (TAM) of $170 billion.
Kinaxis (TSE:KXS) is a Canadian-based provider of cloud-based software and AI technology for sales and operations planning and supply chain management. The company's flagship product is called RapidResponse, and provides tools like consequence evaluation and alerting, responsibility-based collaboration, high-speed analytics, and scenario simulation.
The software company also provides supply and demand planning, capacity and inventory planning, and inventory management. It has operations not only in North America, but Europe and the Asia-Pacific as well.
You can probably guess that with Kinaxis providing supply-chain management software, it saw a surge in popularity during the COVID-19 pandemic. And, you'd be right. As supply chains crumbled in the midst of the global pandemic, many companies were looking to increase efficiency. As a result, Kinaxis's share price doubled in short order as it saw its revenue and earnings surge by more than 20% in 2020.
The dust has settled on the pandemic and its price has somewhat come down to earth. At the time of writing, it is trading at a 37% discount to its pandemic peaks. Analysts are bullish on Kinaxis moving forward, with expectations of the company closing out 2022 with revenue of just under $500 million and earnings of $1.62. This would represent a 56% increase over Fiscal 2021 in terms of revenue and more than 100% in terms of earnings.
From there, they don't expect growth to slow down in 2023 either, with revenue and earnings expectations in the double digits in terms of growth.
The company's products have very little chance of falling out favor or demand. A fun side note, Kinaxis partnered with the Ottawa Senators in 2022, signing a 3 year agreement to be the helmet sponsor of the NHL franchise.
Fobi AI (TSXV:FOBI)
I saved Fobi AI for last, primarily because it's the largest risk out of the 3 by a wide margin. Formerly Loop Insights, Fobi is a cutting-edge data intelligence company that helps clients turn real-time data into actionable insights and personalized customer engagement to generate increased profits through ai systems.
Its IoT device has the ability to integrate seamlessly into existing infrastructure to enable data connectivity across online and on-premise platforms creating highly scalable solutions for global clients. The company operates globally in the retail, telecom, sports and entertainment, casino gaming, and hospitality and tourism industries.
The company was very popular during the COVID-19 pandemic, particularly when speculation was at an all-time high. FOBI AI entered into a plethora of agreements with companies, but still to this day it has not generated any meaningful revenue.
It is important you understand that Fobi is a bet on the company's technology. Paper receipts to digital, plastic membership cards to wallet passes, and paper coupons to digital ones are just some of the ways Fobi is helping businesses reduce costs and generate more revenue.
As of right now, the company is purely speculative, and if you're going to buy, I'd be doing so with a very small portion of my portfolio. There is large potential here, but there is also the potential for the company to fizzle out and do nothing. With a market cap of only $67M at the time of writing, it is firmly in micro-cap territory and will need to make some significant moves to get back to pandemic level highs.