Rosenblatt Initiates Shopify at Buy, Says AI Fears Are Overblown — BigGo Finance

Rosenblatt Initiates Shopify at Buy, Says AI Fears Are Overblown
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Rosenblatt Securities initiated coverage on Shopify with a Buy rating and a $175 price target, arguing that fears about artificial intelligence disrupting the e-commerce platform are overstated. Analyst Scott Devitt highlighted Shopify’s co-development of the Universal Commerce Protocol with Google and Shop Pay as positioning the company to benefit from agentic commerce rather than be displaced by it. The initiation follows a strong second quarter in which revenue grew 34% to $3.58 billion, GMV rose 32% to $115.6 billion, and free cash flow jumped 55% to $654 million. AI-attributed traffic and orders both tripled. Shopify’s B2B GMV surged 76%, and merchant retention rates remain exceptionally high at 92% for million-dollar merchants over five years. The stock trades at approximately 67 times 2026 free cash flow estimates, and consensus analyst ratings remain Strong Buy with no Sell ratings. Key risks include potential AI platform control over customer relationships, rising credit losses, and execution demands implied by the premium valuation.

Key Elements

Shopify (SHOP) picked up a new Wall Street bull Thursday after Rosenblatt Securities initiated coverage with a Buy rating and a $175 price target, arguing that fears artificial intelligence could disrupt the e-commerce platform are overstated. The target implies roughly 19% upside from current levels and comes as Shopify shares remain down 8.9% year to date, leaving investors divided over whether AI represents a threat or a new growth engine.

Rosenblatt analyst Scott Devitt called Shopify a dominant e-commerce software enabler and said the company’s position inside merchant infrastructure could make it a beneficiary of agentic commerce rather than a casualty. “Shopify co-developed the Universal Commerce Protocol with Google, positioning its catalog for agentic shopping, and Shop Pay as a checkout layer that is compatible for checkout,” Devitt said.

That argument matters because one of the biggest concerns surrounding commerce platforms is that AI assistants could increasingly control product discovery and purchasing, potentially weakening the direct relationship between merchants and existing platforms. Rosenblatt’s view is that large language models will still need to route transactions through established commerce infrastructure

The firm also identified Shopify’s B2B and international businesses as underappreciated growth opportunities with long runways. Rosenblatt further highlighted free cash flow and operating leverage as valuation supports

A “Monster Quarter”

The initiation comes on the heels of what Shopify President Harley Finkelstein called a “monster quarter.” Second-quarter revenue grew 34% year-over-year to $3.58 billion, and gross merchandise volume increased 32% to $115.6 billion. Meanwhile, free cash flow jumped 55% year-over-year to $654 million. Traffic generated by AI and orders originating from AI channels to Shopify stores both tripled

Third-quarter guidance calls for another low-30% revenue gain, which doesn’t settle every question around AI and commerce but does weaken the idea that agents will simply route around the cloud-based e-commerce platform

No single business line carried Shopify’s Q2. Merchant Solutions revenue climbed 37% to $2.78 billion, while Subscription Solutions grew 22% to $802 million. Shopify Payments penetration also reached 68% of GMV, up from 64%, with the platform processing $78.1 billion through Payments. That was 38% more than last year

Growth was broad geographically, too. North American GMV rose 28%, while European GMV advanced 34% in constant currency. Offline GMV increased 32%, and B2B GMV surged 76%. This was Shopify’s fifth straight quarter with GMV growth above 30%

Note: GMV prior-year figure is approximate based on reported growth rate

AI: Threat or Tailwind?

One number from the quarter stood out to analysts: merchants reaching $1 million of annual GMV have a five-year retention rate of 92%. At $10 million, retention rises to 97%. This means that instead of simply relying on a steady pipeline of new enterprise sign-ups, Shopify is actively turning its current merchant base into larger businesses

The AI bear case sounds reasonable at first. If shoppers eventually buy through OpenAI’s ChatGPT, Google’s Gemini, or Microsoft’s (MSFT) Copilot, perhaps they will stop visiting individual online stores. However, those agents still need accurate product information, inventory, merchant rules, payments, and a reliable checkout process. Shopify already provides all of that

The early data is also moving in Shopify’s favor. AI-attributed traffic and orders to Shopify stores both tripled. Searches using Shopify’s structured Catalog converted at twice the rate of searches relying on scraped product data. New-buyer orders coming from AI channels arrived at nearly twice the rate of other channels as well

Shopify also has a fairly direct response to the threat. It co-developed the Universal Commerce Protocol with Google, which gives AI agents a common language for product discovery, carts, and checkout, while leaving the merchant’s pricing, inventory, and business logic intact. Every Shopify merchant is already UCP-ready. Shopify is also supporting native purchases inside Google’s AI experiences and Copilot.

AI is doing work inside the merchant dashboard as well. Daily active merchants using Sidekick rose 3.6x year-over-year, while daily sessions increased 4.8x. Merchants created 36,000 custom apps during Q2, three times the number created in Q1. Sidekick’s onboarding guidance also increased the share of merchants reaching five orders within 15 days by 8%

Valuation and Risks

Shopify has a market cap of about $193 billion. Current consensus estimates call for free cash flow of about $2.87 billion in 2026 and $3.62 billion in 2027. That puts the stock at around 67x this year’s estimate and 53x next year’s. Those forecasts imply free-cash-flow growth of 43% this year and another 26% in 2027

Shopify also ended Q2 with nearly $5 billion in cash and marketable securities, and it repurchased $1.42 billion of stock during the quarter

Profits held up well in the quarter. Gross profit rose 31% to $1.71 billion, operating income increased 68% to $488 million, and the free-cash-flow margin widened from 16% to 18%. It was not a spotless quarter, however. Gross margin slipped by about one percentage point, while transaction and loan losses rose to $141 million from $80 million as Shopify expanded its payments and lending exposure

The most important test is whether Shopify can convert its AI integrations into higher merchant activity rather than simply protecting its current position. Investors should watch adoption of agentic-shopping tools, Shop Pay usage, and whether AI-driven discovery translates into higher gross merchandise volume across Shopify’s ecosystem

B2B and international expansion are equally important. Faster growth in those businesses would support Rosenblatt’s argument that Shopify still has multiple underpenetrated markets ahead of it

The risk is that AI platforms gain more control over customer discovery and economics than Rosenblatt expects. If Shopify becomes only the back-end infrastructure while AI agents capture more of the consumer relationship, its pricing power could come under pressure. For the bullish case to strengthen, Shopify needs to pair AI relevance with sustained free-cash-flow growth and operating leverage

Despite the stock’s steep rally in recent weeks, Shopify carries a Strong Buy consensus rating, based on 26 Buy ratings and four Holds. Notably, no analyst rates the stock a Sell. The average price target of $171.39 implies roughly 17% upside over the next 12 months. If revenue growth stays above 25% and the free-cash-flow margin moves into the low-20% range on a lasting basis, Shopify can grow into the current multiple faster than many investors might expect. But there is not much room for a bad stretch. Slower GMV growth, rising credit losses, or disappointing returns from AI spending could bring that multiple down well before cash flow catches up.

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Source: finance.biggo.com