Constellation Software Inc. is one of Canada’s largest technology companies.Timon Schneider / SOPA Images/Reuters
Constellation Software Inc. CSU-T, one of the country’s largest technology companies, said it can weather the disruption caused by artificial intelligence as it seeks to allay investor fears that AI will erode the value of traditional software products. The company also said it will acquire minority stakes in technology companies, in addition to its historical practice of purchasing them outright.
Company president Mark Miller said on an earnings call Monday that Constellation’s many subsidiaries have deep relationships with customers, allowing the conglomerate to continue to build products that meet client needs. “There’s real noise in the market now about AI disrupting software businesses,” he said. “We’re well-positioned, although we’re staying very disciplined about how we approach it.”
Constellation’s share price was up 0.39 per cent on the Toronto Stock Exchange at the end of trading on Monday.
The Toronto-based company has bought hundreds of smaller businesses around the world that make “mission-critical” software for niche sectors, such as golf courses and public transit providers.
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Founded in 1995, Constellation has long been considered a steady, reliable bet. But its share price has fallen about 38 per cent in the past 12 months. Its performance since 2023 reflects the degree to which the market is trying to understand the implications of AI. Constellation initially benefited from the advancements, as investors believed that developers could write software faster and more efficiently with the new technology.
But now, the market is worried that AI will upend the traditional software-as-a-service business model. If companies are able to increase productivity with AI, that might mean they purchase fewer software licenses for employees. Using AI to quickly create software also lowers the barrier to entry for nimble startups to unseat incumbents, while allowing customers to be more independent and build their own tools.
As a result, software companies have been on a wild ride. Thomson Reuters Corp., International Business Machines Corp., Adobe Inc. and Salesforce Inc. have seen their shares fall between 14 per cent and 25 per cent so far this year, for example.
Mr. Miller pushed back in the earnings call against the pessimistic narrative as it concerns Constellation. “Building products and features faster will not be what differentiates us,” he said. “What will matter is what our businesses have spent many years developing – deep, vertical knowledge, a genuine understanding of customer workflows and processes, the data inside their solutions and the trusted relationships they built.”
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Constellation and its subsidiaries are adopting AI and sharing best practices, too. “The productivity returns are real, and they’re still growing,” Mr. Miller said, even if these gains have not affected the bottom line. “We haven’t really seen a lot of new revenues from that,” he continued, adding that the company hasn’t seen revenue drop because of AI, either.
Constellation now scores potential acquisition targets for how they will be affected by AI, and is piloting new tools to help rank prospects. “The jury is still out on whether it will prove its value over time,” Mr. Miller said.
He acknowledged that some companies in Constellation’s broad portfolio will deal with disruption better than others. “As a good conglomerate, we want to make sure we’re putting the capital behind the people who are winning. If you’re losing, we’ll take your capital and put it elsewhere,” he said.
Analysts still view Constellation favourably, even with the confusion caused by AI. “We view the depth of the sell-off as overdone,” CIBC analyst Stephanie Price wrote in a note earlier this year. The drop in share price shows that the market is implying a steep reduction in Constellation’s growth prospects. “We see this level of decline as unlikely given Constellation’s diversified software offerings and continued M&A execution,” she wrote.
Mr. Miller, who has served as Constellation’s chief operating officer since 2001, became president last September when founder Mark Leonard stepped down for health reasons. Mr. Leonard took a unique approach to Constellation. He was a firm believer in decentralization and staunchly avoided media attention. On a rare public conference call last year, he introduced a handful of Constellation AI experts, but only identified them by their first names so they wouldn’t be contacted by competitors.
By appearing on an earnings call, Mr. Miller may be taking a more open approach. Constellation reported that its fourth-quarter revenue grew 18 per cent to US$3.2-billion compared to the same period in 2024. Revenue for the full year rose 15 per cent to US$11.6-billion.
Organic growth, however, slowed to 2 per cent from 3 per cent. “We believe an acceleration would have helped reassure investors amid the turmoil in software valuations,” wrote Desjardins analyst Jérome Dubreuil in a note on Monday.
Constellation typically buys companies outright, but Mr. Miller said it will now take minority stakes in large companies on a selective basis. The first such example is Constellation’s agreement with U.S. travel technology company Sabre Corp., he said.
Constellation owns a 12.7-per-cent stake and struck a governance agreement that saw one of its executives appointed to Sabre’s board. (Sabre adopted a shareholder rights plan earlier this month to prevent anyone from acquiring more than 15 per cent of its shares.)
Analysts on the Monday call questioned the approach, with some expressing concern that Constellation may not have much influence through minority stakes.
“It’s another way to deploy capital, and we’ll do it rationally,” Mr. Miller said. “We won’t allow it to distract us.”
With a report from Sean Silcoff