When Constellation Software Inc. CSU-T stumbled in previous years, investors bought the dip and congratulated themselves after the inevitable rebound took hold.
Not this year.
The Toronto-based company has specialized in acquiring niche software firms to form a sprawling empire, which was valued at about $100-billion in May, based on the company’s market capitalization.
But the stock has hit a prolonged bout of turbulence since then, which has challenged the long-held view that dips are nothing but buying opportunities.
Investors are now pondering the potential threat of artificial intelligence on the company’s holdings. And the sudden resignation of founder and president Mark Leonard, in September due to health reasons, underscored the uneasy feeling among investors that the company is entering a new era.
The stock has fallen about 36 per cent over the past seven months and is down more than 25 per cent in 2025, as of Dec. 23.
It trails the blue-chip S&P/TSX 60 Index by about 50 percentage points this year, putting it dead last among Canada’s largest companies.
In a year with several investing-related disappointments, including stagnant railways and dividend-challenged telecoms, Constellation stood out.
While previous downturns were driven by brief concerns about interest rates or its pipeline for acquisitions, this one strikes at the heart of the company’s business model.
As a compounder, it reinvests its cash in an ever-expanding network of niche assets, where barriers to entry are high and customer loyalty is secure.
Its software manages cruise ships and fence-builders. And if you’ve ever placed a hold on a book at the library, EnvisionWare, which Constellation acquired in 2021, may have helped.
The fear is that AI could lower barriers, paving the way for rival startups or giving Constellation’s customers the ability to develop their own software in-house, or so the theory goes. The thing about AI is that the possibilities seem limitless right now.
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While that’s great for AI giants like Nvidia Corp., Microsoft Corp. and Google-parent Alphabet Inc., the market is now on the lookout for potential casualties in what some observers believe is the next industrial revolution.
Among Canadian software companies, Kinaxis Inc. has fallen more than 15 per cent since July and CGI Group Inc. is down nearly 19 per cent in 2025.
Constellation is bigger, which suggests that the stakes are higher.
And the stock’s stellar long-term performance means that a lot of eyeballs are going to be fixed on 2026. Despite this year’s downturn, the share price has risen nearly 470 per cent over the past decade, according to S&P Global Market Intelligence – a market-smashing gain that is going to keep buy-the-dip investors riveted.
For the dip to turn into a rebound, investors are going to need some reassurance that the threat from AI is overstated.
This might not be an outlandish hope: Some observers think that Constellation’s diversified stable companies, which number in the hundreds, and its heavy weighting toward the public sector offer some protection.
In the best case scenario, AI becomes a tool that helps incumbent players.
“We see opportunities for Constellation to use AI internally to improve efficiency to add AI capabilities to its offerings using a pragmatic, customer-focused approach,” Stephanie Price, an analyst at CIBC Capital Markets, said in a note this week.
If that’s the case, then Constellation’s beaten-up share price – rather than forecasting trouble ahead – is simply cheap.
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By one valuation measure, the company’s total value is less than 15-times its estimated operating earnings for next year, down from an average multiple of 21 over the past five years, according to data from S&P Global Market Intelligence.
And lastly, a rebound might require a pivot from the company itself.
Constellation has been notoriously tight-lipped. It has eschewed quarterly earnings calls and Mr. Leonard has generally avoided interviews.
Silence was okay when the stock rewarded investors with market-beating gains. It added a mystique to the company, and fostered a loyal following.
Now, greater communication could go a long way to soothing nerves.
Even a stock split could help. The share price has risen into the thousands of dollars because the company has chosen not to divide each share into a number of lower-priced shares.
But splits have become popular with the likes of Alphabet and Amazon.com Inc. in recent years, arguably making the tech stocks more accessible to investors while signalling optimism from management.
Constellation Software’s slumping share price suggests that investors are worried. Buying this dip will require some confidence.