The Fourth Industrial Revolution is no longer just a buzzword. Artificial intelligence (AI) is quietly but fundamentally transforming the world, from how governments operate to how businesses make decisions. While Big Tech usually steals the spotlight in AI conversations, Canada has a sleeper pick in Constellation Software (TSX:CSU), a tech stock that has flown under the radar of many AI-focused investors. But make no mistake: this isn’t just a legacy software play. Constellation has all the characteristics of a long-term AI powerhouse.
No flash, no fuss
Constellation Software doesn’t build flashy consumer tech. Instead, it buys and grows vertical market software (VMS) businesses, those that serve niche industries with mission-critical applications. Think of software for municipal governments, hospitals, or construction companies. These aren’t just tools; they’re deeply embedded in clients’ workflows. And as these sectors adopt AI tools to increase efficiency, CSU’s portfolio becomes even more valuable.
That’s already starting to show in its results. In the first quarter (Q1) of 2025, Constellation reported revenue of $2.65 billion, up 13% year over year, driven primarily by acquisitions. While organic growth was just 0.3%, that’s not the full story. After adjusting for foreign exchange, organic growth came in at 2%. And more importantly, recurring maintenance and other subscription-style revenue reached $1.996 billion, roughly 75% of total revenue. This base provides a stable cash foundation, freeing up capital to invest in AI integration and future acquisitions.
Earnings also moved higher. Net income attributable to shareholders rose to $115 million or $5.44 per diluted share, compared to $105 million and $4.95 last year. More tellingly, free cash flow available to shareholders jumped 14% to $510 million. That’s significant. While some tech companies talk about future profits, CSU generates serious cash now and uses it to quietly acquire more software firms, many of which are now layering in AI capabilities.
More to come
This isn’t a company making splashy AI announcements. It’s one that embeds AI where it matters. For example, its acquisition strategy increasingly targets firms with specialized data and software, prime candidates to benefit from AI automation. And because these tools often serve regulated or slow-changing industries, CSU gets long-term pricing power. AI here isn’t replacing workers; it’s augmenting decisions, improving efficiency, and strengthening CSU’s competitive moat.
Then there’s the tech stock’s remarkable discipline. In Q1 alone, CSU spent $94 million in cash on acquisitions, with total deal value reaching $133 million. These weren’t vanity purchases. Constellation’s management adheres to strict return-on-investment hurdles. One of its more interesting recent moves was acquiring nearly 10% of Poland’s Asseco for $174 million, a calculated international expansion aligned with its thesis of acquiring under-appreciated, high-cash-flow software firms.
From a financial health perspective, CSU is in a strong position. As of Mar. 31, 2025, the tech stock had $2.48 billion in cash, up from $1.98 billion at the end of 2024. Operating cash flow in the quarter was $827 million, up from $737 million a year ago. While it does carry debt, just over $4.3 billion, the stable recurring revenue and disciplined capital allocation mitigate most concerns.
Bottom line
Is it a cheap stock? Not really. CSU has never traded like a bargain-bin pick, and it likely never will. The current price reflects that, but so does the long-term growth potential. As AI reshapes industries, CSU stands to benefit not by building large language models, but by embedding AI deeply across thousands of niche use cases.
In a world where AI headlines are dominated by hardware makers and consumer platforms, Constellation Software is quietly becoming one of the most important AI players in Canada. It’s not the loudest AI stock, but it might just be the smartest one to own over the next decade. For investors looking to make a long-term bet on the Fourth Industrial Revolution, without the hype, CSU is my top AI software stock pick.
