Two Canadian AI stocks analysts love for 2024

It’s the sector that the hot money has flocked to for some time. And many think that is set to continue.

2024 will be “the year of AI” says Wedbush analyst Dan Ives.

““Use cases lead to the pot of gold at the end of the rainbow,” the analyst recently wrote. “And there’s certainly a lot of AI use cases.”

For Canadian investors, there are interesting options when it come to AI stocks. Here are two that analyst think have upside in 2024.

A couple new developments have raised its share price, but Echelon analyst Rob Goff thinks there is still a lot of money to be made on NowVertical Group (NowVertical Group Stock Quote, Chart, News, Analysts, Financials TSXV:NOW).

Toronto-based NowVertical is a data analytics and vertical intelligence software and service company with an M&A focus.

In a research update to clients December 13, Goff maintained his “Speculative Buy” rating and one-year price target of $0.90 on NOW, implying a return of 173 per cent at the time of publication.

The analyst thinks NOW will post EBITDA of $3.2-million on revenue of $61.6-million in fiscal 2023. He expects those numbers will improve to EBITDA of $7.4-million on a topline of $69.8-million the following year.

“NOW shares reflect 0.6x/0.5x and 1.4x/1.2x 2023/24 baseline revenues and operating profits, respectively,” Goff said of the company’s valuation. “We are encouraged to see the emerging EBITDA as a valuation consideration where NOW’s 2023/24 EV/EBITDA valuation stands at 14.3x/5.2x – a level we see as significantly undervalued given NOW’s growth trajectory and prospective scale efficiencies. Using the NOW Operations EBITDA, our EV/EBITDA would move our 2023 and 2024 multiples to 4.8x and 3.1x, respectively. With evidence of scale efficiencies against these corporate expenses, we expect investors to consider both EV/EBITDA calculations. While considered high-water marks, C3.ai (AI-NYSE, NR) and Palantir (PLTR-NYSE, NR) are valued at 9.1x/13.4x and 16.2x/19.9x 2023 revenues/profit, respectively. The YTD gains of C3.ai and Palantir at 152% and 177%, respectively, clearly reflect bullish investor outlooks toward AI and data analysis applications. We see the Company’s stated focus on vertical intelligence as a focused AI application where vertical-specific algorithms are honed through focused training. Our Big Data & Analytics peer set trades at 8.1x/10.3x/11.6x 2023 revenues/profits/EBITDA.”

National Bank Financial analyst Richard Tse remains bullish on Coveo Solutions (Coveo Solutions Stock Quote, Chart, News, Analysts, Financials TSX:CVO).

Coveo Solutions provides applied artificial intelligence solutions through a Software as a Service (SaaS) platform for a wide range of industries. The analyst says CVO is a real player in the white-hot AI space.

“All in, we believe Coveo remains one of the few direct plays on AI in our coverage universe, and it’s our view the Company will see an accelerating growth trajectory over the next 12 months that’s supported by a pipeline that’s up 85%,” he said. “With respect to the event, there weren’t any material incremental data points; that said, what we heard reinforced our investment thesis where we see a name with high barriers to entry that should benefit from a market tailwind (AI) combined with operational moves (particularly in marketing) designed to harvest a multi-year growth opportunity. In our opinion, Coveo carries the key attributes to monetizing that opportunity from leading (technical) IP, validated by marquee enterprise customers and partners under the leadership of a proven Management team.”

In a research update to clients November 16, Tse maintained his “Outperform” rating and price target of $14.00 on Coveo, implying a return of 40.7 per cent at the time of publication.