Shopify (SHOP +1.51%) just posted another strong quarter of growth, yet the stock remains down 32% year to date. Fears of AI disruption in the software industry seem to be spooking investors. However, it's becoming increasingly clear that AI is a major tailwind for the company, making the stock a compelling buy on the dip.
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Shopify is benefiting from AI
The company's revenue grew 34% year over year, driven by a 35% increase in gross merchandise volume (GMV) to exceed $100 billion. These are impressive numbers for a company of this size.
And this performance isn't an accident. Shopify is the only e-commerce platform that lets you discover and shop at one of its merchants through OpenAI's ChatGPT, Microsoft Copilot, and Google. AI-driven traffic to Shopify stores jumped 8x year over year in the quarter, and orders from AI-powered searches increased nearly 13 times.
Shopify is also benefiting from 20 years of purchase data from millions of merchants and billions of products. This can power smarter recommendations in the Shop app and help the company make better features and tools for consumers and merchants.
Its Sidekick assistant, which automates handling orders, creating content, and analyzing data, is an example of how it's adding value to merchants. The number of weekly active shops using Sidekick jumped 4x year over year in Q1.
When the business and stock move in opposite directions, it's a sign that a narrative has taken over sentiment. For long-term investors, this dip could be a gift.
NASDAQ: SHOP
Key Data Points
Why the stock remains a solid investment
Shopify has solved a major pain point for merchants over the last decade. It has helped millions of merchants set up online stores and succeed in a competitive e-commerce market. Now it's taking on a new challenge: how merchants win in a world where AI agents do the browsing for shoppers.
In partnership with Google, Shopify created the Universal Commerce Protocol (UCP), which sets standards for how AI agents will connect with merchants. Amazon, Meta, Salesforce, Stripe, and Microsoft have recently joined the UCP council.
With this move, Shopify is playing a central role in creating the ground rules for how AI agents will browse, find products, and complete payment on behalf of consumers. That's the mark of a business with durable value in a $6 trillion global e-commerce market.
The stock entered the quarter trading at a high multiple of earnings and free cash flow, but it's hard to argue it's too expensive when revenue is growing more than 30% year over year.
Overall, what's weighing on shares seems to be concerns around AI disruption and competition. Still, Shopify is in a much stronger competitive position than the market is giving it credit for, making this a classic buy-the-dip opportunity.
