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When Shopify Inc. SHOP-T reports its quarterly financial results next week, there may be a lot of nervous investors looking for indications that the e-commerce company is performing as well as its share price.

The stock has been rallying for more than three months, with gains that put it in the same league as the Magnificent Seven – those AI-fuelled U.S. tech giants that have been dominating investor attention for much of the past year.

Since Oct. 27, when the broader stock market began to recover from rate-hiking weariness, Shopify has soared nearly 84 per cent, as of Thursday.

That’s nearly 12 percentage points more than Nvidia Corp.’s gain over the same period. It beats Facebook-parent Meta Platforms Inc. by 26 percentage points and it’s 58 percentage points ahead of Microsoft Corp.

And over the past year, Shopify’s share price is up 81 per cent, behind Nvidia and Meta Platforms but ahead of Inc. and Google-parent Alphabet Inc.

But is Shopify truly magnificent?

Okay, this question may look ridiculous – at first glance – for a few reasons. For one thing, Shopify is a pipsqueak compared with all members of the Magnificent Seven.

The combined value of Shopify’s shares is US$113-billion, which is huge by Canadian standards. But Microsoft is valued at more than US$3-trillion. And the market capitalization of Tesla Inc., the smallest of the Seven, is more than five times that of Shopify.

Similarly, Shopify isn’t producing the sort of eye-popping financial results of the Magnificent Seven. Consider that Meta reported revenue of US$40.1-billion for the fourth quarter of 2023 and Microsoft reported revenue of US$62-billion.

Analysts expect that Shopify’s expected fourth-quarter revenue – when it reports its results on Feb. 13 – will rise by 19 per cent, to US$1.8-billion, according to FactSet. That is close to what Microsoft generates in about three days.

Even the choppier stock performance doesn’t quite line up. While Microsoft, Nvidia, Meta Platforms and Alphabet have been cruising to record highs this year, Shopify’s share price is 45 per cent below its highs in 2021, when the promise of e-commerce was all the rage and the company was more valuable than Royal Bank of Canada.

Still, there are big similarities with the Magnificent Seven, too. Ottawa-based Shopify is a world-recognized technology star. It is integrating AI tools into its e-commerce platform for businesses.

And, just as the Magnificent Seven are leading major U.S. benchmarks over the past year, Shopify is second only to Celestica Inc. – another company benefiting from surging interest in the potential for AI – among members of the S&P/TSX Composite Index over the same one-year period.

That leads to one other quality that Shopify has in common with the Magnificent Seven: The elevated stock price is reflecting lofty expectations among investors.

The share price in New York is now above US$90 (it also trades in Toronto). Some of most bullish analysts have been raising their target prices – their estimate of the stock price within the next year – to as much as US$100. But the average target, according to Bloomberg, is US$78.40, which suggests that investors are ignoring expert opinion.

That’s not necessarily a bad thing. However, the strong rally over the past three months has driven the stock’s valuation to extreme levels – again.

The price-to-sales ratio is now 16.9, according to Morningstar. That’s expensive when you consider that Tesla – which is no slouch, given investor loyalty to chief executive Elon Musk and the company’s large share of the electric-vehicle market in North America – trades at less than seven times sales.

Shopify’s current share price, then, is leaving little room for any hint of disappointing growth.

Todd Coupland, an analyst at CIBC Capital Markets, is confident that the company’s growth trajectory is strong. He now expects that Shopify will generate revenue of more than US$2.1-billion in the fourth quarter, for an increase of 22.6 per cent over the same period last year, while recent corporate streamlining should deliver better-than-expected earnings.

The longer term looks even better, according to Mr. Coupland. He believes that Shopify will continue to add new businesses to its e-commerce network, benefit from fee hikes and impress investors with a slate of online merchants that are growing their sales at about double the pace of the broader e-commerce universe.

“Shopify is well positioned to outgrow the market in 2024,” Mr. Coupland said in a note this week.

Nonetheless, admittance into an elite group of tech stocks doesn’t ensure a smooth ride. Tesla’s share price has slipped more than 20 per cent this year and even Alphabet endured a brief selloff after it reported disappointing advertising sales last month.

It’s not always easy being magnificent.

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