Even though it’s currently in its infancy, artificial intelligence has the potential to change the world in ways that we just can’t predict yet.
ChatGPT has been the most innovative product in decades, with the likes of Bill Gates touting this as “The Age of AI” on his blog.
Even by our best estimates, we are decades away from true artificial intelligence (or artificial general intelligence), but AI’s practical applications are already numerous and growing by the day.
It wouldn’t be a stretch to say that investing in the best AI stocks in Canada could turn out to be like investing in Amazon at its IPO before you even knew what e-commerce was.
What Are AI Stocks?
AI (Artificial Intelligence) stocks represent shares in companies that are either directly involved in developing AI technologies, tools, and solutions or rely heavily on AI for a significant portion of their business operations.
AI technologies can include:
- Machine Learning (ML): Algorithms that allow software to improve over time without being explicitly programmed for specific tasks.
- Deep Learning: A subset of ML, where artificial neural networks (resembling the human brain) process vast amounts of data, commonly used in image and speech recognition.
- Natural Language Processing (NLP): Allows machines to understand and respond to human language.
- Robotics: Machines capable of carrying out complex actions autonomously or semi-autonomously.
- Computer Vision: Enables machines to interpret and decide based on visual data.
Companies involved in AI can be categorized as:
- Pure-Play AI Companies: These are firms primarily dedicated to AI research, development, and deployment. Examples might include firms that produce AI hardware, like specialized graphics processing units (GPUs) or companies focused solely on AI-driven applications.
- Tech Giants with AI Divisions: Larger tech companies that invest heavily in AI as one of their many diversified areas. For example, Shopify leverages AI in various ways to enhance its services for both merchants and customers.
- Companies Using AI: These firms might not develop AI tech but utilize it significantly in their operations. For instance, financial firms may use AI for fraud detection or algorithmic trading, while healthcare companies might use AI for diagnostics or personalized treatment plans.
Best AI Stocks In Canada
The TSX has a handful of AI stocks. Some of them represent budding, small and nano-cap companies. But with advances in AI, these stocks might soar under the right market conditions.
Montreal-based CGI is one of the oldest IT firms in the world and was established in 1976. The fact that IT consulting is still one of its core businesses is a testament that it has evolved with time and has kept its services up-to-date and relevant.
As a tech stock, CGI is a modest pick in terms of its long-term return potential and a good pick for the consistency of its growth. Between Aug 2013 and Aug 2023, the stock rose by about 280%, which is modest for a tech stock but quite compelling for a typical growth stock.
Between 2012 and 2022, its revenues have grown by 2.7 times, and the geographic distribution has become quite diversified. In 2022, only 46% of the revenues came from Canada and the US, compared to 83% in 2012.
All of these strengths are inherent to its position as one of the largest IT companies in the world. However, the company is growing its AI services portfolio, which may lead it to new growth avenues.
As an IT company with a trustworthy name in the industry and numerous connections in the tech world, it may be a perfect AI transformation/initiation partner for a wide range of businesses.
These are the core AI services it’s providing right now – AI strategy, design, build, and operations. It can easily be rolled in with its two business streams – managed services and consulting plus integration services.
Government and financial clients made up 58% of its revenue in 2022, and both of them might lean more towards a trusted partner like CGI for AI transformation than a new vendor. That gives the company access to a well-primed target market.
Before you decide to invest in CGI as an AI stock and get tempted by its strong market presence and financials, remember that AI is a budding avenue for the company, not something its strengths rely on right now. Also, keep the overvaluation and debt in mind as well.
2. Voxtur Analytics
Voxtur Analytics is a micro-cap penny stock with a 2023 market capitalization lower than its 2022 revenues. It has combined tech with real estate and is now leveraging Artificial Intelligence and Machine Learning to help real estate stakeholders leverage real estate data points for smart decision-making.
The company offers multiple real estate services like assessment, valuation, settlements, and capital market services. Data points from these micro and macro environments are analyzed for insights and risk evaluation, allowing Voxtur and its customers to make real-time decisions.
Its data services include a proprietary real-time property information platform and relevant tools for stakeholders, like investors, lenders, and agents, to make the best use of available data.
How this data is processed through AI and ML algorithms can significantly enhance or undermine Voxtur’s effectiveness for its clients, so its AI reliance is higher than other AI companies on this list.
Despite being debt-heavy, the company’s finances look promising. Revenue and gross profit are growing at a powerful pace though the net income has yet to go green. But if the company can perform this well when the real estate sector in the country is relatively weak (fear of the bubble bursting), it may be on the right track.
The stock is currently heavily discounted and undervalued. It’s also not going bullish despite the upward direction of the tech sector, which shows that it can move independently of the tech sector.
You should understand that it makes it difficult to find the trigger for Voxtur’s growth, but considering the level of growth, it is capable of in the right market (evident from its 900% growth in eight months between Jul 2021 and Feb 2022), it might be worth the effort to track its price movements and trends.
Docebo is a learning platform that has recently rebranded itself as the first-generation AI Learning Management System (LMS).
It was already a mature LMS targeted at corporations/businesses for the education and training of their employees/team members. With AI, Docebo is expanding the learning to customers as well, resulting in better retention.
This AI-based transformation is partly triggered by the acquisition of Edugo.AI, an LMS powered by generative AI and Natural Language Processors (NLP) that was designed to make the learning experience more personalized and immersive.
This AI-based empowerment strengthens what was already a strong product with a powerful client base. It became cash positive in 2022 with a positive net income, and its debt is minimal compared to its cash and cash equivalents, which gives it a lot of leeway for acquisitions or costly research.
The ownership makeup of Docebo is a bit unique. The largest chunk of the company is owned by private equity firms, most significantly Intercap equity owned by Jason Chapnik, the current chair of Docebo’s board of directors.
This structure means that a handful of stakeholders can have a more significant impact on this stock’s performance than almost all the retail investors holding it.
The stock’s performance so far has been heavily influenced by the sector’s dynamics but not very faithfully. You may also find its overvaluation a negative factor when making an investment decision.
But it may prove to be a safe long-term AI bet, especially if its current acquisition’s direct impact is visible on its finances and new client numbers.
4. Open Text
Open Text is one of the oldest, most trusted tech stocks in Canada and one of the handful of tech companies that pay dividends.
Its primary business is Information Management Solutions which is not only a broad-spectrum service for a wide range of industries but also something that’s become increasingly relevant with the advent of AI and ML.
Even before the AI pivot, the focus of Open Text was to consolidate an organization’s data flowing through multiple channels, locations, and to and from stakeholders. The goal was to ensure that no information gets lost in the crowd and can be traced back when needed or leveraged for insights.
Now with AI, this mound of data can be used to identify patterns and insights that would have been impossible to find using conventional statistical models.
This presents unprecedented growth opportunities and visibility, and if Open Text can deliver on this AI potential, it may emerge as an even more compelling tech pick than it is now.
Its current strengths (as a stock) include the consistency of its growth, stable dividends, and a decent capital appreciation potential. The stock grew by 244% between Aug 2013 and Aug 2023. It’s also financially healthy, though it does have a lot of debt, and the stock is currently overvalued.
If you buy Open Text now, you will be buying a time-tested stock that might be in the initial days of a powerful transformation that has the potential to expedite its growth rate. But beware of the risk its finances and valuation carry.
5. Fobi AI
Fobi AI is all about “data-driven digital transformation,” but only in a specific domain, i.e., e-commerce. Its primary service is obtaining data from Point of Sales (POS) end-points and processing it to generate actionable insights for a business.
It may seem promising but remember that it’s just the final stage of the sales funnel. It only helps businesses generate insights from transactions, i.e., customers that have already made a purchase with the business.
Most businesses might naturally lean more towards AI, which can help them gain more customers. Fobi AI’s tech would be alluring to companies focused on retention.
Fobi AI used to be Loop but changed the name and branding to leverage the market presence of its Fobi platform. But despite its lean toward insights, the bulk of its success stories are limited to checkpoint and wallet pass solutions, relatively limited in its scope.
Another weakness that you might take into account before making an investment decision is its finances. The operating expenses steadily grew in the last three years, but the revenues are nowhere close to funding its operations.
Despite these weaknesses, the stock experienced two post-pandemic hikes, riding the tech sector’s bullish momentum as well as AI optimism.
That has waned now, and Fobi AI may have to show decent revenue growth to emerge as a financially viable investment. But it may still offer powerful short-term growth if there is enough hype about AI in the market.
6. Telus International
Telus International has an inherent benefit, a trusted name. Even as a separate entity, the Telus name might inspire confidence in both investors and potential clients of the Telus International company.
The primary focus of Telus International is Customer Experience, and it accounts for about half the revenue the company generates.
However, it has added a range of AI services to its portfolio, and in just three years, they have started representing about 14% of the company’s total revenue (in 2022). So it’s already a major part of the business financially.
But another thing that makes Telus International one of the best AI stocks in Canada is the massive AI community it’s building up of remote developers.
There are already over a million members; it’s one of the largest AI communities in the world. The purpose of this community is to facilitate AI learning through annotations (labelling data), that’s a crucial part of teaching an AI.
The company has been cash positive for at least the last three years, and its finances are in order, although it carries a significant amount of debt.
It has made several global acquisitions over the years, which has expanded its international reach quite significantly. Its global network of AI developers is also a testament to its strong global reach.
We consider it a compelling pick at a highly discounted rate, but you should understand that so far, its performance has been quite unflattering, and the situation may persist until there is enough optimism around this stock. The AI community can be a strong trigger in this regard.
Investing in AI Stocks in Canada
Canada is emerging as a contributor in the AI sector, with cities like Toronto, Montreal, and Edmonton leading in AI research and innovation. Investors should also be on the lookout for new and promising AI-focused companies on the Toronto Stock Exchange (TSX) and TSX Venture Exchange.
Canada has top AI research institutions, and both the Canadian government and the private sector are heavily investing in the field, which could lead to a strong growth trajectory.
When evaluating potential AI investments, it’s important to analyze a company’s financial health, growth rates, and any partnerships with established AI research institutions.
Also, given the evolving regulatory landscape surrounding AI and data protection in Canada, investors should stay updated on Canadian regulations pertaining to AI ethics and data usage.
Key Players in AI (Outside of Canada)
Despite the positives of how Canadian AI has been developing, Canada is not leading the charge with AI by any means. That would be the U.S. and China who are at the forefront of AI technology development.
In the rapidly growing field of AI, several influential companies are leading the way. Among these are major tech giants like Alphabet Inc., the parent company of Google, and Microsoft Corp.
Both Google and Microsoft are deeply involved in AI research and development. They offer a wide array of AI products and services, ranging from virtual assistants to cutting-edge machine learning platforms.
Apple, another prominent tech company, is also exploring AI technology, focusing on enhancing its devices and ecosystem with AI and machine learning capabilities.
Another big name in the AI industry is NVIDIA Corp. Best known for its graphics processing units (GPUs), NVIDIA is now a leader in AI hardware and software solutions.
Its high-performance GPUs are indispensable for training deep learning models, making the company a top choice for AI researchers and industry leaders alike.
Baidu, a Chinese multinational technology company specializing in Internet-related services and products, is also at the forefront of AI development. It focuses on areas like deep learning, natural language processing, and autonomous driving technology.
Apart from these players, there are multiple companies focusing solely on AI. One such company is C3.ai, offering artificial intelligence software-as-a-service (SaaS) solutions. Their applications cater to a wide range of industries, including energy management, financial services, healthcare, and more.
How To Buy AI Stocks In Canada
The cheapest way to buy stocks is from discount brokers. My top choices in Canada are:
- 105 commission-free ETFs to buy and sell
- Excellent customer service
- Top-notch market research tools
- Easy-to-use and stable platform
- Stock and ETF buys and sells have $0 trading fees
- Desktop and mobile trading
- Reputable fintech company
- Fractional shares available
To learn more, check out my full breakdown of the best trading platforms in Canada here.
AI stocks have the potential to explode once they gain enough traction and create enough disruption in the market segment they are in.
Every business understands the need to remain up-to-date with their tech tools, and as those tools become more AI-oriented, companies like the ones on this list might find new business avenues open up.
But given the timeline of each narrow AI’s maturity and the range of its practical application, it can be a long-term bet. However, if the payoff is right, it would reasonably justify the waiting period.
And if you would rather have the broad-spectrum tech focus, these tech ETFs might be worth checking out.