When it comes to investing in artificial intelligence (AI) for the long term, it’s easy to get caught up in the hype. Flashy start-ups and soaring valuations can make it tempting to bet big on the next breakthrough. But in a Tax-Free Savings Account (TFSA), where compounding over decades matters more than chasing momentum, I’d go with something a little different. I’d choose Constellation Software (TSX:CSU), a Canadian tech powerhouse that has not only stood the test of time but continues to grow through a methodical and profitable approach. If I could only own one AI stock in a TFSA, this would be it. Here’s why.
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About CSU
Constellation isn’t the kind of company that grabs headlines. It’s not building robots or developing large language models. Instead, it acquires and operates vertical market software companies that serve niche industries, from healthcare to utilities to municipal governments. These businesses often have loyal customers, stable recurring revenue, and strong pricing power. Over time, Constellation has acquired hundreds of these firms, knitting together a global empire of reliable cash flows.
That acquisition model is the secret sauce. In its most recent quarterly earnings report for Q1 2025, Constellation reported revenue of US$2.6 million, up 13% from the same period in 2024. Net income came in at US$115 million, or US$5.44 per diluted share, compared to US$105 million or US$4.95 a year earlier. Operating cash flow reached US$827 million, and free cash flow available to shareholders hit US$510 million. That kind of financial strength is rare in tech, especially among companies with a hand in AI.
How it uses AI
Where AI comes into play is subtle, but important. Constellation’s companies increasingly incorporate AI and automation into the software they offer. It might be predictive analytics for logistics, intelligent scheduling for healthcare, or fraud detection for financial services. These aren’t moonshots, but practical tools that improve efficiency and make customers stickier. AI in this context becomes a value-add, not a distraction.
The company also completed aggregate cash acquisitions of US$94 million (US$133 million including deferred payments) during the quarter and invested US$174 million to acquire 9.99% of Asseco Poland. That speaks to the size of its war chest and its ongoing commitment to expand. Management has always been disciplined in how it spends. It avoids bidding wars and prefers to buy companies with long-term potential, even if it means slower growth on paper. This conservative strategy keeps returns strong and risks in check.
Considerations
Of course, no stock is perfect. The share price, sitting near $5,000, isn’t exactly approachable for everyone. It trades at a premium valuation, with a high price-to-earnings (P/E) ratio. Some investors may hesitate, thinking the growth has already been priced in. And it’s true that organic growth remains in the low single digits, with acquisitions doing most of the heavy lifting. But that’s also why it works, the model is repeatable, and management hasn’t strayed from what it does best.
The dividend is modest at US$1.00 per share quarterly, but that’s not the draw. This is a long-term growth story built on free cash flow and compounding. The dividend is more of a bonus, not the main event. In a TFSA, where income isn’t taxed and gains build up quietly over years, Constellation’s steady growth becomes even more powerful.
Bottom line
There are sexier AI stocks out there, no doubt. But many come with hype, losses, and hope. Constellation comes with revenue, profit and a 30-year track record of smart acquisitions. It doesn’t try to reinvent the wheel; it just buys the best wheels and makes them better.
For those looking to hold a single AI-related stock in a TFSA for decades, it’s hard to beat Constellation Software. It’s not just a tech stock. It’s a disciplined compounder with exposure to some of the most important technological trends, including AI, while remaining grounded in fundamentals. It might not be flashy, but it works.
