Key Points
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E-commerce technology platform provider Shopify is doing better than the stock’s recent weakness suggests.
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Computer powerhouse Dell Technologies’ take on artificial intelligence is the sort of solution that increasingly makes the most sense.
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Snap, parent to Social networking app Snapchat, is successfully using AI to improve its results, despite some user attrition.
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The stock market’s recent AI-led rout may have finally stabilized. But, let’s face it — it rattled investors’ confidence. The names that were must-haves just a few weeks ago now feel uncomfortably risky, and even pose an indirect threat to other tickers. It might be time to rethink what your portfolio should look like going forward.
If you’re sitting on $3,000 right now that you’re looking to put to smart use for a while, here’s a rundown of three stocks that could prove to be solid picks for the foreseeable future.
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1. Shopify
Given nothing more than the stock’s sell-off following the release of its third-quarter results, it would be easy to presume the worst of Shopify (NASDAQ: SHOP). Shares of the e-commerce outfit fell nearly 9% the day it reported third-quarter revenue of $3.74 billion, which fell just a tad short of analysts’ estimates of $3.75 billion. The total amount of merchandise sold via its platform also fell short of expectations, as did gross profits.
Just don’t lose perspective on the matter. Shopify’s revenue still improved by 32% year over year, while gross profit grew by 28%. Free cash flow was up 61% year over year as well, and free-cash-flow margins widened from 18% in Q3 of last year to 22% this time around.
Did shares stumble because the stock was priced for an earnings beat? Not necessarily. As of the Monday before that setback, Shopify shares were already down 13% from their October peak. The recent tumble may have largely been the result of the overall market environment at the time, when artificial intelligence stocks were just starting to show serious cracks. A closer, second look at this ticker in the meantime indicates investors are trickling back into it, perhaps confident that Shopify’s fourth-quarter revenue growth guidance in the low-30% range is likely despite Q3’s top-line miss. Gross profit growth is also apt to be almost as firm.
The bigger underlying reason to take a swing on this stock, of course, is the ongoing demand that brands and online sellers are driving for their own e-commerce platforms, which allows for better storytelling. Consumers still like and use mega-online malls like Amazon, but they’re becoming customers of brands they personally connect with — something Amazon can’t quite facilitate.
And there’s plenty of opportunity ahead. As big as e-commerce has become, the U.S. Census Bureau reports that only 16.4% of the nation’s retail spending is done online. At least some of the rest is up for grabs.
2. Dell Technologies
It’s become clear that the artificial intelligence mania that’s been bullish for so many technology stocks may be on the verge of cooling to a low roar. The technology isn’t going away, though. It’s just due to be rightsized and right-priced, forcing a reset of the industry’s leading names.
Dell Technologies (NYSE: DELL) may well end up becoming one of the best bets of the next era of the AI revolution.
At first blush, it appears to be in the same boat with all the other high-performance computing hardware outfits. Indeed, its so-called AI Factory hinges on a close relationship with Nvidia, which is supplying Dell with processors for its AI-capable server systems. These turn-key systems’ uniqueness, however, is the key to the company’s future leadership.
See, as the artificial intelligence movement evolves into one that must deliver a tangible return on investment, institutional users are thinking more carefully about how to get the most bang for their buck. They’re finding more and more that cloud-based access to third-party platforms like CoreWeave‘s, Iren‘s, and Nebius‘ aren’t as cost-effective in the long run as an onsite/on-premise system made by Dell. That’s why the company’s fiscal Q2 revenue grew 58% year over year to $47 billion, led by a doubling of its AI-optimized server business, while its backlog grew to $95 billion.
This isn’t to suggest Dell Technologies is completely immune to an AI capital-spending headwind. For that matter, its stock clearly isn’t immune to industrywide weakness either. DELL shares are down 40% from their early October high, in fact.
This pullback is more of an opportunity than an omen, though. With the next chapter of the artificial intelligence movement upon us, it’s common-sense solutions like Dell’s that could — and should — prove the most marketable.
Besides, Dell already has a strong presence in the business computing world that it can leverage to sell its AI-optimized servers.
3. Snap (Snapchat)
Last but not least, add Snapchat parent Snap (NYSE: SNAP) to your list of the best stocks to buy now if you’ve got $3,000 to invest.
It’s the riskiest and most aggressive of the three picks in focus here, and may or may not be a good fit for every investor’s portfolio. It’s well down from its 2017 IPO price, for perspective, and hasn’t made any gains since peeling back from its peak prompted by the COVID-19 pandemic.
In fact, shares are down more than 40% for the past year, and have been selling off again since mid-October, with a big piece of this recent weakness resulting from the recent release of fiscal third-quarter numbers. Although revenue grew 14% year over year to $1.72 billion, that just missed analysts’ consensus. Average active users of 495 million per day also fell short of the 499 million analysts expected.
As was the case with Shopify, however, don’t lose sight of the bigger picture. Revenue still grew well, and worldwide daily users still improved from the year-ago count of 477 million, even if its North American headcount continues to deteriorate. Its North American revenue still grew 13% year over year to just over $1 billion, as the use of artificial intelligence improves efficiency and results.
As Co-founder and CEO Evan Spiegel explained during Q3’s earnings conference call, “For advertisers, AI search now resolves over 92% of help-center sessions, while support cases declined 35% year over year.” Gross margin is widening, too, again with the help of AI, from 55% in Q3 of last year to 62% this time around.
There’s still work to be done, to be sure, and Snapchat certainly remains miles behind Meta‘s Facebook on the social networking front.
If you can stomach the risk and keep close tabs on it, though, this company’s worth putting on your watch list — if not in your portfolio — despite the stock’s recent stumble. There’s room for an alternative to Facebook. Analysts seem to think so, anyway. While most of them only rate Snap’s stock a hold at this time, their consensus 12-month target of $6.98 is nearly 40% above this ticker’s present price. That’s not a bad way to start out a new long-term speculative position.
Should you buy stock in Shopify right now?
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Nvidia, and Shopify. The Motley Fool has a disclosure policy.
