Shopify (SHOP) stock hit the highs like a rocket after its Q2 earnings dropped last week, powered by a stunning 31% revenue surge, AI-driven innovations, and a global merchant base that’s growing like wildfire. Bears may point to the fact that gross margins took a hit.
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Still, free cash flow margins soared to 16%, keeping the profitability engine humming. In the meantime, Shopify’s valuation indeed looks steep, but with its e-commerce dominance and AI tailwinds, I’m betting the premium’s worth it. Therefore, I remain Bullish on Shopify for the time being.
Revenue Growth Accelerates Near Multi-Year Highs
Shopify’s revenue clocked in at $2.68 billion in Q2, a 31% year-over-year leap that outpaced last quarter’s 26.8% and last year’s 20.7% growth. In fact, if we exclude Q4-2024’s similar growth of 31.1%, Q2-2025 was the best quarter in terms of revenue growth since Q4 of 2021.
For a business as established as Shopify, this kind of acceleration is no small feat. It was the result of a mix of global expansion and smart product actions. Europe was a highlight here, with gross merchandise volume (GMV) spiking 42% on a constant currency basis, driven by localized strategies and partnerships that clicked with merchants. Prominent names like Starbucks (SBUX) and Canada Goose (GOOS) jumped on board, proving Shopify’s platform is a magnet for brands of all sizes.
Then there’s the AI angle. Shopify’s new tools, such as the Shopify Catalog and Universal Cart, are making it somewhat effortless for merchants to sell through AI-driven platforms like Microsoft (MSFT) Copilot. These integrations are boosting transaction volumes, with merchant solutions revenue soaring 37% to $2 billion, outpacing the 17% growth in subscription solutions. Add to that a 31% GMV increase to $87.8 billion, and it’s clear Shopify’s platform is thriving as more businesses lean into e-commerce.
What I see in these numbers is a company capitalizing on its strengths, including flexibility, scalability, and a talent for staying ahead of commerce trends, just to name a few. So, whether it is powering small startups or international giants, Shopify’s ability to deliver seamless solutions across channels is driving this growth spurt.
Margin Pressures vs. Cash Flow Wins
Not everything’s rosy, though. Shopify’s gross margin slipped 2.5% to 48.6%, a dip that stings when you’re used to seeing steady profits. A shift toward lower-margin merchant solutions, which now make up 75% of revenue, plus rising costs from payment processing and platform expenses, were the main drivers for this decline. General and administrative costs also doubled to $122 million, raising some red flags about cost control as Shopify scales.
But on the flip side, free cash flow margin held strong at 16%, marking eight straight quarters of double-digit margins. That’s $422 million in free cash flow, up from $333 million last year. They were basically able to pull this off by operational discipline and AI-related efficiencies, with tools like Sidekick helping merchants optimize inventory and reduce churn, which cuts down on Shopify’s own operational drag. The company is also getting better at squeezing more cash out of its growing revenue base, even as it invests heavily in AI and global expansion.
Looking ahead, I believe AI is set to be a game-changer for margins. By automating tasks like product discovery and checkout, Shopify is reducing its own costs while boosting merchant efficiency. This should help offset gross margin pressures and keep free cash flow margins on an upward trajectory, making those profitability hiccups feel more like growing pains than dealbreakers.
Is Shopify’s Valuation Worth the Risk?
Now, after its post-earnings rally, Shopify’s stock is trading at a lofty 17x this year’s expected sales and 104x expected EPS. That’s enough to make any investor pause, as those are nosebleed multiples. Back in 2021, Shopify’s sky-high valuation led to a multi-year slump when growth, while still explosive, couldn’t keep up with the hype, and the stock still hasn’t reclaimed those peaks. Overpaying for future growth is a real risk, and history shows it can lead to years of stagnant returns.
Today, I’m not too concerned. Shopify is a different company now—battle-tested, with a track record of delivering on its promises. The AI wave is a powerful tailwind, and products like Sidekick and Checkout Kit position Shopify as the backbone of AI-driven commerce. Add in accelerating revenue growth and a diversified global presence, and the premium starts to look far more justified. With e-commerce and AI adoption surging, Shopify’s leadership makes it a bet I’m willing to take.
Is Shopify a Buy, Sell, or Hold?
Wall Street remains relatively bullish on SHOP, even following its monstrous rally, with the stock carrying a Moderate Buy consensus rating based on 19 Buy and 13 Hold recommendations over the past three months. Notably, not a single analyst rates the stock a Sell. SHOP’s average stock price target of $159.14 suggests 6.4% upside from current levels.
Shopify’s Second Act is to Balance Valuation
Shopify’s story right now feels less like a mature company coasting and more like a startup that refuses to slow down. The numbers scream momentum, the AI tools are changing the rules, and the global land grab is just getting started. Yes, the valuation is steep, but so is the ambition. If Shopify keeps pushing 30%+ revenue and expanding free cash flow margins, this isn’t a question of whether the premium is worth it. It’s a question of how much runway is left before the next leg up. For me, it’s a no-brainer to be bullish on SHOP stock, although given the recent stock price rally, there could be some profit-taking before the next leg higher.