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Canadian bank stocks have been lagging for quite some time. There's no question that the macro environment could continue to work against bank stocks as we head into the year's midway point. Still, I expect the big banks to do their best to continue swimming against the tide. With the rise of fintech companies, major banks are under pressure to get serious about their digitalization efforts. Undoubtedly, Canadian banks can continue to disrupt the disruptors by bringing even more compelling services into the digital age.
Staying up to date with technology is key to winning business from younger audiences (think Millennials and Gen Z). That means providing a seamless experience and providing financial services that work without you having to pick up the phone and talk to someone. As we move further into the realm of generative artificial intelligence (AI), we expect Canadian banks to continue to invest heavily in technology to further drive efficiency.
Without further ado, let's take a look at two of Canada's largest banks that have been investing heavily in technology in recent years. With the stock still miles below its all-time high, perhaps these two plays are worth nibbling into the second quarter.
TD Bank
TD Bank (TSX:TD) makes a very strong case for why it should be called Canada's most tech-savvy bank. In addition to making organic investments, the bank is also pursuing interesting acquisitions, including the acquisition of Layer 6, an AI startup that could help TD provide a better experience for its customers.
Without a doubt, Layer 6 trading didn't just happen in the midst of the early ChatGPT boom. In fact, this deal predates him by more than six years, which shows that he was serious about AI innovation long before TD was at most other financial companies. That's what I think.
As TD continues to invest in digitalization, we expect the leading bank to gradually grow its profits over time while capturing business from young, tech-savvy consumers.
royal bank of canada
Royal Bank of Canada (TSX:RY), Canada's largest bank, is also no stranger to innovation. The company's Aiden and NOMI products are interesting AI innovations and could just be the beginning of the company's focus on next-generation technology. As more big banks turn their attention to emerging technology and AI companies, don't expect Royal Bank to take its foot off the investment gas, even if its peers remain in cost-cutting mode.
This stock is very cheap, with a price-to-earnings ratio of 12.65 and a dividend yield of 4.06%. Given the recent completion of the HSBC Canada transaction, I think Royal Bank of Canada stock is poised to hit new highs, perhaps later this year.
Better to buy: TD stock or RY stock?
It's a tough decision, but considering I've been working with AI for years, I have no choice but to choose TD. Additionally, TD has hired a former Royal Bank head of research in Canada and Asia Pacific. It will be interesting to see where banks go in the future as the talent and technology wars intensify.
