Artificial Intelligence has become one of the biggest narratives of the technology sector. AI promises to boost productivity across all business sectors with the use of intelligent and adaptive software. AI helps organizations become more efficient by automating increasingly complex tasks, increase yields across different processes, and helps companies manage workflows at an organizational level. According to leading consulting firm McKinsey, AI could add $13 trillion to the global economy by end of this decade.
One of the biggest reasons that investors should add exposure to AI companies in their portfolios is that it has applications across a very large number of industries. AI has accelerated digitization across all sectors, thus giving AI a tailwind. In a 2020 survey of 1030 companies, nearly 28% of companies in the Health, Finance, Automotive, FMCG, Technology, and Telecom industries increased their investment in AI systems through the pandemic. With the emergence of the cloud, AI is more accessible than ever as small companies and businesses did not have resources to build such systems before. AI is poised to get more powerful and effective over the next few years due to IoT (Internet of Things), an increase in smart sensors and smart devices will lead AI to become a ubiquitous part of our lives.
The Best AI Stock in Canada
Here are some of the best stocks to consider for those wanting exposure to the growth of Artificial Intelligence –
1. Kinaxis Inc. (TSE: KSX)
Kinaxis is a SaaS (Software-as-a-Service) company that specializes in supply chain management. The company operates on the cloud and helps clients use AI to optimize supply chains and make them more informed on their entire business and drive cost-efficiency. The software helps clients gain visibility on their entire supply chain and plan resources better by use of simulations and prevention of inventory obsolescence. Traditional supply chain management software involves a number of software for different vendors and is heavily excel dependent. Kinaxis helps integrate all a companies vendors and logistics providers/departments under one software on the cloud and gives the company an organizational view of their supply chain. As supply chains are getting more complex, Kinaxis AI is helping companies better understand, control, and adapt to their increasing size.
Kinaxis has clients across a range of industries like consumer technology, aerospace/defense, industrials, pharmaceuticals/healthcare, automotive, and FMCG. Kinaxis has a large number of blue-chip clients such as Nikon, Qualcomm, Lockheed Martin, Toyota, Asics, etc. which proves the efficacy and real-world impact of its product. The company has gained from a tailwind from COVID as the world was forced to shift towards eCommerce, thus giving the supply-chain and logistics business a big boost.
In Q1 2021, the company reported revenue of $57.7 million (up 9% YoY) and gross profit of $37.2 million (up 1% YoY). Adjusted EBITDA was $9 million and cash flow from operations was $20.6 million. The company is very strong as it has long-term contracts (unrecognized revenue) worth $129.5 million for 2021, $127 million for 2022, and $127.5 million for 2023 and beyond. For FY21, the company has given revenue guidance of $245 million $247 million (representing 17%-20% growth) with an EBITDA margin of 11%-14%.
2. Docebo (TSE: DCBO)
Docebo is a SaaS company that uses its cloud-based AI platform to provide customized e-learning services to organizations for service learning and upskilling. Technology is changing the workplace at a speed never seen before as businesses are adapting to changing markets and products. This has lead to the creation of a huge market for e-learning and upskilling service providers. Docebo has found great success with marquee clients such as Netflix, Uber, and Starbucks. Having a client roster of blue-chip clients is a positive sign for investors as it shows the real-world success of a company’s product.
Docebo uses AI to help its client provide personalized learning for employees and comprehensive progress tracking for managers. The software trains employees with an AI-powered Virtual Coach to test real-world solution solving at scale. The software then suggests appropriate learning material based on performance to the trainees, all without the intervention of managers/admins who can spend their time more productively whilst having a bird’s eye view on the progress of all trainees.
Like most technology companies, Docebo has benefitted very handsomely from COVID as many companies were forced to hire work-from-home employees and needed online training services. Furthermore, COVID has led to a systemic shift towards work-from-home, which should lead to long-term tailwinds for Docebo.
For Q1 2021, Docebo reported revenues of $21.6 million (up 61% YoY) and a gross profit of $17.9 million. EBITDA and net loss were $2.5 million and $5.6 million (one-off expenses) as the company is currently focused on growth over profitability. Docebo grew its customer base by a staggering 27% over the past quarter.
3. VIQ Solutions (TSE: VQS)
VIQ Solutions is a developer of AI-powered digital content creation and management software for organizations. The company uses AI to provide services such as transcription, image recognition, video tagging, etc. The company allows organizations to automate processes such as data capture, cataloging, documentation, etc.
The company is finding success in areas such as healthcare, law enforcement, legal industry, insurance, and generic businesses. The company has benefitted from COVID as court proceedings, business meetings, and doctor consultations were forced to digital.
In law enforcement and insurance, their software is used to create quick on-site incident reports that are instantly tagged and upload to the cloud for processing. In the legal industry and in generic businesses, their product is used to transcribe minutes of court sessions, depositions, and meetings. Another example is of its application is the use of its transcription software by doctors in hospitals which saves doctors valuable time and increases their efficiency. The company also provides real-time translation of dictations in 40 languages.
In the first quarter of 2021, VIX Solutions reported revenues of $8.3 million (up 9.4% YoY) and a gross profit of $4 million (up 25% YoY). Net loss for the quarter was $1.7 million, down 75% YoY. The company is gradually scaling towards profitability and was recently promoted from the TSX Venture Exchange to the TSX.
4. MCloud AI (CVE: MCLD)
MCloud AI provides artificial intelligence-powered asset management systems to energy suppliers, grid operators, process industries, commercial buildings, and companies with large geographical footprints. Energy usage and renewable energy management are very attractive sectors as companies are looking to reduce their carbon footprint.
The company uses AI to drive cost savings and energy usage based on historical and real-time data. The company’s software is also used at wind farms, solar farms, and other energy assets to optimize energy generation/storage and provides energy companies a single dashboard to optimize/monitor energy assets across different locations. The company uses edge devices (IoT) to gather operational performance at industrial plants and energy assets and uses its software to find actionable insights. The company also uses IoT to control HVAC systems resulting in cost savings of as much as 25% for clients like Starbucks. The company’s services are very attractive as they involve low capital outlay for clients.
In Q1’21, the company reported strong business growth. Reported revenue for the quarter was C$7.3 million (up 27% YoY), more importantly, recurring revenues for their software were up 524% from C$1 million to C$6.2 million. Gross profit for the quarter was C$5.2 million. Net losses were more or less stable at C$8.8 million due to the company’s focus on growth.
5. DataMetrex AI (CVE: DM)
DataMetrex AI is a data analytics company that provides software to analyze large amounts of unstructured data such as websites, blogs, social media, documents, etc. The company helps organizations find insights into consumer behavior and opinion by sifting through social media platforms and web pages that mention their products or those that contain relevant information about their target market. The company’s aim is to help brands build better product experiences.
The company has been blessed by COVID as its platform helped governments, NGOs, and special help groups track cases in real-time and also benefitted from a large number of brands being forced to go digital. Apart from generating insight on consumer sentiment and opinion, the company’s platform also performs web analytics by providing actionable insights from web and app usage such as location-based heat maps.
The company has witnessed a change of fortunes since the onset of COVID. In Q1’21, the company reported revenues of $19 million (up 2253% YoY) and net earnings of $9.56 million (up 1425% YoY). The company is poised for strong growth moving forward with a record cash pile of $4.6 million.
Conclusion
As you can see, AI has found applications in a variety of industries and it is poised to grow with the increasing role of technology in organizations. Over time as more companies get digitized due to hardware and software upgrades (IoT), AI programs will have higher quality data which will lead to even higher impact. However, investors should be aware of the risks of investing in high-growth companies as the software industry is highly competitive and prone to disruption. Investors should also be concerned as cloud computing providers (For eg. Amazon, Microsoft, and Google) that provide the hardware infrastructure to these companies are increasingly developing their own AI solutions which can potentially be far more powerful due to the resources available to these companies. The nature of the enterprise software industry is such that competitive advantages can be very short-lived as software solutions are very scalable, switching costs can be minimal due to low product differentiation in the space, and price competition is high.