The TSX Is Charging: Here Are 2 Stocks I'm Watching

The TSX Is Charging: Here Are 2 Stocks I’m Watching

Learn how the TSX is gaining momentum with a 4.4% rise, largely fueled by technology stocks and AI advancements.

Puja Tayal

Author Bio

Puja Tayal grew up in a small-business family where dinner conversations often centred on working capital and savings. Her early experiences with investing, particularly during the 2008 financial crisis, shaped her approach to understanding markets and evaluating investment opportunities. She began her career at a mutual fund company before moving into investor education and financial writing for asset and wealth management firms. Before joining The Motley Fool, Puja wrote for Market Realist, where she extensively covered the semiconductor industry. Her published work has also appeared in The Indian Express. Puja believes every stock has a story that can help investors understand its potential returns. She combines business analysis with different investing approaches to help investors make informed decisions and align their portfolios with their long-term financial goals. Outside of finance, Puja enjoys long drives, catching up with friends, watching superhero and science-fiction movies, and managing her family portfolio. She also has a keen interest in artificial intelligence and its potential to reshape the world.

Education

Bachelor's degree in Accounting and Finance, University of Mumbai (2007)
CFA Level I

Areas of Expertise

Qualitative company analysis, management strategy, risk assessment, long-term investing, portfolio diversification and rebalancing, dividend reinvestment, cyclical growth opportunities, compounding strategies, growth stocks, and dividend stocks.

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Favorite Investment Quote

"Risk comes from not knowing what you're doing." — Warren Buffett

Published August 17, 8:15 pm EDT

The TSX Index is charging, with a 4.4% rally in the first half of August. Leading this charge are technology stocks, with Shopify and Constellation Software (TSX: CSU) seeing a sharp rally of 20–30%. After tepid growth in May and June, artificial intelligence (AI) momentum is picking up again, as the latest earnings show positive revenue and earnings growth from AI. This time, the stocks to buy are Constellation and Celestica (TSX: CLS).

stocks climbing green bull market — Source: Getty Images

The two TSX stocks to watch as they ride the next AI rally

Constellation Software

AI and Constellation Software are not exactly the right pair, but hear this. In its latest earnings call, Constellation Software chief executive officer Mark Miller said that the company is experimenting with various AI tools, trying to show clients what is possible. The decision to give that extra buck for AI or not is the client’s call. His exact words were, “You can build products fast, but selling them is a whole other thing.”

This AI experiment can have two outcomes:

Either the AI experiment fails and mission-critical clients stick to legacy software. That means Constellation’s recurring cash flow from maintenance will continue. This is a high possibility in the government, healthcare, and banking sectors, where clients are concerned about adopting AI and the cloud.
Or the experiment succeeds, and clients pay for AI solutions. That will boost Constellation’s organic growth. So far, AI is at an experimental stage, and it is too early to say if clients are willing to pay.

Unlike other software companies which have a single AI at its center, Constellation’s AI strategy is decentralized. Its operating companies specializing in their respective verticals are testing AI at their level. This reduces concentration risk and makes AI adoption flexible. In either case, Constellation will stand to win.

I am bullish on Constellation stock because it will benefit from either scenario: an AI bubble burst or AI proliferation.

How to value this TSX stock

Most investors make the mistake of valuing Constellation like a regular software stock – on its revenue growth rate. It should be valued as a late-stage private equity firm, which focuses on holding cash-generating assets for the long term. They buy software companies with good cash flow at a bargain price using cash. Most owners sell their companies at a discount as they are retiring, and finding buyers for a private company is tough. Constellation lets the software company operate independently while extending management support to improve operating efficiency. It aims to increase cash flow, which it can reinvest to buy another company.

Hence, the right way to value Constellation is through the price-to-earnings (P/E) ratio. The stock is trading at an attractive valuation of 19 times its forward P/E ratio. Considering a 57% earnings per share (EPS) growth rate, it has strong growth potential.

Celestica

Another TSX stock worth watching or holding now is Celestica, as it sees orders from the Enterprise segment materialize. This is the segment that caters to AI compute for hyperscalers and has higher margins. You may see a shift in the income statement with profits growing faster than revenue. It has guided a 190% year-over-year increase in Enterprise revenue in the third quarter of 2026.

Celestica has even revised its 2026 guidance for adjusted EPS from $10.15 to $11.30 and free cash flow from $500 million to $600 million. The stock is trading at 27.7 times its forward P/E ratio, which is a reasonable valuation. However, any earnings beat may send the stock to the next growth cycle. What makes me confident about Celestica’s long-term growth is management’s outlook for 2027, where it expects accelerated revenue growth compared to 2026. Management is even raising $3 billion in equity capital for capacity expansion and working capital needs to meet long-term demand.

How to value this TSX stock

The right way to value Celestica is using the revenue growth rate. It is a third-party manufacturer that has expanded to an original design manufacturer. I won’t be surprised if Celestica uses capex to expand its product line beyond Ethernet switches and storage devices to cater to AI infrastructure demand.