On Wednesday, RBC Capital Markets highlighted its top three Canadian technology picks for the year 2025, emphasizing the expected outperformance of the S&P/TSX Information Technology (Info-Tech) sub-sector.
Shopify (NYSE:SHOP), Constellation Software (ETR:SOWGn), and Kinaxis were named as the leading companies poised to drive the sub-sector's growth. Analysts at RBC predict that although the S&P/TSX Info-Tech sub-sector may not replicate the 38% rise seen in 2024, it is still anticipated to surpass the broader S&P/TSX Composite's performance.
"We believe organic growth for our coverage universe will strengthen through the year, particularly as GenAI deployments ramp and drive broad IT modernization initiatives," the investment bank said.
Shopify, which represents a significant 52% of the Info-Tech sub-sector, is forecasted to be a major factor in the sub-sector's success, with RBC setting a price target of $130.00 for the company's stock, indicating a potential 19% return over the next year.
The report further identifies 'Consolidators'—firms that strategically acquire other companies—as key contributors to shareholder value within the sub-sector. Companies like Constellation Software, which make up 41% of the Info-Tech sub-sector, are recognized for their disciplined capital allocation and counter-cyclical investment strategies.
Despite the economic challenges, these Consolidators are anticipated to increase their acquisition activities in 2025, capitalizing on lower valuation expectations and a greater willingness among potential targets to sell.
GenAI is singled out as a significant catalyst for the anticipated increase in technology spending and organic growth within the sector. The transition from GenAI pilot programs to full-scale deployments is expected to encourage broader IT modernization, as organizations update their systems to accommodate the new technology. This shift is seen as a counterbalance to the extended sales cycles that have previously hindered technology spending.
In terms of organic growth forecasts, RBC analysts project an increase from 5.1% in the fourth quarter of 2024 to 7.9% by the same period in 2025. Shopify, Coveo, and Lightspeed are identified as the stocks with the highest projected organic growth rates for the year, at 26%, 16%, and 15%, respectively.
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