Shopify (SHOP 2.95%) stock is on fire this year. After falling off a cliff in 2022, it's now up 77% so far in 2023. Not only is the company demonstrating continued momentum with sales increasing double digits despite the retail slowdown, but it's also making sustained efforts to become more efficient and drive profitability. That's a great formula for investor confidence.
It recently launched a new artificial intelligence-powered shopping assistant that it's touting as an incredible opportunity to generate higher sales for merchants. Is this just another attempt to jump on the ChatGPT bandwagon, or could this seriously affect Shopify's business?
Anyone and everyone is using ChatGPT
It's almost unreal how quickly ChatGPT has captured Americans' fascination and become a go-to tool for everything from stock picking to recipe curating. According to Motley Fool research, a staggering 47% of American adults have used ChatGPT to get advice about investing, and 69% said they would consider using it in the future.
There aren't widespread statistics about how people are using ChatGPT to shop, but there are many ways it could simplify shopping. Standard chatbots are available on many websites and have been in use for years, but with the technology from ChatGPT, the bots are more conversational and have wider access to information. They also have a greater ability to synthesize data and produce relevant and accurate answers. They can weigh in on product and pricing information, offer quick results when asked about tracking and delivery, and send customers to the merchants most likely to offer what they're looking for.
How AI can affect Shopify's business
Many retailers have been using some forms of artificial intelligence and machine learning for years, if not decades. These functions help companies identify trends, popular products, and demographic information, and they help retailers offer product recommendations and identify faster and cheaper delivery and fulfillment systems.
Shopify's new AI assistant goes further than that, using the generative AI of ChatGPT. The assistant, called Shop AI, launched in March. Its main purpose is to offer product recommendations throughout Shopify's vast network of merchant client websites and drive sales for merchants, and ultimately, Shopify.
This release is part of a greater shift at Shopify to focus on its core mission as growth slows down. It reduced its headcount and sold off its budding fulfillment system in the first quarter to reduce expenses, and it's improving its technology to provide better services to customers and stimulate growth.
What about Shopify stock?
Shopify stock has seen some wild swings over the past few years. It soared with the onset of the pandemic, which drove up demand for e-commerce services. But like many other companies in the same boat, it built out infrastructure to meet skyrocketing demand, and it overshot. As sales growth decelerated and profits took a massive hit, the stock sagged.
But with its renewed commitment to profitability and some results to show for it, investors have become upbeat once again. Sales increased 25% year over year in the 2023 first quarter, and management is guiding for a similar increase in the second quarter. While profits are still pressured, Shopify's actions to become more efficient have inspired investor confidence.
E-commerce is still growing and expected to increase as a percentage of global retail spending.
Image source: Statista.
Companies that are quickly adopting new technology, such as ChatGPT, are likely to benefit from the continued shift. As one of the largest e-commerce companies in the world, Shopify stands to gain from this increase, and it's taking the necessary steps to maintain its lead.
At the current price, Shopify stock trades at price-to-sales ratio of 14. That's expensive, and investors should consider its valuation and high year-to-date stock gain in the context of its future potential. Right now, it still looks like a buy.
