Shareholders of Constellation Software (TSX: CSU) are probably feeling a bit relieved now that 2025 has come to an end. Undoubtedly, 2025 was the year that shares of CSU peaked out and plunged viciously into a bear market that wiped out more than 38% of value.
Of course, a new year doesn’t mark a turning point, especially with shares starting off the new year with a slight retreat back to multi-year depths. With a name with so much negative momentum behind it, shares feel more like a “wait-and-see” kind of play to stash on a radar rather than a name to buy on the dip with both hands.
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Constellation stock is in free-fall
Falling knives can be dangerous to catch, especially if you’re not committed to owning shares for an extended period of time. Either way, being a hero can come with great rewards, but in the case of buying the dip in shares of CSU, I think there’s no sense in rushing in without a game plan, especially if the negative momentum continues through the first quarter of 2026.
Indeed, Constellation Software stock used to be a great way to outpace the TSX Index with less volatility. Not anymore. With AI disrupting the tech world, there’s also uncertainty as to whether the firm can pivot and adapt to keep its growth formula working. I think Constellation has many options to return to its former glory.
However, now that Constellation stock’s momentum has reversed, questions linger as to whether the former software titan can get its market-beating edge back and what it will take now that one of its legendary top bosses has resigned due to health reasons. Undoubtedly, whenever a big name (especially a founder) steps down from a position at a firm, it might be seen as a major red flag from more than just a few investors.
How to move on from a 2025 rough patch
Indeed, they can give as many reasons for stepping down as they like, but it tends not to soothe jittery investors all too much, especially when it comes to the companies with a lot of “key person” risk. For Constellation Software, Mark Leonard was that key person, and now that the firm is moving forward in a more turbulent AI-driven era, there are too many unanswered questions.
Could it be that the negativity and pessimism will subside once the firm makes an impressive deal or two?
In my view, there’s ample optionality to go big with the acquisitions in 2026.
For a firm with such solid returns on invested capital, more deals could help restore investor enthusiasm. Either way, Constellation Software definitely stands out as a compelling dip-buy candidate, especially if management can convince investors that AI is an opportunity rather than a perceived threat.
The bottom line
Personally, I think AI’s disruptive potential impact on software is a bit overdone. Constellation isn’t the only software play under pressure. Either way, 2026 is a year in which the firm needs to show the world that it’s ready for the age of AI. Making a few AI acquisitions couldn’t hurt, either!
