When the broader Canadian market surges more than 20% in a year, yet some large tech stocks tumble over 20%, investors have to ask: Is something fundamentally broken, or is the market offering a rare chance to buy quality at a discount? Two tech companies — Constellation Software (TSX:CSU) and CGI (TSX:GIB.A) — have stumbled hard in 2025. Let’s see if their drops spell danger or opportunity.
Constellation Software: A rare dip in a long winning streak
Constellation Software has long been a darling of the Canadian market, compounding wealth through its disciplined mergers-and-acquisitions (M&A) strategy.
Yet even this market favourite isn’t immune to turbulence. The stock plunged more than 25% year to date, rattled first by investor anxiety about how artificial intelligence (AI) might reshape the software landscape, and then by news that founder and CEO Mark Leonard was stepping down from his role as president after 30 years due to health reasons.
Despite the leadership shock, Constellation’s fundamentals remain solid. Year to date, the company reported 15% revenue growth to US$8.45 billion, while net income slipped 6.3% to US$420 million and earnings per share (EPS) fell 9.9% to US$18.96. Crucially, free cash flow surged 27% to US$1.26 billion — a sign the business remains highly profitable beneath the headline volatility.
After this correction, Constellation trades at what analysts view as a steep discount, with the consensus price target implying roughly 37% undervaluation and potential upside of about 58% from its current price near $3,305 per share.
The stock has multiplied sevenfold over the past decade, and if management can sustain its proven M&A engine, investors could still see annualized returns of 15–25% over the next few years. In short, this looks less like a collapse and more like a golden pause.
CGI: A resilient operator in a rough patch
CGI is another tech heavyweight on the TSX that has lost its footing this year, dropping over 23%. The reasons are less dramatic than Constellation’s — more operational than existential. The firm has struggled with slower organic growth compared to peers and restructuring costs in its Continental European operations, which are temporarily dragging results.
In its fiscal 2025 results, CGI reported 8.4% revenue growth to $15.9 billion. Net income slipped 2% to $1.66 billion, but adjusted earnings rose 6% to $1.87 billion, and adjusted EPS climbed 8.9% to $8.30. The company emphasized that in the fourth quarter, it delivered strong cash generation and double-digit EPS expansion, driven by AI-enhanced managed services and a share-buyback program.
Analysts estimate the shares are currently undervalued by about 23%, trading near $120 per share — implying a potential 30% upside. CGI’s solid balance sheet with an investment-grade S&P credit rating of BBB+ and consistent execution of long-term earnings growth suggest its struggles should be short term.
Two quality names: One bigger bargain
Both Constellation Software and CGI have been punished this year, but not because their business models are failing. Their short-term earnings dips have compressed valuations to levels rarely seen in quality Canadian tech. For investors seeking long-term compounders, both stocks offer appeal — yet Constellation Software stands out as the deeper value play with the more proven compounding record.
Sometimes, the market’s biggest bargains are simply the market’s best stocks taking a breather. Investors just need to practice patience to give the business — and the stock — time to recover and thrive again.
