4 Top Canadian AI Stocks You Need to Look at for December 2024
Artificial Intelligence (AI) sure has everyone buzzing right now! Investors are eagerly hunting for the next big AI stock in Canada. It’s no secret that AI is becoming super important these days, and folks are using AI-powered tech all the time.
So what are the best Canadian artificial intelligence stocks to buy now?
- CGI Group (TSE:GIB.A)
- OpenText (TSE:OTEX)
- Kinaxis (TSE:KXS)
- Coveo Solutions (TSE:CVO)
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. Over the past decade, CGI Group has returned ~300% and has a compound annual growth rate of 15%.
Delivering those types of returns over an entire 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 and designing and building AI platforms to implementation and quality improvement. CGI guides clients on their AI journey.
An excellent example of CGI’s respective expertise is the company’s contract win in 2020 with the European Space Agency (ESA).
In November 2020, CGI was awarded a contract “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 acquired 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.
OpenText (TSE:OTEX)
Unlike many SaaS companies which provide industry-specific products, Open Text (TSE:OTEX) is a 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. It has struggled over the last half-decade, but is in a position to now benefit from a decline in interest rates, as pressure will be relieved on its high debt levels due to acquisitions.
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 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 allows customers 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.
The difficulty here is the company took on an extensive amount of debt to finance the acquisition. As a result, as rates went up, interest expenses increased. As I’ve mentioned, the company should see some relief as rates decline.
Kinaxis (TSE:KXS)
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, RapidResponse, 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.
Kinaxis’s supply-chain management software gained popularity during the COVID-19 pandemic. As supply chains crumbled amid the global pandemic, many companies sought to increase efficiency. As a result, Kinaxis’s share price doubled in short order as its revenue and earnings surged by more than 20% in 2020.
The dust has settled on the pandemic, and its price has come down to earth. At the time of writing, it is trading at a large-scale discount to pandemic peaks.
Analysts are bullish on Kinaxis moving forward, with expectations of the company finishing 2024 with revenue of just over $690 million and earnings of $2.82. This would represent strong double-digit growth from Fiscal 2023.
From there, they don’t expect growth to slow down in 2025 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 of favour 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.
Coveo Solutions (TSE:CVO)
Coveo Solutions (TSE:CVO), specializes in AI-driven search and recommendation solutions. Think of an AI-driven chatbot that answers questions and directs customers based on their questions to solutions. The company is much more complex than this, but this should give you some sort of idea as to what they offer.
The company IPOed at the start of a rough bear market at the beginning of 2022. As a result, its price has been down around 65% since its IPO. However, the company is growing revenue at a solid pace, and although it isn’t profitable, it is indeed working toward profitability.
The company’s AI-based platforms are constructed with one goal: to improve client revenue and reduce operating expenses via more automated customer service requests. Not only do their products automate customer service requests, but their AI functionality also makes queries more quickly and accurately answered. Ultimately, this drives fewer customer service requests and happier customers overall.
The company has North American and European operations and is expected to continue to generate double-digit revenue growth for the foreseeable future.
The company is debt-free at this point, which is a positive. The only downside to a company like Coveo is that the industry is very young, and as such, it will likely require extensive capital to expand. The company is free cash flow positive, however at some point it may need to access the debt or equity markets to continue to raise capital.
Another downside to the young industry is the potential for disruption in terms of market-share and economic moat. However, this case wouldn’t be unique to Coveo but to all younger AI companies that are currently in their growth phases.
Overall, it is a solid Canadian AI stock to keep an eye on in the future.
What exactly is ai?
“…a field which combines computer science and robust datasets to enable problem-solving. It also encompasses machine learning and deep learning sub-fields, 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-renowned 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 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, especially with revolutions like Chat GPT from OpenAI or Bard from Google.
Companies like Microsoft (MSFT), Amazon (AMZN), Netflix (NFLX), Nvidia (NVDA), Alphabet (GOOG), and 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. Suppose you are invested in data or software-as-a-service (SaaS) companies. In that case, 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 AI. In Canada, there aren’t too many companies like IBM, but a couple stand out. Let’s have a peek at the best artificial intelligence stocks in Canada today.