TIP855: Shopify (SHOP): The Big Winner of Agentic Commerce? w/ Shawn O'Malley & Daniel Mahncke

Shopify

Across the shows: 1 speaker in other episodes, 1 bullish and 0 bearish calls, past 30 days

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Shopify is among the most interesting companies showing AI in the real economy, setting the agentic commerce standard.

  Daniel argues most public companies look threatened by AI, while Shopify is one of the few that is not, and that Meta is the other notable exception. He says Shopify has become the company setting the standard for how AI agents buy things online. He frames agentic commerce as a shift where an AI assistant searches, compares and eventually completes a purchase, and says Shopify is a key piece of how AI may shape shopping. He notes that today's activity is mostly LLM-driven discovery, with the full vision of agents buying with a budget not yet there, though Meta's Muse has moved the idea closer. He calls himself a bull on agentic commerce.

  “Shopify might be one of the most interesting companies out there right now when it comes to AI actually showing up in the real economy.”at 8:57

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Shopify's merchant retention and enterprise wins show a durable moat with strong switching costs.

  Shawn argues the moat rests on switching costs and an app-store network effect. Enterprise brands such as General Motors, Starbucks, L'Oreal, Estee Lauder and Coach have moved to Shopify, and switching e-commerce platforms is a major undertaking for large companies. Merchants who reach $1M in annual sales have 92% retention, rising to 97% at $10M. The cohort that started in Q1 2015 now generates 3.3 times its earlier quarterly revenue, so customers keep spending more over time. Shawn says this compounding is a key reason for the company's success. Daniel says the verticals merchants buy into create lock-in that makes Shopify more powerful than peers such as Wix.

  “merchants who reached $1,000,000 in annual sales on Shopify have a 92% retention rate. And then at $10,000,000, it's 97%.”at 19:46

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Shopify's payments push and rising take rate show its monetization flywheel is working.

  Shawn argues the take rate, which the original thesis said would creep up as Shopify attached more services, is rising. Merchant solutions take rate went from about 2.2% early last year to 2.4% a year later. He says every hundredth of a percentage point is worth about $40M in revenue on more than $400B of sales. He also points to payments: Shopify Payments now processes 68% of platform GMV, up four percentage points in a year and live in 40 countries. Shop Pay has crossed $400B of lifetime volume and handles more than half of US payment volume. Daniel adds that payments volume shows strong competitive position even as payments markets get more competitive.

  “the take rate went from about 2.2% early last year to 2.4% a year later.”at 21:56

• Shawn O'Malley · The Investor's Podcast NetworkBearish

  Buying back Shopify shares at about 100x earnings looks ridiculously expensive versus reinvesting.

  Shawn notes Shopify's shift to buybacks is a big change for a company that used to dilute shareholders each year, and he expects the share count to stay flat or fall. He then questions why a fast-growing company would buy its own shares at about 100x earnings rather than reinvest the cash in projects that could justify that multiple. He calls the 100x multiple ridiculous. He also recalls that in May 2025 the market was asking for more than 100x trailing operating profit, which he said embedded a best-case future. His view is that the valuation is stretched, even though the business has outperformed.

  “why would you not put the cash toward reinvesting into the business rather than purchasing shares at a 100 times earnings?”at 27:31

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Shopify's buybacks now offset stock comp, a sign it has shifted from cash burn to self-funding.

  Daniel says that for the first time in its public life, Shopify's buybacks roughly offset stock-based compensation. He says the $5B in buybacks is modest next to a $200B company, but symbolically it marks Shopify crossing from the cash-burning, disruptive phase into a self-funding phase. He compares it to Uber, where the same shift led to a lasting change in how the market treats the stock. He says it is a good sign that management is more careful about diluting shareholders. He still dislikes spending cash on buybacks at 100x earnings and notes that cash could otherwise go to the business or to dividends.

  “for the first time in its public life, it is true that Shopify's buybacks are roughly offsetting stock based compensation.”at 27:57

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Shopify's growth accelerated well beyond expectations; he underestimated 2026 revenue by about $2B.

  Shawn says Shopify's growth, which he expected to slow as the company matured, instead sped up. 2025 GMV reached $378B, up 29%, and revenue reached $11.5B, up 30%, the fastest annual growth since the pandemic. Q1 revenue grew 34% and Q2 GMV was $116B, up 32%, with five straight quarters of 30%+ GMV growth. Daniel adds that North America grew 28%, Europe 34% excluding currency, and B2B 76%. Per the CFO, Shopify merchants captured nearly half of incremental US e-commerce dollars since the start of 2025. Shawn says his original model underestimated 2026 revenue by about $2B, and that the company's growth has been more sustainable than he expected.

  “I actually ended up underestimating their revenues by what will probably shake out to be about $2,000,000,000.”at 31:36

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Shopify's product catalog is becoming the data source AI shopping runs on, lifting conversions.

  Shopify's catalog covers over a billion products from millions of merchants, with live price, size and stock data in a format AI models can read directly. Rivals have to scrape web pages for product data. AI searches powered by the catalog turn into purchases about twice as often as searches relying on scraped pages. Shopify is also adding shopper-relevant detail such as fit, fabric and running suitability, which scraping cannot capture. Shawn sees this as the core problem agentic commerce must solve, and as Shopify's advantage.

  “Shopify is the source of that data. So that matters more and more because AI searches powered by catalog turn into purchases twice as often as ones that rely on scraped web pages.”at 41:05

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Shopify's open UCP lets any AI app tap its catalog and merchants with no approval needed.

  The Universal Commerce Protocol, co-written by Shopify and Google and launched as an open standard in January, covers the whole shopping trip from finding a product to checkout and returns. Signing on does not mean paying Shopify or Google a toll. What is special for Shopify is that any developer can plug into Shopify's catalog and reach all its merchants with no approval, so each new AI shopping app becomes another storefront for Shopify merchants by default. Shawn says Amazon's joining shows the standard's credibility, because even Amazon could not afford to ignore it.

  “any developer can build using the UCP and plug into Shopify's catalog, giving them access to all of Shopify's merchants with no approval needed.”at 44:52

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  AI chatbots don't cut Shopify out of checkout; its merchant business and payments stay intact.

  The chatbot handles the conversation with the shopper, but Shopify still runs everything behind the scenes: it processes the order, takes payment through Shopify Payments and helps get it shipped. Shawn calls merchant solutions the biggest growth engine for Shopify and payment processing the biggest part of that engine by revenue. The UCP standard was co-written with Google partly so Google would not come for Shopify's payments business. Shawn argues Google has little reason to fight over pennies of processing when its advertising business is its core focus. Merchants can keep whatever payment processor they want under the protocol.

  “the chatbots don't cut Shopify out of the checkout process... the biggest engine of growth for Shopify.”at 47:41

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  AI shopping referrals to Shopify stores are surging, helping small merchants win sales.

  Orders to Shopify stores attributed to AI search are up roughly 15x since January 2025. In Q2 alone, AI-driven traffic and AI-attributed orders tripled year over year, and half of AI-referred sessions land directly on a product page. A Goldman Sachs conference talk said shoppers convert roughly 80% better through AI channels, and new buyers arrive from AI channels at nearly twice the rate of other channels. AI matches specific intent rather than popularity, so it favours long-tail specialist merchants (the Tin Can Phone example), which is Shopify's customer base. MoffettNathanson data shows brand.com traffic from AI platforms outpacing legacy marketplaces by four to eight times. Daniel cautions the numbers may make the shift seem further along than it is, but says the data suggests GMV growth will last longer than thought.

  “orders to Shopify stores attributed to AI search are roughly 15 x since January 2025. And in q two alone, both AI driven traffic and AI attributed orders tripled year over year”at 52:11

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  AI shopping will move more retail online, growing the pie for Shopify and Amazon alike.

  Only about 20% of retail commerce happens online. Shopify management argues that removing friction from buying and giving everyone a personal shopper will push more retail spending online, and Shawn agrees. If that is even partly right, the whole e-commerce pie grows for both Amazon and Shopify. Shawn frames the Amazon-versus-Shopify contest as no longer a zero-sum dichotomy, since the pie could grow a lot. He notes that how LLMs will change shopping remains uncertain.

  “Shopify management has argued, to this point, and I buy it, that stripping out the friction from buying... will push more retail spending online.”at 58:13

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Fears that AI vibe-coding will displace Shopify are overdone; merchants won't rebuild its services.

  Shawn says the market has taken the SaaS-apocalypse idea one step too far. Merchants are not trying to vibe-code essential functions like Shopify's services, because the savings are negligible against the risks. Going alone would not save money, since merchants lose Shopify's scale, such as better Stripe fee terms than any individual merchant could negotiate. Multi-channel merchants selling on TikTok, Etsy, Amazon and their own site would face glitches on Black Friday with no support. Shawn admits this may not age well.

  “go touch some grass, maybe go talk to some real merchants. And I think you'll find that no one is actually trying to vibe code essential functions like the services that Shopify provides.”at 1:07:37

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Shopify's logistics, ads and payments plumbing can't be vibe-coded away, though pricing power may erode.

  Daniel argues that Shopify's value sits largely outside the software: logistics, advertising integration (one-click Meta ad tracking, built by the CEOs of Shopify and Meta) and the behind-the-curtain work of a platform. That is almost impossible to replicate with AI-written code. He concedes this could limit Shopify's pricing power far down the line. He says there are businesses he is more concerned about than Shopify, and that real-world compute and LLM constraints mean AI is not a technology that renders every software platform obsolete overnight.

  “I could definitely see how Shopify offers enough value basically outside of the software to not be Vibe Coded away by anyone.”at 1:08:17

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  AI is already lifting Shopify's revenues and margins more than any other company they've covered.

  Shawn finds the operating-leverage case fair. Headcount has been roughly flat for two years while revenue grew over 60%, and operating expenses fell from 42% of revenue in Q2 2024 to 34% last quarter. Sidekick usage is strong: daily active merchants up 3.5x year over year, daily sessions up almost 5x, about 34 million conversations in Q2 and 36,000 custom apps built through it in a year. Daniel, who is more cautious, says he cannot attribute all of this to AI and suspects the story may be oversold slightly. Shawn's view rests on Shopify's internal AI adoption making it the most AI-driven company they have looked at.

  “I think it's fair because of that, that you can make a case that AI is already showing up in a big way for revenues and margins, probably more than with any other company we've yet looked at.”at 1:12:45

• Shawn O'Malley · The Investor's Podcast NetworkBearish

  Rising AI compute costs from Sidekick usage are pressuring Shopify's gross margins.

  AI does not come for free, and Shawn expects Shopify's AI compute bills to be very large. The Shopify CEO has acknowledged that compute costs from heavy Sidekick usage are pressuring gross margins. Shawn draws a parallel to Uber, which was shocked by AI compute spending after handing tools to employees, and to Adobe, which gives compute-intensive AI tools away free as a loss leader to acquire customers, drawing investor criticism. The concern is margin dilution from AI compute, which sits against the operating-leverage benefit.

  “But obviously that doesn't come for free, right? I'm sure Shopify's AI compute bills are just completely crazy.”at 1:13:10

• Shawn O'Malley · The Investor's Podcast NetworkBearish

  Rising AI compute costs from Sidekick usage are pressuring Shopify's gross margins.

  The speaker notes that Shopify's CEO has acknowledged that rising AI compute costs from heavy Sidekick usage are putting pressure on gross margins. He compares this to Uber, which was shocked by its AI compute spending after giving employees these tools. He also cites Adobe, whose free, compute-intensive AI creative tools worried investors even though they are meant as a loss leader for customer acquisition. The speaker's point is that AI usage costs weigh on margins for software companies that give AI tools to users.

  “Shopify CEO has actually acknowledged that rising AI compute costs from all that sidekick usage are putting some pressure on gross margins.”at 1:13:17

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Shopify's operating margin should rise to nearly 20% within five years, from 14%.

  In revising his model, the speaker raised Shopify's revenue forecasts over the next few years, since he had underestimated them. The biggest change was lifting operating margins to nearly 20% over five years from 14% this year. That margin expansion lets operating profits grow faster than revenue, which would be very good for shareholders. He also adjusted for buybacks that have kept the share count flat, after a period of heavy dilution.

  “the biggest change was setting their operating margins to increase to nearly 20% in the next five years, up from 14[%] this year.”at 1:14:44

• Daniel Mahncke · The Investor's Podcast NetworkBearish

  Shopify's multiple should compress to 35–45x earnings over a couple of years; would buy near $100.

  Shopify is a fantastic business, but at 112x operating earnings the stock prices in best-case scenarios that go beyond the last year's growth, requiring the company to keep improving. Unlike Palantir, where the speaker could work out how earnings grow into the multiple, he cannot make the math work here. He expects it will take another couple of years for the market to become more cautious and settle the multiple at 35–45x earnings. He views 35x as Ben Graham's fair level and 45x as the most he would stretch to. He says he would consider opening a tracking position if the stock falls close to $100, and he is confident a better entry price will come, especially as the market debates AI's impact on e-commerce.

  “Here, I think it will take us another couple of years in a market that finally says, Okay, well, let's be a bit more cautious here and actually settle down to, let's say, 35, 45 times earnings.”at 1:17:36

• Shawn O'Malley · The Investor's Podcast NetworkBearish

  Shopify at 112x operating profit is too expensive; fair value is about $100 a share.

  Using Ben Graham's framework (AAA bond yield plus expected earnings growth), about 35x operating earnings is a fair multiple for a company growing like Shopify, and even a generous 45x gives a poor valuation. Shopify traded at 112x operating profit when first reviewed and is at exactly 112x again today. The stock doubled only because earnings roughly doubled while the market kept paying the same premium, so Shopify has not grown into its multiple. Buyers today make the same bet from a higher starting point and need the company to keep executing perfectly. The speaker says Shopify is executing as well as any business on the planet, but the price leaves no room for error, and he puts fair value near $100 against shares at about $160.

  “So I'm sure I'll look terrible by saying that the company is probably about fairly valued at maybe a $100 a share.”at 1:18:39

Amazon.com

Across the shows: 16 speakers in other episodes, 12 bullish and 3 bearish calls, past 30 days

• Shawn O'Malley · The Investor's Podcast NetworkBearish

  Amazon's block on outside shopping agents is unsustainable as AI shopping spreads.

  Amazon blocked Muse from its site while wanting its own agents to shop everywhere else, which Shawn calls having its cake and eating it too. Amazon may get away with it for now, but Shawn does not think it is sustainable. Common standards like the UCP, which Amazon has joined, mean outside agents will need access to Amazon's catalogue. The UCP's open rails also help Amazon's own agents work outside Amazon. Shawn thinks Amazon will try to maintain the status quo for as long as possible.

  “I think it wants its own agents to shop everywhere else while keeping other companies' agents out of Amazon. And maybe they can do that for now, but, I I I don't think it's sustainable.”at 44:31

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Amazon can block outside agents with little long-term damage by keeping routine buying and ads.

  Daniel thinks Amazon has a good shot at blocking outside agents without major long-term impact. Consumers can keep buying their monthly routine on Amazon, as Subscribe and Save shows, and use agents only for high-consideration purchases. Those purchases often happen outside Amazon anyway. Amazon can still show ads for the majority of products people buy, losing ad inventory only on high-consideration items.

  “Amazon might actually have a good shot though of blocking outside agents without a major impact even in the long term”at 45:34

• Daniel Mahncke · The Investor's Podcast NetworkUncertain

  Agentic shopping threatens Amazon's advertising core, though Amazon may adapt.

  Daniel argues that agents that shop without showing advertising put Amazon's and Google's advertising businesses, which form the core of their profits, at risk. A year ago, that outcome would have been unimaginable. He believes both will figure it out, but says the threat should not be underestimated. Meta is the exception, because its ads appear when people are entertained rather than during the buying process.

  “Amazon and Google, I think they actually face a threat here that probably just a year ago, nobody would have imagined that it's possible that those companies might lose the core of their business”at 46:43

Alphabet

Across the shows: 12 speakers in other episodes, 11 bullish and 1 bearish calls, past 30 days

• Daniel Mahncke · The Investor's Podcast NetworkUncertain

  Agentic shopping threatens Google's advertising core, though Google will likely adapt.

  Daniel says Google's advertising business is its core, and agents that shop without showing ads threaten it. Such a threat was hard to imagine a year ago. He personally believes Google will figure it out, but calls the risk one that should not be underestimated. Shawn agrees the chatbots are a new referral channel that does not cut out the platform's role, while the early fear was that Google would take Shopify's payments.

  “Amazon and Google, I think they actually face a threat here that probably just a year ago, nobody would have imagined that it's possible that those companies might lose the core of their business”at 46:43

Meta Platforms

Across the shows: 43 speakers in other episodes, 43 bullish and 19 bearish calls, past 30 days

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Meta's ad model is safe from agentic shopping because its ads run during entertainment, not purchases.

  Daniel thinks Meta is probably the only major advertising company that is fairly safe. Its platforms play ads when people are looking for entertainment, and Meta is not anywhere in the buying process. If people shop with agents or skip shopping, they will still go to Instagram for entertainment, so Meta's ad inventory is not directly exposed to agents.

  “Meta is probably the only one that's pretty safe because they play ads when people are looking for entertainment. They're not anywhere in the buying process.”at 46:43

Etsy

• Daniel Mahncke · The Investor's Podcast NetworkBearish

  Etsy's ad-driven profit and roughly 25% seller fee model won't survive agentic commerce.

  Etsy earns over 100% of its operating profit from on-site ads and charges sellers an all-in fee of around 25%. Agents shopping on people's behalf are not swayed by advertising, so the ad-driven model should erode. A successful seller may ask why they pay 25% to be found when their own Shopify store now has a better chance of being recommended by Google's AI search or ChatGPT, at a fraction of the cost. Counterpoint: AI agents require less compute to shop well-indexed platforms like Amazon, which could favour them. Merchants leaving Etsy would most likely end up on Shopify.

  “Etsy earns over 100% of its operating profit from these on-site ads... while charging sellers [an all-in fee of] around 25%. So as we talked about in a world of agentic commerce, that business model won't last because agents are doing the shopping on behalf of people”at 56:30

Consumer AI products

• Daniel Mahncke · The Investor's Podcast Network

  Agents will fail at routine replenishment like Subscribe & Save but excel at high-consideration purchases.

  Amazon's Subscribe and Save captures only about 1% to 3% of Amazon's GMV, and the average household buys 250 to 300 different items a year. Demand cannot be perfectly estimated on a weekly or monthly schedule, so automated replenishment fails: people accumulate unwanted stock and cancel. Unless an agent solves nearly all household purchases, it has not solved much. Agents work best for high-consideration product discovery, such as finding the right surf watch or fly rod for a trip, which is the kind of product Shopify merchants sell. Shawn's milkman example, where home milk delivery fell to zero, supports the point.

  “Amazon Subscribe and Save... captures maybe 1% to 3% of Amazon's total GMV... unless an agent solves pretty much all of them, it hasn't really solved anything.”at 38:37

• Shawn O'Malley · The Investor's Podcast Network

  AI chatbots look like referral channels, not middlemen owning the customer relationship.

  Shawn argues that AI chatbots so far look more like new referral channels than distributors. For Anthropic, OpenAI or Meta to become the middleman that owns the customer, they would have to control the whole shopping experience. That would require consumers to be comfortable letting agents buy everything for them, which Shawn sees as the big challenge for agentic commerce to solve. OpenAI's shelving of its Instant Checkout and sending shoppers to merchant sites supports a referral model.

  “AI chatbots look more like a new referral channel than a distributor, right? For Anthropic, OpenAI, or Meta to become the middleman that owns the customer. They would really have to control the whole shopping experience”at 1:02:39

• Daniel Mahncke · The Investor's Podcast Network

  Muse looks more like a distributor than a referral channel, as Meta plans a transaction fee.

  Daniel says the way people talk about Muse makes it look more like a distributor, which wedges itself between merchant and customer, than a referral channel. Meta's Zuckerberg said Muse will take a small fee on completed transactions, the first major AI platform to say it wants to take a toll on the transaction itself. That would be a step toward the distributor model. Shopify's shares fell from about $155 to $130 after Muse was announced, which Daniel reads as the market not knowing how to price the shift.

  “Meta is, you know, the first major AI platform to say out loud that it wants to basically take a toll on the transaction itself, which, again, would be a big step toward that distributor framework”at 1:06:12