It can be very risky to invest in companies that only focus on artificial intelligence (AI). Perhaps the ideal is to identify profitable companies that AI can help drive further business growth.
Below are a couple of top Canadian AI stocks with growth potential.
Open text
Open text (TSX:OTEX) enables its customers to organize, integrate and protect data and content as it flows through business processes inside and outside their organization. Its artificial intelligence Smart Capture It aims to reduce the cost and risk of labor-intensive processes including property and casualty claims, mortgage lending, accounts payable, conversion of legacy files, client onboarding, and HR management of employee documentation.
Smart Capture Its goal is to learn to become smarter (and make fewer mistakes) over time as more and more data is processed, thereby helping businesses save money and their staff save time.
Open Text has a proven track record of growing its earnings and dividends over time. It began paying a quarterly dividend in 2013 and has raised its dividend every year since. For reference, its five-year dividend growth rate is 10.9%. And its latest dividend increase, which occurred earlier this month, was 5.2%.
Following the massive $5.8 billion acquisition of Micro Focus in February 2023, the tech company has been focused on reducing its debt levels. Due to its acquisitive nature and high debt levels, Open Text is a risky stock. Open Text closed fiscal year 2022 with a long-term debt-to-equity ratio of 52%. The ratio increased to 67% in fiscal year 2023 and reduced it to 60% by the end of fiscal year 2024.
The stock price is down 30% from its 2021 high of $64. Over the past decade, OTEX has earned an annual return of just 5.7%. Its 15-year annual return of 11.3% is much more acceptable.
OTEX Dividend Yield Data from YCharts
Analysts believe the stock is trading at a 13% discount. Moreover, it offers a dividend yield of 3.2%, which is relatively high compared to its historical levels. If it manages to bounce back with the double-digit earnings growth it has achieved in the past, it could double investors’ investment over the next five years!
Kinaxis
Kinaxis (TSX:KXS) is a tech stock that could see substantial growth by applying AI to enable its customers to intelligently control the supply chain digitally. It believes that 24/7 machine learning and analytics will increase efficiency and enable confident decision-making.
In the last 12 months, Kinaxis generated total revenue of $457.7 million, gross profit of $277.3 million, operating income of $20.6 million and net income of $21 million.
Kinaxis stock has been trading somewhat sideways since mid-2020. Its most recent trading activity suggests that the $140 level serves as support. Valuation-wise, analysts believe the tech stock is trading at a discount of around 19% with a near-term upside potential of 23%. Holding the stock for longer has the potential to double investors’ money in the coming years.
For further diversification, investors may consider exchange-traded funds such as the iShares US Technology ETF.