Shopify Plunges 23% YTD: Buy, Sell or Hold the Stock on the Dip?
Shopify SHOP shares have declined 22.5% year to date (YTD) in contrast to the broader Zacks Computer and Technology sector’s appreciation of 17%. The underperformance can be attributed to slowing forward growth expectations and concerns about the cost of sustaining its AI-led expansion. However, Shopify’s prospects are expected to benefit from AI-driven commerce, strong merchant engagement, rising payments penetration, an expanding enterprise clientele and international footprint. So, does the pullback offer a buying opportunity for investors? Let’s find out.
SHOP’s Q2 Guidance Implies Deceleration
Shopify expects second-quarter 2026 revenue growth in the high-20% range, implying a meaningful sequential slowdown. The company reported first-quarter 2026 revenues of $3.17 billion, which jumped 34% year over year, while Gross Merchandise Volume (GMV) increased 35% year over year to $100.7 billion.
Shopify expects second-quarter gross profit to grow in the mid-20% range, slower than revenues. Gross profit is suffering from higher lower margin Merchant Solutions revenues, which currently account for almost 75% of Shopify’s revenues. Shopify’s Merchant Solutions business is benefiting from strong adoption of Payments, Capital and transaction services, which, however, carry lower gross margins than Subscription Solutions due to payment-processing and third-party expenses.
The company’s profitability prospect is suffering from higher AI infrastructure related costs as Shopify continues to invest heavily in Sidekick, AI commerce infrastructure and internal AI tools. Shopify management stated that in the first quarter of 2026, support efficiencies and economies of scale were partly offset by higher large-language-model expenses, particularly from Sidekick. SHOP expects this pressure to continue in the near term.
SHOP Shares Are Overvalued
Shopify is significantly overvalued, as suggested by a Value Score of F. In terms of the forward 12-month price/sales (P/S), SHOP is currently trading at 9.83X compared with the broader sector’s 6.98X. Shopify shares are pricey compared with Amazon AMZN, Wix.com WIX and Commerce.com CMRC. Shares of Amazon, Wix.com and Commerce.com are trading at P/S multiples of 3.01, 1.27 and 0.73, respectively.
SHOP Stock’s Valuation
In terms of share price performance, Shopify has underperformed Wix.com YTD but lags Amazon and Wix.com. While Amazon shares returned 7.1%, Wix.com and Commerce.com dropped 49.6% and 22.3%, respectively.
