In the artificial intelligence (AI) race, while the world is chasing hardware stocks for their exponential cyclical profits, a few software stocks are a good investment for steady profit and free cash flow (FCF) growth. You could diversify your investments across different tech stocks, a few U.S.-based AI stocks like Advanced Micro Devices and Broadcom, and a few Canadian tech stocks.
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Three Canadian tech stocks to buy for profit potential
Canada has some software stocks with a robust balance sheet. They have reached a stage where profits grow at a stable rate.
Topicus.com
Topicus.com (TSXV:TOI) is a spin-off of Constellation Software, focused on European software companies. It is not directly involved in software services but is a holding company of several mission-critical software companies that operate in niche verticals. It uses the power of compounding to grow its cash flow. Targeting companies that have stable cash flow and using this cash to acquire more such companies at a decent valuation helps it get the desired return on investment.
Topicus.com’s share price surges as new acquisitions increase the enterprise value. The stock has surged 51% year to date. It picked up momentum in September 2022 as it grew its free cash flow (FCF) in the range of 12-42% in the last three years.
Although the stock is trading at its all-time high, it is a stock to buy and hold for the long term to enjoy the effect of compounding.
Shopify stock
Shopify (TSX:SHOP) started as an e-commerce company but later expanded to offline retail. It expanded from catering to small and medium enterprises (SMEs) to large enterprises and from North America to International markets. This expansion has helped Shopify normalize seasonality and report a 27% revenue growth even in its seasonally weak first quarter. This is its eighth consecutive quarter of more than 25% pro forma revenue growth.
Moreover, the company increased its FCF margin to 15% in the first quarter of 2025 from 12% a year ago. The consistency in revenue and FCF growth makes Shopify a stock to buy ahead of the seasonal rally. Although the stock has surged 58% since April 2025, there is more than 50% upside potential for the holiday season that runs from November to February.
Descartes Systems
Unlike the above two tech stocks, Descartes Systems (TSX:DSG) stock is trading at a 15% discount from its February peak. The supply chain solutions provider generally sees a rally ahead of the holiday season as logistics demand increases from retailers and e-commerce companies. However, the seasonal rally is delayed because of tariff uncertainty around the August 1st deadline. U.S. president Donald Trump is negotiating tariff deals with key trade partners.
Companies and individuals have stalled their purchases and investments until they get a clear view of the tariff situation. Once there is clarity, it could see a surge as companies execute their pending trade. Descartes is witnessing the repeat of the 2018 U.S.-China trade war situation. Throughout 2018, Descartes stock reported tepid growth amidst trade war uncertainty. The stock later jumped 43% in the first five months of 2019, as the dust settled on trade war uncertainty.
The company has increased its earnings before interest, taxes, depreciation, and amortization (EBITDA) margin to 44% in 2024 from 38% in 2019, driven by e-commerce volumes. It has even cut costs to maintain this margin amidst tariff uncertainty.
A good strategy is to buy the dip and hold for the recovery rally. You can keep accumulating this stock on every dip to benefit from its resilient growth.
How to invest $10,000 in the above tech stocks
You can consider investing $3,000 each in Topicus.com and Descartes Systems for the long term. You can keep $2,000 invested in Shopify for the long term and use the remaining $2,000 for active investing in Shopify: buy the March and April dip, sell the February rally, and benefit from the seasonality.
While tech stocks are good for growth, consider diversifying your portfolio in other stocks to balance risk.
