The news is out that Canada has become an artificial intelligence hotbed.
Decades in the making, Canadian research in fields such as neural networking and machine learning is now coming into its own, as centres like the Montreal Institute for Learning Algorithms and Toronto’s Vector Institute for Artificial Intelligence are propelling vibrant ecosystems and startup communities, while government is doing its part through immigration policies geared towards attracting new talent and programs like the Pan-Canadian Artificial Intelligence Strategy, which will devote $125 million in federal dollars to AI research over the next five years.
We’ve seen significant investment from venture capital, too, with the current boom in VC funding for Canadian tech companies having a lot to do with movements in the AI space. And as more and more companies start to incorporate AI technologies, the field keeps growing.
But where are the AI investment winners, you ask? Here are five stocks that analysts say have significant upsides.
Cybersecurity and digital evidence capture company VIQ Solutions (TSXV:VQS) is a bargain, says Echelon Wealth Partners’ Ralph Garcea. The analyst is taking a “Speculative Buy” position on the Mississauga-based company with a one-year price target of $0.50, implying a 72 per cent return at the time of publication.
2017 saw a number of wins for VIQ, as it closed on two private placements this past November for a total of $4.9 million and accelerated development of its artificial intelligence platform, Ai-Assist. VIQ also announced a new partnership with the University of Virginia Medical Center on VIQ’s Satellite AV capture, management and collaborative web portal solution.
“With increasingly more content being recorded and digitized in the cloud on a daily basis, VIQ has become a direct beneficiary of this trend,” says Garcea. “The Company focuses on developing software solutions with the highest level of cybersecurity that appeal to security and privacy conscious organizations that collect sensitive evidence-based digital data.”
Garcea says that VIQ is now cheap compared to its competitors. “VQS is currently trading at a C2018E EV/Sales of 1.8x and EV/EBITDA of 12.0x versus its Canadian small cap comparables at 1.8x/13.2x, and Video/Audio Capture and AI comparables at 5.9x/15.3x, respectively,” the analyst says.
After an up-and-down 2017, NexJ Systems (TSX:NXJ) should be heading in the right direction, says Industrial Alliance Securities analyst Blair Abernethy, who initiated coverage of NexJ last month with a “Speculative Buy” rating and one-year price target of $4.50, implying a return of 99.1 per cent at the time of publication.
The CRM (Customer Relationship Management) company has already demonstrated its scalability within the finance sector, says the analyst, showing success in the wealth management field and making headway in adjacent markets like corporate and commercial banking, insurance and capital markets.
“While NexJ has struggled to grow consistently in recent years, we believe the Company is now in the early stages of a long-term sustainable growth opportunity, with a shift towards a greater mix of recurring revenue,” the analyst says.
Abernethy sees NexJ’s artificial intelligence platform, CDAi, as a potential revenue driver, able to build next-generation analytics and AI applications around customer data. “We believe that CDAi (and other new products in the pipeline) will come to be seen as an increasingly important add-on product by all current NexJ CRM customers,” says the analyst.
He thinks NexJ will generate EBITDA of $100,000 on revenue of $27.6-million in fiscal 2017 and he expects those numbers will improve to EBITDA of $2.0-million on a top line of $31.2-million in 2018.
Last year’s stock market darling, Shopify (TSX, NYSE:SHOP), rose 136 per cent in 2017 but has some investors now cagey about the e-commerce provider’s share price being overvalued. Not so, says Paradigm Capital, which last week called Shopify one of its top picks for the first quarter. Analyst Kevin Krishnaratne says that the company has a lot of room to grow.
“Shopify is in the very early stages of disrupting retail, with ~500K customers on its platform, revenue growing ~75% and gross profits up ~80%,” the analyst says. “Trends should continue to benefit from recent initiatives, such as Shipping, International Payments and new channel launches.”
Krishnaratne has a “Buy” rating and one-year price target of (U.S.) $130.00 on Shopify, which the analyst says might prove to be too low. “Our view is that estimates are very conservative, with multiple ways for Shopify to beat and raise guidance,” he says.
Part of Shopify’s strength comes from its R&D efforts towards leveraging AI technologies, says Blair Abernethy, which will help the company create more personalized experiences for merchants and customers, for example. “We view Shopify as an enthusiastic and early adopter of AI technology and expect the Company to continue to rapidly develop and acquire complementary AI components to further improve its offering [this] year,” says Abernethy.
Kinaxis (TSX:KXS) is another company investing in AI as part of its cloud-based supply chain management services. Last week, Kinaxis was given an $81.00 price target by TD Securities which has a “Buy” rating on the stock, while in November, CIBC’s research report put a target price of $75.00 to $72.00.
“The Company has identified many areas that could benefit from AI, and has narrowed its current development efforts down to some key areas such as detecting and correcting master data, and forecast sensing,” says Abernethy. “Kinaxis is also investing in AI to help improve upon its current supply chain management predictive capabilities.”
Abernethy gave Kinaxis a “Hold” rating and a price target of $73.00 which represented a 4.9 per cent return at the time of publishing.
Small-cap player ProntoForms (TSXV:PFM) is a mobile enterprise workflow solutions provider which has AI-driven applications in development. Predictive analytics, voice recognition and computer vision technology are all areas where Pronto is seeking to take advantage of AI tools.
The company’s stock price had a good first half of 2017 before being reined in over the fall, with Beacon Securities analyst Vahan Ajamian last month lowering his price target on the stock, while still maintaining that it remains undervalued. The company’s revenue for Q3 fell below expectations, says Ajamian.
“ProntoForms is getting good leads through its many partnerships, where it can plug into existing user bases,” says the analyst. “However, we expect the fruits of these initiatives will begin to show up in 2018 revenue.”
Ajamian maintained his “Buy” rating but lowered his one-year price target on ProntoForms from $0.70 to $0.60, implying a return of 67 per cent at the time of publication.