Shopify upgraded to ‘buy' as AI initiatives drive growth and efficiency

Investing.com -- Loop Capital upgraded   Shopify Inc   (NYSE:SHOP) to "buy" from "hold," citing the company's strategic use of artificial intelligence (AI) to boost merchant tools and streamline internal operations. Brokerage raised its price target for Shopify to $140, reflecting a 23% potential upside.

Shopify's AI-driven tools, such as those under the Shopify Magic suite, are enhancing merchant experiences with features like personalized recommendations, automated email generation, and multilingual blog posts. Internally, the company has leveraged AI for tasks such as real-time sales call support, HR assistance, and accelerating accounting processes, driving productivity gains and cost efficiencies.

“We believe Shopify will be able to grow its revenue at a much faster rate than its operating expenses for the foreseeable future, which will result in operating and free cash flow margin expansion and a higher valuation,” analyst wrote.

Loop Capital highlighted that these innovations are allowing Shopify to grow revenue at a faster pace than expenses, expanding operating and free cash flow margins. This efficiency, coupled with consistent 20%+ annual sales growth, is expected to further boost Shopify’s profitability and valuation.

Shopify's reliance on Google (NASDAQ:GOOGL) Cloud infrastructure has also enabled it to avoid significant AI-related capital expenditures, adding to its competitive edge. Loop sees AI as a key driver of margin expansion and long-term growth for Shopify.