Shopify

“For example, Shopify Magic provides a suite of AI-enabled features integrated across the Shopify platform and Sidekick offers merchants an AI-enabled commerce assistant.”

“Shopify does not currently develop its own foundational AI models, rather, we develop ways to incorporate AI-powered tools into select products we offer to merchants, in order to support elements of their business operations as well as into certain of our internal business operations.”

“Cost of subscription solutions consists primarily of third-party infrastructure, hosting costs and other direct costs, an allocation of costs incurred by both the operations and support functions, including personnel-related costs directly associated with subscription solutions such as salaries, benefits and stock-based compensation, processing fees related to billing our merchants, payments for domain registration and amortization of acquired intangible assets.”

“Cost of subscription solutions increased for the year ended December 31, 2024 compared to the same period in 2023. The increase was due mainly to an increase in cloud and infrastructure costs and increase in payment processing fees on merchant billings.”

“Gross margin for subscription solutions was 81.4% compared to 78.0% in Q1 of 2023. The increase stems from pricing changes on standard plans and, to a lesser extent, continued support and hosting efficiencies.”

“Cost of subscription solutions increased for the three months ended June 30, 2026 compared to the same period in 2025. The increase was driven by a $37 million increase in cloud and infrastructure costs which includes AI-related usage. Cloud and infrastructure costs remains the significant majority of our cost of subscription solutions.”

“As a reminder, the vast majority of AI costs related to merchant use of Sidekick appear in subscription solutions gross profit. We were able to hold gross margins at a relatively consistent level quarter-over-quarter while Sidekick usage scaled, which reflects some cost efficiencies and support, as well as our ability to continue providing merchants unique AI solutions like Sidekick while diligently managing cost.”

“In the second quarter, daily active merchants using Sidekick were up 3.6x year-on-year, and daily sessions were up 4.8x. It handled nearly 34 million conversations, and it was used to create more than 36,000 custom apps, up from 12,000 in Q1.”

“Actually, what's really cool is we now have a number of distilled models where we take a teacher model, usually a big frontier model, then teach it a specific use case to a smaller model, which results in much faster, less costly, and actually sometimes even better at the narrow task.”

“Shopify does not currently develop its own foundational AI models, rather, we develop ways to incorporate AI-powered tools into select products we offer to merchants, in order to support elements of their business operations as well as into certain of our internal business operations.”

“Research and development expenses consist primarily of employee-related expenses for product management, product development, product design, data analytics, contractor and consultant fees as well as internal use hosting costs and corporate overhead allocations.”

“We continue to remain disciplined on headcount, with total headcount remaining essentially flat for the past three quarters, all while maintaining and, in fact, accelerating our product innovation capabilities and continuing the top-line momentum of our business. How we leverage AI internally is an important element of how we are able to do that.”

“Research and development expenses increased for the three months ended June 30, 2026 compared to the same period in 2025, due to increases of $34 million in computer hardware and software costs, which includes AI-related usage, and $11 million in employee-related costs.”

“This operating leverage provides the financial flexibility to continue to invest in our platform, including in our internal AI capabilities. We've moved from a place of just reflexive use of AI to a place of AI leverage. Our AI philosophy is straightforward: maximum leverage paired with thoughtful cost management. We use the best model for the job, frontier intelligence where it matters, less expensive models where it doesn't.”

“R&D, the majority of our internal AI spend is allocated here, so you've seen a modest uptick in year-over-year growth.”

“We believe widespread adoption of AI tooling already is and will continue to yield benefits in the quality of our output.”

“Over the past year or so, we've really moved in from experimenting with AI to just rebuilding teams and our work around what it can do. The way we think about these models is we use the best model for the job. We use frontier intelligence where it matters. We use less expensive models where it's simply not needed. Everything that we've done runs through an internal proxy, which gives us incredible visibility, gives us control, gives us security.”

“Actually, what's really cool is we now have a number of distilled models where we take a teacher model, usually a big frontier model, then teach it a specific use case to a smaller model, which results in much faster, less costly, and actually sometimes even better at the narrow task.”

“Shopify is probably the most AI-pilled company in the world. Certainly, credit to that goes to Tobi, who I think has been thinking about this longer than most and certainly put Shopify on the path of being AI reflexive before almost anyone else.”

“Shopify does not currently develop its own foundational AI models, rather, we develop ways to incorporate AI-powered tools into select products we offer to merchants, in order to support elements of their business operations as well as into certain of our internal business operations.”

“We are making investments in expanding the AI capabilities available in our products, including the ongoing deployment and improvement of existing machine learning and AI technologies.”

“Research and development expenses consist primarily of employee-related expenses for product management, product development, product design, data analytics, contractor and consultant fees as well as internal use hosting costs and corporate overhead allocations.”

“Our teams have created and leveraged advanced models using AI and machine learning, which now allows us to target our Audiences with unprecedented precision.”

“This operating leverage provides the financial flexibility to continue to invest in our platform, including in our internal AI capabilities. We've moved from a place of just reflexive use of AI to a place of AI leverage. Our AI philosophy is straightforward: maximum leverage paired with thoughtful cost management. We use the best model for the job, frontier intelligence where it matters, less expensive models where it doesn't.”

“Actually, what's really cool is we now have a number of distilled models where we take a teacher model, usually a big frontier model, then teach it a specific use case to a smaller model, which results in much faster, less costly, and actually sometimes even better at the narrow task.”

“For nearly two years, we've been investing in the search index, ensuring over a billion products and 20 years of commerce experience is distilled for agents.”

“Every builder can now access UCP and the Catalog API across millions of merchants, so they can build commerce experiences with the same infrastructure as our major AI partners.”

“On top of this, thousands of developers all over the world are embedding commerce into their own applications using the same primitives we built.”

“Research and development expenses consist primarily of employee-related expenses for product management, product development, product design, data analytics, contractor and consultant fees as well as internal use hosting costs and corporate overhead allocations.”

“While we intend to expand our business without significant additional hiring in the near term, we may be unable to achieve that expansion without increasing our headcount.”

“which has enabled us to consistently deliver 25% revenue growth excluding logistics, all while keeping our headcount flat for three straight quarters. More importantly, because of the structure and the automation we have worked to put in place, we think we can continue to operate against very limited headcount growth while achieving a continued combination of consistent top-line growth and profitability.”

“We continue to remain disciplined on headcount, with total headcount remaining essentially flat for the past three quarters, all while maintaining and, in fact, accelerating our product innovation capabilities and continuing the top-line momentum of our business. How we leverage AI internally is an important element of how we are able to do that.”

“Research and development expenses increased for the three months ended June 30, 2026 compared to the same period in 2025, due to increases of $34 million in computer hardware and software costs, which includes AI-related usage, and $11 million in employee-related costs.”

“Sales and marketing expenses increased for the three months ended June 30, 2026 compared to the same period in 2025, due to increases of $85 million in overall marketing program spend and $10 million in payouts related to our affiliate partner programs, offset by a $16 million decrease in employee-related costs.”

“This reflects continued leverage as we grew gross profit dollars faster than our expenses, primarily by maintaining our discipline in headcount.”

“We believe widespread adoption of AI tooling already is and will continue to yield benefits in the quality of our output.”

“Over the past year or so, we've really moved in from experimenting with AI to just rebuilding teams and our work around what it can do. The way we think about these models is we use the best model for the job. We use frontier intelligence where it matters. We use less expensive models where it's simply not needed. Everything that we've done runs through an internal proxy, which gives us incredible visibility, gives us control, gives us security.”

“Shopify is probably the most AI-pilled company in the world. Certainly, credit to that goes to Tobi, who I think has been thinking about this longer than most and certainly put Shopify on the path of being AI reflexive before almost anyone else.”

“Cost of subscription solutions consists primarily of third-party infrastructure, hosting costs and other direct costs, an allocation of costs incurred by both the operations and support functions, including personnel-related costs directly associated with subscription solutions such as salaries, benefits and stock-based compensation, processing fees related to billing our merchants, payments for domain registration and amortization of acquired intangible assets.”

“During Q1, over half of our merchant support interactions were assisted with AI and often fully resolved with the help of AI.”

“Additionally, our support staff has experienced a significant reduction in the amount of toil that is part of their jobs. We are improving the merchant support process and achieving much greater efficiency than ever before.”

“Gross margin for subscription solutions was 81.4% compared to 78.0% in Q1 of 2023. The increase stems from pricing changes on standard plans and, to a lesser extent, continued support and hosting efficiencies.”

“The increase was primarily due to an increase in payment processing fees on merchant billings and cloud and infrastructure costs, partially offset by a decrease in support costs.”

“For example, Shopify Magic provides a suite of AI-enabled features integrated across the Shopify platform and Sidekick offers merchants an AI-enabled commerce assistant.”

“Shopify does not currently develop its own foundational AI models, rather, we develop ways to incorporate AI-powered tools into select products we offer to merchants, in order to support elements of their business operations as well as into certain of our internal business operations.”

“Currently, the most practical applications of AI are found in tools that simplify business operations and enhance productivity, all of which we have been developing deeper capabilities with our AI product suite Shopify Magic.”

“As a reminder, the vast majority of AI costs related to merchant use of Sidekick appear in subscription solutions gross profit. We were able to hold gross margins at a relatively consistent level quarter-over-quarter while Sidekick usage scaled, which reflects some cost efficiencies and support, as well as our ability to continue providing merchants unique AI solutions like Sidekick while diligently managing cost.”

“In the second quarter, daily active merchants using Sidekick were up 3.6x year-on-year, and daily sessions were up 4.8x. It handled nearly 34 million conversations, and it was used to create more than 36,000 custom apps, up from 12,000 in Q1.”

“Sidekick's personalized guidance for new merchants during onboarding led to an 8% increase in merchants reaching five orders within 15 days.”

“Look, we reserve the right to wake up smarter every single day. In terms of monetization now, the business model is predicated on merchants doing well. The better merchants do, the better Shopify does, and Sidekick helps with that.”

“At the same time, we've built connectors to agents including Claude, ChatGPT, Perplexity, Manus, Replit, and Vercel with our AI Toolkit.”

“If you look at five years in, setup accounts for 8% because they're already at scale, and that's where analytics and reporting make up more than 40%.”

“What's really interesting is if you look at daily active merchants using Sidekick, it grew 3x year-over-year.”

“This platform allows merchants to seamlessly manage, market and sell their products across various sales channels, including online storefronts, physical retail spaces, social media and more.”

“While the volume from agentic commerce is still small relative to our massive GMV, the growth trends are impressive. Both AI-driven traffic and also orders to Shopify stores tripled year-over-year in the second quarter. New buyer orders are coming in at nearly twice the rate of other channels.”

“Search remains one of our largest sources of buyer traffic to our merchants, and it's still growing. Traditional search sessions are up 1.3x over the past two years, holding roughly a third of all storefront sessions. That is AI as a complement to search rather than a substitute for it.”

“You've seen this, of course, but agentic transactions carry the exact same economics as an online store transaction. There's no new fees. There's no separate pricing. More agentic GMV, it means more Shopify revenue, and that's the model, and it's been working really well for almost two decades.”

“I will say, I mentioned in my earlier comments that we are seeing incremental dollars flow through agentic.”

“We're seeing that AI searches powered by Catalog converted twice the rate of those using scraped data.”

“When you zoom it even further, conversion from AI search runs nearly 80% higher than traditional organic search as well.”

“We saw that AI search was starting to disproportionately benefit the long tail in 2025, and that trend has continued, with 75% of AI-attributed orders in the second quarter coming from outside our top 100 categories in Q2.”

“It is early, and the volume relative to $116 billion GMV is small.”

“Number one, I think consumers are finding, we have the data to back it up. Traffic on agentic is 3x year-on-year. Orders are up 3x as well.”

“I think we talk about Catalog from the consumer perspective quite a bit, but it also is a driver to come to Shopify.”

“Every builder can now access UCP and the Catalog API across millions of merchants, so they can build commerce experiences with the same infrastructure as our major AI partners.”

“On top of this, thousands of developers all over the world are embedding commerce into their own applications using the same primitives we built.”

“Early indications show that AI search has been particularly helpful to some of the smaller brands that form the long tail of commerce.”

“Buyer shopping journeys are being compressed as half of all AI-referred sessions are landing directly on a product description page. That is 2.5x more than what we see with traditional search.”

“This platform allows merchants to seamlessly manage, market and sell their products across various sales channels, including online storefronts, physical retail spaces, social media and more.”