These stocks will be the winners from AI. Plus, GIC rates are getting juicier by the day
While previous technology trends saw corporate management merely paying lip service to look involved, artificial intelligence is now actually being adopted rapidly and is already driving added revenues for major U.S. companies, says Wells Fargo strategist Christopher Harvey.
“Even though AI seemingly exploded on the scene just a few minutes ago, Kraft Heinz has already discussed how its AI platform is responsible for $30-million of incremental annual sales,” Mr. Harvey noted in a report this week. Kraft Heinz has partnered with Microsoft to improve sales and supply chain efficiency.
Elsewhere, hotel chain Host Marriott Financial Trust found that AI outperformed the firm’s own internal predictive modelling for revenues. Visa Inc. is using AI to quickly detect fraudulent transactions.
Only a few companies have built the massive processing power necessary to support AI and this makes it easy to find the winners from the trend, according to Mr. Harvey. Importantly, the strategist finds related stock valuations reasonable, unlike the bloated stock prices of the late 1990s.
Mr. Harvey lists the AI winners as Apple Inc., Advanced Micro Devices, Alphabet, IBM, Nvidia Corp., and Oracle Corp.
— Scott Barlow, Globe and Mail market strategist
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The Rundown
Out of nowhere, two-year GICs look like a strong buy
Whether or not the Bank of Canada resumes rate increases this summer, the best days for GIC investors are behind us. But there are still opportunities to capture rates on guaranteed investment certificates that offer a satisfactory return when you consider a risk level near zero thanks to deposit insurance. As Rob Carrick tells us, two-year terms paying out 5 per cent annually have now become widely available.
AI craze leaves crypto for dust
As billions of dollars have flooded into Big Tech over the last six weeks, bitcoin trading volumes and demand have slumped, reports Reuters’ Jamie McGeever. A big reason: the artificial intelligence craze.
Will AI transform investing? Separating hype from reality
Artificial intelligence has burst out of sci-fi screens and into our everyday lives. How real or fast is this technological shakeup? Some suggest AI, with its emotionless and bias-less programming, might be the revolution the investing industry needs. Is it? Possibly in some ways, but probably not in most ways, argues wealth management consultant Sam Sivarajan.
Why Canada would benefit from ‘direct index’ investing
Traditionally reserved for institutions and ultra-high net worth individuals, direct indexing is a hot topic for investors as technology advances and downward pressure on retail trading commissions have done much to democratize its access. In the United States, direct indexing strategies are expected to outpace the growth of both ETFs and mutual funds. In response, U.S.-based providers are scrambling to build, buy or partner to acquire the required capabilities to get in on the action, driving down the costs and required account minimums for investors. For Canadians, it’s worth getting a better understanding on what direct indexing is, and what can be expected for the future of these strategies north of the border. Consultants Michael Thomson and Jeffrey Joynt provide some insight.
As Nikkei soars, Japanese investors rush for the exits
As foreigners pile into Japan’s steepest stock market rally in years, Reuters reports that local investors have been furiously cashing out or even betting against what many see as the beginning of a long-overdue era of profitability and returns.
Investors have soured on China’s stocks, renewing fears about its economy
The wager was supposed to be a no-brainer. China was reopening after nearly three years of pandemic lockdowns, and investors expected that its economy, the world’s second-largest, would come roaring back to life. Chinese stocks soared. But that bet has soured. This week, Chinese stocks that are traded in Hong Kong sank briefly into a bear market, after losing more than 20% of their value from a high in January. Vivek Shankar of The New York Times reports.
Others (for subscribers)
The highest-yielding stocks on the TSX, plus risk data
John Heinzl’s model dividend growth portfolio as of May 31, 2023
Number Cruncher: Top 12 semiconductor stocks with upside momentum
Number Cruncher: ‘Smart beta’ ETFs that are outperforming
Ted Dixon: Lithium Ionic insiders buy as maiden resource estimate nears
Monica Rizk: Bullish on Canadian Tire
Friday’s analyst upgrades and downgrades
Thursday’s analyst upgrades and downgrades
Thursday’s Insider Report: Two mining CEOs make million-dollar trades
Research report: The most overbought tech stocks that are heading for a correction
Globe Advisor
Why this portfolio manager has hiked his cash position amid stubbornly high inflation
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Ask Globe Investor
Question: I recently read an article with regards to a spinoff of Constellation Software (CSU-T). The company is called Topicus (TOI-X). It is currently trading close to its 52-week high, and from what I can decipher it’s very well-run and growing exponentially. I was hoping I could get your opinion on this company and what you see in the future for it. – Paul C.
Answer: Constellation Software is a very successful Canadian company so investors would naturally be interested in a related venture. Topicus was spun-off in early January 2021, with Constellation shareholders receiving 1.86 shares of the new company for each common share of Constellation they owned. Topicus immediately started trading on the Toronto Venture Exchange in the $60 range. The shares reached a high of about $136 in September of that year before pulling back. A year later, they were back around the $60 range. They are now at about $95. In short, the stock has been volatile.
The company is based in The Netherlands. It provides vertical market software and platforms to about 100,000 customers in 26 European countries.
The business is doing well. First quarter revenue was up 30 per cent year-over-year (organic growth was 8 per cent) to €264.4-million compared to €203.8-million in the same period of 2022. (One euro equals $1.47.) Net income increased to €21.1-million (€0.17 on a diluted per share basis) from €20.4-million (€0.14 per share) in the prior year.
Like its parent, Tropicus is growing by acquisition. The company spent €22.7-million in the quarter on new purchases.
Overall, this looks like a company with a bright future. It’s essentially trying to replicate Constellation’s success story in a European environment and, so far, is succeeding.
But – there’s always a but. At a trading price of $95, the p/e ratio is almost 96. That’s a high price to pay for future earnings that may or may not happen, especially considering that Europe is traditionally a slower growing economy than North America.
In sum, it’s an interesting company. But at this price it needs to be viewed as speculative.
–Gordon Pape (Send questions to me at [email protected] and write Globe Question in the subject line.)
What’s up in the days ahead
Analysts are growing concerned about Canadian telecom stocks as a pricing war emerges among the biggest wireless players, raising concerns over whether investors should be relying on the traditionally stable – and dividend-rich – sector right now. David Berman will be telling us more.
Almost half-time: World market themes for the week ahead
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff
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