How Shopify Is Using AI to Help Its Merchants | The Motley Fool

Artificial intelligence (AI) is driving a lot of bullishness in growth stocks these days. Promises of new products and services, as well as greater efficiency are making investors more optimistic about the future. After all, AI has the potential to revolutionize businesses and transform how consumers use them. There are particularly big opportunities in e-commerce, where technology plays a huge role in customer and vendor experiences.

In fact, tech company Shopify (SHOP 1.06%) is incorporating AI into its platform so that it’s more useful for merchants and customers. Here’s how the company is using AI and why it could lead to better sales growth in the future.

Shopify Magic automatically creates product descriptions

Last month, Shopify introduced Shopify Magic, a feature for generating product descriptions with AI. It says Shopify Magic can create “high-quality, compelling product descriptions” in just seconds. While it sounds like a minor feature, Shopify says that there are millions of products on its platform that don’t have descriptions.

For vendors hoping for attractive product descriptions, this can be a significant time saver, and it can also help customers find the products they are looking for.

Why does this matter?

There are multiple ways these AI-generated product descriptions can be useful.

For example, they can help bring in more traffic for a vendor’s product. Not only would that product be easier to find on Shopify, but the description could bring in those searching for similar products on search engines. A good description can, theoretically, help a product page rank higher on search engines and benefit from a higher clickthrough rate, leading to more conversions and thus more revenue.

Another advantage of Shopify Magic is that it is available in multiple languages, including English, German, Spanish, French, and Chinese. Many merchants therefore don’t have to rely on translation services to use this feature.

Shopify needs more revenue growth

A big problem with Shopify’s stock is that it has been crashing over the past few years due to a slowing growth rate.

SHOP Revenue (Quarterly YoY Growth) Chart

SHOP Revenue (Quarterly YoY Growth) data by YCharts

Although it has recovered a bit in recent quarters, it’s nowhere near where it was a few years ago. Any way that the company can help drive more traffic for its merchants will mean more money on the platform and greater revenue growth for Shopify as well.

Does this make Shopify stock a better buy?

Using AI to help create and improve product descriptions could be a win for some merchants, but I’m skeptical about Shopify Magic generating much additional revenue for Shopify. The company does say that it plans to use more AI and that product descriptions could be the first of many AI-related features for it, so this is definitely an area that growth investors should keep an eye on.

While this is a good feature for merchants, it doesn’t make Shopify any more of a buy than it was. I still think the stock is a good investment because its valuation is low and around the levels it was at years ago. That low valuation comes despite Shopify generating impressive growth since then. Incorporating AI into its business could certainly help it, but investors shouldn’t expect AI-generated product descriptions to be a game changer for the company.

Shopify is a good buy, as e-commerce is still the future for many businesses, and while the economy may slow down this year, the downturn won’t last forever. Buying the stock now, before the rally happens and before Shopify adds more AI features, could be a great move for long-term investors.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.

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