Investors looking at putting some capital to work in what could be the biggest generational money-making catalyst of our time (artificial intelligence, or AI), finding under-the-radar companies to invest in is key. Indeed, there are a number of world-class AI-driven growth stocks available to investors in markets outside of the U.S. Personally, one of my favourite markets to assess is the Canadian market, due to its proximity and access to the U.S. market, and the quality of names that are often listed at a discount in this particular space.
Let’s dive into three of the top AI stocks Canada has to offer, and rank them in order of their risk/reward upside. I’ll start from the bottom of my list and work my way higher.
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Pick #3: Celestica
I’ve changed my mind on Celestica (TSX: CLS) a few times, due in part to the fact this company has shifted its focus a few times over the years.
That said, the company’s strong Q2 results, with revenue rising 21% year-over-year and earnings surging more than 50% on this revenue beat, suggest that skyrocketing demand for AI data centre networking gear and cloud connectivity technology should remain robust.
As investors look for unique ways to play strong momentum in the AI space via picks-and-shovels plays, I think Celestica will get more attention. At 66 times trailing earnings, this is one of the cheapest.
Pick #2: Open Text
Among the top Canadian software stocks that continue to be near the top of my list is Open Text (TSX: OTEX).
Shares of the mid-cap software leader have also seen strong growth over the long term, as investors look mostly toward the company’s core product portfolio and key partnerships with leading mega-cap tech in the U.S.
For investors looking for a way to play the rise of U.S. tech but looking to gain exposure to such trends in a sneaky under-the-radar fashion, Open Text does look attractive here. With an even more attractive multiple of 23 times earnings and a 2.8% dividend yield, this is more of a total return play in the AI space I think can pay dividends for a long time to come.
Pick #1: Kinaxis
Kinaxis (TSX: KXS) is a supply chain management technology company that has seen plenty of growth in recent years without the rise of AI.
However, since the company adopted AI-driven solutions, its revenue growth rate has accelerated significantly. This past quarter, that top-line growth came to 17% for Kinaxis’ software as a service (SaaS) revenue, with earnings seeing more robust trends as well.
For those looking for a company with a solid growth trajectory and growing AI tech stack, Kinaxis would be my highest-conviction pick in the Canadian market right now. I think the company’s valuation has plenty of room to move more in line with U.S. peers, if the market begins to catch on to this name.
