Will AI reshape OpenText?

National Bank of Canada Capital Markets analyst Richard Tse says OpenText (OpenText Stock Quote, Chart, News, Analysts, Financials TSX:OTEX) is entering a pivotal phase as it shifts toward AI-enabled data monetization and reshapes its portfolio through divestitures and an impending leadership transition.

In a Nov. 20 update following the company’s annual OpenText World conference, Tse reiterated his “Outperform” rating and US$45 price target, saying, “Bottom line, from what we gathered, we continue to believe there’s a compelling risk-to-reward in this name.”

OpenText, founded in 1991 and headquartered in Waterloo, Ont., is Canada’s largest enterprise software company, serving roughly 100,000 customers globally with a workforce of about 24,000.

Tse said the company’s AI positioning dominated this year’s event. While OpenText is “not a direct AI play,” he said its leadership in content management gives it a unique adjacency as enterprises prepare for “an explosion in agentic workflow applications” powered by proprietary data; OpenText’s core market. He framed this as the second phase of a two-stage valuation re-rating, the first being corporate actions to narrow the company’s focus and reduce leverage.

Among the key announcements, Tse highlighted the OpenText AI Data Platform and Aviator Studio, unveiled to 2,500 in-person and more than 6,000 online attendees. He described AIDP as an open, governed framework for deploying secure AI agents across enterprise workflows, while Aviator Studio provides a no-code environment to build and manage those agents. Together, he said, they represent OpenText’s “on-ramp” to AI data monetization by connecting enterprise content securely to large language models. Customer and partner feedback suggested the offerings are appealing for companies seeking capability expansion with minimal disruption, underscored by deeper strategic partnerships with SAP, Microsoft, Databricks and Google. Tse said execution and adoption will be the key metrics to watch as OpenText begins disclosing more details in the coming quarters.

He also pointed to strengthening momentum in OpenText’s core cloud businesses. Core segments, Content, Business Network, ITOM and Enterprise Cybersecurity, grew 2.5%year over year in fiscal Q1’26, compared with a 1.4% decline in non-core businesses. Core cloud revenue rose roughly 11% versus a 1.6% drop in non-core cloud revenue, and 6% cloud growth overall.

Management continues to guide to 3%–4% cloud growth for fiscal 2026, which Tse believes may prove conservative given early traction. He said cloud revenue could exceed 50% of total revenue within 12 to 18 months, accelerating recurring revenue, improving upsell opportunities and enhancing long-term profitability despite lower near-term margins as the mix shifts away from on-premise.

On corporate actions, Tse said OpenText is “firmly on course” with its plan to divest one non-core asset per quarter, supported by strong buyer interest and lessons learned from its 2024 AMC divestiture. Proceeds will be directed to debt reduction alongside quarterly capital-allocation reviews. He expects additional, larger divestitures in the coming months and said the company remains on track to announce a new CEO by year-end. He characterized these moves as critical to reducing the company’s valuation discount and refocusing on its highest-growth opportunities.

Tse reiterated that OpenText’s long-term transition to cloud and AI-driven data monetization is taking shape alongside a reshaped financial and strategic profile. His US$45 target, based on a DCF valuation, implies a 9.0-times EV/EBITDA multiple on fiscal 2026 estimates.

He expects OpenText to generate US$1.856-billion in Adjusted EBITDA on US$5.225-billion in revenue in fiscal 2026, increasing to US$2.013-billion on US$5.388-billion in fiscal 2027.