Canadian tech stocks are getting hammered
And it has more to do with their clients' business than where they are based.
The stock market is a stressful place for any company to be right now, but Canadian tech firms are having a particularly rough go of it.
Shopify, Lightspeed, OpenText, and BlackBerry have all underperformed compared to the rest of the TSX so far this year, and their U.S.-listed stocks have faced steeper drops than many of their Big Tech counterparts south of the border during the chaos of the last week.
One exception has been Constellation Software. The company has, for much of its history, been incredibly stable, which is something investors desperately want right now.
The fact that it owns over 700 niche software businesses with solid customer bases across dozens of industries and countries also means it is highly diversified, minimizing the impact if one company (or even an entire sector) takes a hit.
Also, despite also underperforming this year, Kinaxis has rallied over the last week. This could be due to investors anticipating big demand for supply chain management software as some companies reshape things during a trade war.
This trend isn’t just because the Canadian market as a whole is weaker. Besides the fact that these companies are behind the rest of the TSX, the S&P/TSX Composite Index is down 8.98% so far this year — other U.S.-based indexes are down by more, save for the Dow Jones.
What’s going on: Shopify and Lightspeed are both tied to retail, which is one of the more exposed industries in a recession as people cut back on spending. That means existing clients are likewise going to be more budget-conscious — even if they don’t cut back on things they already pay for, it will at least be harder to sell them additional services. Even though Shopify has been making a push to bring more established retailers on board, new businesses are still the key to its growth, and these aren’t the kind of conditions where people are rushing to start new ventures.
Lightspeed, however, has some of its own stuff going on unrelated to broader market trends. Its stock tanked in February after it bailed on plans to sell the company and opted for a stock buy-back instead.
Over the last week, its stock performance has actually been slightly better than its fellow Canadian tech stocks.
OpenText, meanwhile, sells data management software. Like other B2B software companies, this is a hard time to upsell clients, but a recessionary environment also means some customers may pause or slow down their AI adoption, an area where OpenText has been jockeying for position. Roughly 60% of OpenText’s revenue also comes from the U.S., which could be jeopardized if trade relations deteriorate more or USD continues to drop.
What’s next: Like everything related to the U.S.’s trade war, this could all change quickly. All of the numbers are based on the market close yesterday, and as I write this, stocks across the board are rallying after Trump paused some tariffs. Right now, it does not seem like enough to close all of the gaps you see up above, and the fact that tariffs on China have been cranked up is still going to drag the tech industry.
There are also some unanswered questions about how exactly the pause impacts Canada, and the market might not like the answers.
The retaliatory tariffs are also being paused for 90 days, so, I dunno, maybe this all happens again in July?