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(Source: Adobe Stock. Generated by AI.)

With the global artificial intelligence (AI) market expected to grow by more than four times to US$826 billion by 2030, according to Statista, and mega-cap market leaders such as NVIDIA, Microsoft, Alphabet and Amazon writing the playbook for building profitable AI businesses, hundreds of small-cap and mid-cap stocks are benefitting from these tailwinds, but only a choice few might be worth investing in over the long term.

How we picked the best-performing AI stocks

Defining AI as the study and development of machine-based systems capable of learning from experience, we put together a list of 10 high-performing stocks year-over-year that fall under this umbrella, are available to Canadian investors, and exhibit strong fundamentals worthy of conviction.

Fundamental indicators include value-added offerings, revenue growth, gross profitability or net income, strong partnerships, and a market capitalization below C$50 billion that leaves room for exponential shareholder value creation.

Here they are, in brief:

  • Pegasystems: 19.91 per cent return year-over-year.
  • Descartes Systems Group: 31.69 per cent return.
  • Innodata: 36.36 per cent return.
  • OneSoft Solutions: 40 per cent return.
  • Sparc AI: 44.44 per cent return.
  • Gatekeeper Systems: 58.97 per cent return.
  • Procept BioRobotics: 78.12 per cent return.
  • Super Micro Computer: 235.34 per cent return.
  • Celestica: 311.12 per cent return.
  • Healwell AI: 1,070 per cent return.
  • (Returns and market capitalizations are as of July 3, 2024).

Let’s dive into our first AI stock and explore why it’s been so successful over the past year.

10. Pegasystems: 19.91 per cent return

Pegasystems (NASDAQ:PEGA), market capitalization US$4.99 billion, specializes in AI decisioning and workflow automation solutions that help businesses grow revenue and maximize return on investment by meeting customer demand.

The company counts high-profile companies such as Aflac, Virgin Mobile and Unilever as customers, which have helped it to grow revenue by 57 per cent since 2019 and accumulate a backlog of more than US$1.4 billion as of Q1 2024.

Despite Pega generating a profit in only one of the past five years, posting US$67.81 million in net income in 2023, the company has rewarded shareholders with an 846 per cent return since 1996.

9. Descartes Systems Group: 31.69 per cent return

Descartes Systems Group (TSX:DSG), market cap C$11.53 billion, is the global leader when it comes to software-as-a-service solutions to improve the productivity, security and sustainability of logistics-intensive businesses.

The company’s products allow its more than 26,000 customers, including some of the biggest companies in the world, such as Coca Cola, Home Depot and Mondelez International, to manage supply chains as part of the world’s largest multimodal logistics community.

Descartes has grown revenue by 76 per cent from US$325.79 million in 2020 to US$572.9 million in 2024, while growing net income by 3.1 times over the period to US$115.91 million.

A long history of successful acquisitions – 28 since 2016 for a combined US$1.1 billion – and more than US$230 million in cash as of Q1 FY 2025 positions the company for further growth as profitability allows it to wait for undervalued assets to present themselves.

8. Innodata: 36.36 per cent return

Innodata (NASDAQ:INOD), market cap US$432.96 million, is a global data engineering company supplying AI-enabled software platforms and managed services for data collection and annotation to some of the world’s leading businesses.

Though not profitable on a net income basis, Innodata has grown gross profitability by 69 per cent since 2019, well ahead of revenue growth of 55 per cent, demonstrating management’s increasingly efficient use of resources.

7. OneSoft Solutions: 40 per cent return

OneSoft Solutions (TSXV:OSS), market cap C$83.16 million, updates legacy software applications by innovating across data science, machine learning and predictive analytics on Microsoft’s AI-enabled Azure cloud computing platform.

Its flagship subsidiary, OneBridge Solutions, equips oil and gas pipeline operators such as Enbridge and Phillips 66 with AI functionality to predict pipeline failures, save lives, protect the environment, reduce operational costs and address evolving compliance requirements.

OneSoft’s revenue growth has been prodigious, growing from under C$250,000 in Q4 2016 to C$2.9 million in Q1 2024, backed by:

  • More than 50,000 miles of pipeline generating revenue.
  • Very little debt on its balance sheet.
  • Gross profitability of more than 75 per cent in line with successful SaaS businesses.

A strengthening sales pipeline has management confident about continuing to generate shareholder value.

6. Sparc AI: 44.44 per cent return

Sparc AI (CSE:SPAI), market cap C$3.39 million, develops geospatial products based on its Spatial Predictive Approximation and Radial Convolution system, which uses proprietary algorithms to calculate the location of distant objects without using satellite, GPS or the internet.

After more than a decade of research and development, Sparc AI achieved profitability in 2023, taking in C$2.97 million in net income, with management keen to capitalize on numerous multi-billion-dollar opportunities (slide 10) across:

  • Geospatial information.
  • Edge computing.
  • Drones.
  • Augmented reality.
  • Virtual reality.
  • The situational awareness market.

Sparc AI is backed by seven patents in major markets across the world.

5. Gatekeeper Systems: 58.97 per cent return

Our next AI stock is Gatekeeper Systems (TSXV:GSI), market cap C$57.34 million, an intelligent video and data solutions provider catering to the public transportation industry.

The company has installed more than 50,000 mobile data collectors and more than 100,000 in-vehicle video devices across its more than 3,500 North American customers, allowing it to collect increasing recurring revenue through its platform-as-a-service model as it improves passenger safety and client decision making.

Gatekeeper has more than doubled revenue from C$13.73 million in 2019 to C$27.85 million in 2023, and is on track to set a new record in 2024.

Management has paired this growth with profitability in three of the past five years, as well as over the past five quarters, and has identified numerous technological and regulatory growth drivers (slide 12) to keep this trend going.

4. Procept BioRobotics: 78.12 per cent return

Procept BioRobotics (NASDAQ:PRCT) is a surgical robotics company improving health outcomes in urology.

Its AI-enabled, image-guided AquaBeam system is designed for minimally invasive urologic surgery with a focus on benign prostatic hyperplasia, the most common prostate disease, which impacts more than 40 million men in the United States.

The AquaBeam delivers Procept’s water-based Aquablation therapy, which provides durable relief to males suffering from lower urinary tract symptoms regardless of prostate size. The therapy is supported by nine clinical studies and more than 150 peer-reviewed publications.

Procept believes that its ability to deliver safer and more reliable outcomes than current pharmaceutical and surgical standards of care grant it a leadership position in a US$20 billion market, as described in its May 2024 investor presentation.

About a tenfold growth in revenue since 2021 and a consistent approximately 50 per cent gross margin suggest the ascension is already taking place.

3. Super Micro Computer: 235.34 per cent return

Super Micro Computer (NASDAQ:SMCI), market cap US$49.60 billion, develops IT solutions across enterprise, cloud, AI, and 5G telecom/edge IT infrastructure. This includes everything from servers and motherboards, to storage and data engineering, to liquid cooling and gaming systems, living up to the company’s self-ascribed moniker of “total IT solutions provider.”

The diversified tech innovator has more than doubled revenue from US$3.5 billion in 2019 to US$7.1 billion in 2023, and has already surpassed this figure with about US$9.6 billion collected through Q3 2024.

Super Micro’s management team has proven its skill by pairing top-line growth with an 8.8 times jump in net income from US$71.92 million in 2019 to US$640 million in 2023, in addition to a tidy US$850 million through Q3 2024, with president and chief executive officer Charles Liang optimistic about gaining market share as new solutions ramp up.

2. Celestica: 311.12 per cent return

Celestica (TSX:CLS), market cap C$9.42 billion, lends its expertise from the drawing board to full-scale production to leading global companies across aerospace and defense, communications, health technology, industrial and capital equipment.

Like Super Micro, Celestica is set up to benefit from AI as a picks and shovels stock, supplying infrastructure services to meet the exponential demand for computing power to expedite machine learning.

Celestica raised its 2024 outlook in April thanks to healthy demand, which bodes well for its track record of revenue growth supported by sharp increases in profitability.

Revenue is up by 38 per cent from US$5.8 billion in 2019 to US$7.9 billion in 2023, while net income added 340 per cent from US$70.30 million in 2019 to US$244.60 million in 2023, with more than US$100 million earned in Q1 2024 alone.

1. Healwell AI: 1,070 per cent return

Taking the top spot in our survey of best-performing AI stocks is Healwell AI (TSX:AIDX), a healthcare technology operation geared towards early disease detection.

The company is behind numerous clinical decision support systems from brands such as Khure Health and Pentavere, and intends to acquire more as value-accretive opportunities present themselves with C$25.4 million in cash as of June 2024.

Healwell’s acquisition pipeline and high-profile clients, including six of the top 10 largest pharma companies, are expected to more than quintuple revenue from C$7.32 million in 2023 to C$38.4 million in 2026, which should help to minimize expenses and expedite its path to profitability.

With Well Health (TSX:WELL), home to Canada’s largest healthcare provider network, owning a 39 per cent stake in Healwell, the AI stock will have access to more consenting clinicians to gather data, refine its algorithms, and expand beyond disease detection to other potential revenue streams – including clinical trial acceleration, governance and electronic health record integration – setting the stage for increasing its share of the more than US$280 billion AI healthcare market.

How to know if you should invest in AI stocks

Because AI is an emerging industry, having only entered the public consciousness when chatbot ChatGPT was launched to the public in November 2022, it remains uncertain whether public adoption will sustain the industry over the long term.

This means prospective investors should expect heightened volatility in AI-related businesses, including their highest-conviction holdings, as new applications rise and fall in a bid to be integrated into everyday life.

If you’re comfortable with this risk on a psychological level, and any of our AI stock picks above pass your personal due diligence process, you should then consider how they match up with your financial goals, current financial situation and resulting asset allocation before making an investment.

Your portfolio should hold riskier, higher-return investments such as stocks if you have a long time to invest, while keeping conservative investments such as bonds and cash for short-term goals.

With data from Capital Group suggesting that holding periods of more than 10 years are the safest when it comes to stocks, you should refrain from buying AI stocks with money you’ll need in the near future.

How to buy the AI stocks on our list

Stock picks in hand, we’ll now go through the step-by-step process to buy your shares and increase your exposure to AI’s near trillion-dollar tailwind:

  1. Choose an investment account: Canadians have access to three kinds of investment accounts that offer different benefits:
    • A taxable or non-registered account requires you to pay taxes on investment gains but allows you to offset gains with capital losses.
    • A tax-free savings account or TFSA allows you to invest subject to contribution limits and pay no taxes on investment gains in the account.
    • A registered retirement savings plan or RRSP allows you to deduct every dollar contributed from your income tax, subject to established limits, and grow your investments tax-deferred until the time of withdrawal.
  2. Choose a provider: While Canada’s Big Six banks offer perfectly functional accounts on a managed or self-directed basis, their fees are considerably higher than well-regarded providers such as Questrade and Wealthsimple, the latter being one of the few providers to offer stock purchases for free.
  3. Input your order: Find your company’s stock ticker by typing its name into Stockhouse‘s search bar. Then log into your provider’s trading platform and click on the “buy” button. Enter the stock ticker, number of shares, and a limit price a penny or two above the ask price, then set the order to be valid until end of day and complete the purchase.
  4. Rebalance: As a long-term stock investor, you should rebalance at least yearly back to an asset allocation that reflects your risk tolerance and financial goals, ensuring that you sleep well at night and keep making incremental progress towards the life you want to live.

What do you think about our AI stock picks? Do you have other names you’d add to the list?

Join the discussion: Find out what everybody’s saying about AI stocks on the Pegasystems Inc., Descartes Systems Group Inc., Innodata Inc., OneSoft Solutions Inc., Sparc AI Inc., Gatekeeper Systems Inc., Procept BioRobotics Corp., Super Micro Computer Inc., Celestica Inc. and Healwell AI Inc. Bullboards, and check out Stockhouse’s stock forums and message boards.

The material provided in this article is for information only and should not be treated as investment advice. For full disclaimer information, please click here.

(Top photo, generated by AI: Adobe Stock)


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