OpenText (TSX:OTEX), a $10.5 billion Canadian technology stock that carried some artificial intelligence (AI) fueled investor hopes going into 2024, has faced a turbulent year, with organic revenue shrinking by 1.8% in the past quarter, persistent challenges from formidable competitors like Microsoft, a revived IBM, and Dropbox, and increasingly subdued investor sentiment. However, with a robust 3.7% dividend yield, upsized share repurchases, and promising AI-focused initiatives planned for the next year, could the Waterloo-based tech giant make a compelling comeback in 2025?

Can OpenText reverse its revenue decline?

Despite cutting costs and enhancing its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins, OpenText stock's struggle with organic growth has been a persistent concern. Management's Fiscal Year 2025 revenue guidance implies just 1% annual growth. This tepid outlook reflects limited success in capturing new market share despite substantial investments in generative AI over the past 12 to 18 months.

The company's "Titanium X" project aims to integrate AI agents across its cloud product offerings in 2025, a move that could help retain existing customers and perhaps attract new ones.

AI integration, while necessary, has so far failed to grow OpenText's sales meaningfully. For 2025, success will hinge on accelerating sign-ons for its AI-powered products, supported by expanded contract durations and new partnerships with cloud providers. Falling interest rates and broader AI adoption trends may provide a tailwind for the company to achieve moderate growth.

OpenText stock's cash flow supports shareholder returns

OpenText remains a cash flow juggernaut. It plans to return a record $570 million to shareholders in 2024 through dividends and share repurchases. The company's robust free cash flow generation ensures these payouts are sustainable. However, such capital-allocation strategies often signify a mature business with limited growth opportunities, a point not lost on wary investors.

The current dividend yield of 3.7% is attractive in today's high-interest-rate environment, offering steady income for long-term investors. Share buybacks, while reducing the float and boosting per-share metrics, have done little to offset the 35% decline in OpenText's share price over the past three years.

For meaningful investor sentiment revival, OpenText must prove that AI-led initiatives can deliver sustainable revenue and earnings growth.

A cheaply valued tech stock?

OpenText's enterprise value-to-free cash flow (EV/FCF) multiple of 19.2 is less than half its industry's average multiple of 41.7. Valuation metrics, such as price-to-earnings (P/E) and price-to-free cash flow (P/FCF) ratios, suggest OTEX stock trades at a discount relative to peers. However, this discount reflects market skepticism about its growth trajectory.

The company faces intense competition in enterprise software, particularly from Microsoft, which leverages AI with its Copilot suite, and Dropbox, which offers similar enterprise content solutions. These competitors enjoy equally broader customer bases and strong ecosystems, putting OpenText in a tight spot despite its disciplined acquisition strategy.

What could turn the tide for OpenText stock in 2025?

To regain investor confidence in OpenText stock and reverse its negative organic growth, the company will focus on AI-driven product success, strategic partnerships in cloud rollouts, and cost efficiencies in 2025.

AI-driven products include Titanium X, which should demonstrate measurable traction, driving customer acquisition and revenue. The company mentioned closing 20 new AI-related customer wins during its recent earnings event in November. Sustained success in AI-powered solutions will be critical to reviving demand for its products and reviving investor interest in the stock.

Strategic partnerships with cloud computing platform providers have built alliances that boost product adoption rates among enterprise customers, while continued focus on operational efficiency to maintain EBITDA margins while navigating a highly competitive landscape will ensure steady profitability.

A sustained recovery in organic growth, coupled with falling interest rates, could propel OpenText stock's valuation higher, rewarding patient investors.

Investor takeaway: Buy, sell, or hold?

Given its current challenges, OpenText stock could be in a drawn-out transitional phase. For growth-focused investors, the stock might not be a top pick until there is evidence of revenue acceleration. That said, the attractive dividend yield and ongoing share buybacks offer value for income-oriented investors.

I view OpenText as a Hold for 2025. While near-term growth is unlikely to be transformative, the company's cash flow stability and AI ambitions provide a long-term case for cautious optimism. Investors should monitor its progress closely as the Titanium X rollout unfolds.