1 tech stock to buy instead

Written by Jitendra Parashar of The Motley Fool Canada

NVIDIA just announced impressive numbers for the first quarter of fiscal year 2025 (ended in April), reporting a staggering $26 billion in revenue. That’s as much as 262.1% more year-on-year! Additionally, the company announced a ten-to-one stock split effective June 7 and increased its quarterly cash dividend by 150%.

However, before you rush out to buy more NVIDIA stock, it’s worth taking a step back. The company’s impressive growth comes with a high price tag, including increased competition in the AI ​​segment, a stock valuation that may be overvalued, and the enormous costs associated with staying at the forefront of cutting-edge technology.

Therefore, instead of focusing solely on NVIDIA, it would be wiser to diversify your investment portfolio by adding other technology companies. One such promising technology resource is Shopify (TSX: SHOP). Despite a difficult year that has seen Shopify shares fall 22% year-to-date, Shopify stock could offer a significant opportunity for investors looking to capitalize on continued, long-term e-commerce growth.

Now let me quickly outline a few reasons why Shopify could be a great tech company to buy right now at a good price.

Top reasons to buy Shopify stock today

One of the main reasons to buy SHOP stock today is its strong position in the e-commerce industry, which is growing rapidly in the post-pandemic era and is expected to continue to thrive in the long term. According to Bloomberg interview The report shows that by 2027, e-commerce will account for 33% of all U.S. retail sales and will grow at a compound annual growth rate (CAGR) of 10%. The report highlights how the adoption of generative AI technology and new sales channels such as social commerce, voice and video commerce are also contributing to this growth, building on the e-commerce recovery seen during the Covid-19 lockdowns.

Unlike NVIDIA, which appears to be heavily reliant on a few key sectors such as data centers and automotive, Shopify benefits from the broad-based growth of the global e-commerce industry. The Canadian e-commerce platform giant has diverse revenue streams, including subscription fees, transaction fees and other merchant services that minimize the risk of relying on a single revenue source.

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Interestingly, Goldman Sachs also recently upgraded its rating on Shopify stock from “neutral” to “buy,” highlighting the Canadian e-commerce giant’s “significant technology moat.” This endorsement from a major financial institution further increases confidence in Shopify’s stock growth potential.

Additionally, the fact that Shopify has experienced extraordinary financial growth in recent years is another reason to consider buying Shopify stock today. To give you some idea, Shopify’s total revenue grew 558% over five years (ending December 2023). Similarly, the company’s adjusted annual earnings for these five years increased by 1,821% from just $0.04 per share in 2018 to $0.73 per share in 2023. In comparison, NVIDIA has seen its revenue grow 420% over the last five fiscal years (ended January 2024), and adjusted annual earnings increased positively by 681%.

While AI-driven growth has propelled NVIDIA to new heights, SHOP stock has seen its value decline by more than 45% over the past three years, despite solid financial growth trends. In my opinion, the recent massive drop in Shopify stock makes it look too undervalued to buy on the downside, especially based on long-term fundamental prospects.

The post Forget NVIDIA: 1 Tech Stock to Buy Instead appeared first on The Motley Fool Canada.

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The Motley Fool covers and recommends Shopify. The Motley Fool recommends Goldman Sachs Group and Nvidia. The Motley Fool has a disclosure policy. Fool Contributor Jitendra Parashar has no position in any of the companies mentioned.

2024