Shopify Just Signed an AI Deal With Meta, but I Wouldn’t Rush to Buy SHOP Stock
Shopify's (SHOP) recent deal with Meta (META), along with SHOP's other AI-related initiatives, may cause the e-commerce giant's top-and-bottom-line growth to meaningfully accelerate over the long term. However, with the company's competitors also utilizing AI to boost their businesses, SHOP's market share may not rise a great deal.
Additionally, the valuation of SHOP stock is quite high and consequently already prices in some acceleration in the company's expansion. Finally, SHOP stock has, despite some good days the past month, not performed well in recent weeks, indicating that the Street does not have an especially favorable view of the shares at their current levels.
The Meta Deal and Other AI Initiatives
Meta agreed to allow its increasingly popular AI agent, Muse, to carry out sales on Shopify. The AI assistant will also “browse Shopify merchants and execute autonomous transactions on behalf of users via Shop Pay.” As of this writing, Muse is the most popular free app in terms of downloads on Apple's iOS. So Muse can certainly draw a meaningful number of new customers to the merchants that utilize SHOP's platform, causing the latter company's top- and bottom-line growth to accelerate significantly. Muse may also make finding and buying products on Shopify's platform easier and more enjoyable.
Shopify already uses AI to help merchants build stores, create pages, manage inventory, and describe products. It also teamed with Alphabet's (GOOG) (GOOGL) Google to create “an open standard for AI-driven transactions,” and it gave “millions of merchants access to AI channels like ChatGPT and Microsoft Copilot, and AI mode in Google search.”
As I mentioned previously, all of these AI systems may cause Shopify's top-and-bottom-line growth to accelerate considerably in the medium to long term.
Shopify's Competitors Are Also Utilizing AI
Although Amazon (AMZN) prevents Muse and other outside AI assistants from accessing its website, the e-commerce giant has its own AI assistant that helps its customers.
Other major retailers that likely compete with SHOP's merchants are utilizing AI assistants. For example, Best Buy (BBY), according to the company's latest earnings report, the tech retailer is teaming up with OpenAI to use ChatGPT to make its site “more agentic friendly” and assist with customer's product discovery.
Valuation, the Recent Performance of SHOP Stock, and the Bottom Line
The shares have a high forward price-earnings ratio of 88x, so they seem, as mentioned earlier, to price in significant accelerations of the firm's growth. Meanwhile, SHOP stock sank 7.5% between Aug. 14 and Sept. 22, indicating that many on the Street are not too upbeat on the name. And since the company's competitors are also utilizing AI, its own AI initiatives may not meaningfully boost its share of the expanding e-commerce market.
As a result of these issues, SHOP stock may not outperform in the near-to-medium term, while its longer-term outlook is uncertain. Consequently, investors may want to keep an eye on the name without taking a position in it at this point.
On the date of publication, Larry Ramer had a position in: AMZN , AMZU . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.