By Samrhitha A

(Reuters) -Canada's Shopify returned to a profit in the third quarter, driven by strict cost controls and adoption of artificial intelligence to attract more merchants to its services.

Both U.S.- and Canada-listed shares of Shopify surged more than 21% on Thursday, hitting their highest levels since May.

The company has launched AI-powered tools and offerings such as the Shopify Magic suite and app Sidekick to stay ahead in the hyper-competitive e-commerce space while also investing to improve its shipment speeds.

Shopify, which offers tools and services for businesses to set up their online stores, posted net income attributable to shareholders on a diluted basis of 55 cents per share, compared with a loss of 12 cents a year earlier.

In a boost to the company's brand collaboration efforts, popstar Taylor Swift launched her Eras Tour merchandise in July on Shopify, with the company seeing unprecedented sales and site visits on the launch day.

Later that summer, musician Drake also released his new store, Drake Related, using Shopify's product.

Among other partnerships, the company said in August that Amazon would release an app in the Canadian company's ecosystem that would give Shopify's U.S.-based merchants access to the "Buy with Prime" option outside of Amazon.com for the first time.

"We believe this is win/win for both companies but especially for SHOP, because merchants will continue to maintain 100% control of their brand and their customer data in Shopify's admin," Evercore ISI analysts had said ahead of the earnings on Tuesday.

Total revenue increased 25% to $1.71 billion for the three months to September, beating analysts' average estimate of $1.67 billion, according to LSEG data. Profit also surpassed estimates.

Expenses fell nearly 23%, driven by a lower headcount. Shopify had announced plans to lay off 20% of its staff in May.

(Reporting by Samrhitha Arunasalam in Bengaluru; Editing by Devika Syamnath and Sriraj Kalluvila)