CA - Shopify Stock Downgrade: A Concern That Could Threaten The Growth Story

2024-06-09 07:00:00 ET

Summary

• Shopify stock has lost more than one-third of its market cap this year from its 52-week high.
• The stock sold off heavily following the Q1 2024 earnings report amid guidance pointing to slower revenue growth and higher expenditure compressing margins.
• Aside from weaker guidance, there was another concerning factor threatening to undermine stock performance going forward.

Shopify ( SHOP ) shares plunged by 20% after its Q1 2024 earnings report revealed a surprising loss, as well as offering weak guidance amid increased expenditure on marketing. The stock is down over 35% from its 52-week-high.

Although I believe there was another concern in Shopify’s earnings call related to AI. With the generative AI revolution well underway now, companies are keen to demonstrate to investors how promising their latest AI features are to drive future revenue and profit growth. Although Shopify executives’ brief mention of AI on the last earnings call raises concerns in my opinion.

While Shopify’s long-term growth opportunities remain promising, I am downgrading SHOP stock to a ‘hold’ rating amid the lack of AI-driven growth visibility from the executive team....

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