National Bank’s Top Tech Picks for 2025

It was a great year for big American tech stocks and National Bank Financial analyst Richard Tse thinks big Canadian names are the place to be in the year to come.

In a thematic research report issued December 17 called “Technology Year Ahead 2025”, the analyst outlined the year that was and the year that will be.

“As we look to 2025, we first reflect on 2024 – which saw a consecutive year of outperformance for Technology,” Tse wrote. “With respect to the broad indices, the S&P Info Tech index, Nasdaq 100, and S&P/TSX Info Tech Index are up 40%, 31%, and 39%, respectively, vs. the S&P 500 index up 27% (as of Dec. 16th, 2024). For the S&P/TSX Info Tech, the robust year of gains follows 2023, a year that generated an even stronger return of 69%. For those wondering whether we’ll see a third consecutive year of strength in 2025, we’d point out the Canadian Tech index generated consecutive returns of 64%, 80%, and 18%, across 2019, 2020, and 2021, respectively, capping a run of 9 consecutive positive years for the index dating back to 2013 which suggests multi-year runs are not unusual for this group, particularly given the thematic setup discussed in this note. With respect to our coverage universe, M&A was an active theme in 2024 with the acquisitions of mdf Commerce, Nuvei, Q4 and Copperleaf, along with growing takeout speculation around other names like Kinaxis and Lightspeed.”

The analyst says that while he likes the risk/reward mix for bigger stocks, investors should keep an eye on the broken down smallcap tech sector, which traded a decades-long lows in 2024.

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“While we called out M&A as a likely driver of performance in our prior Year Ahead, another was our expectation for a small / mid-cap catchup trade which began to take shape in the back half of 2024, where the considerably smaller Canadian Tech sector (versus its U.S. peers) picked up momentum after lagging through most of the year. Interestingly, at the time of writing, our discussions with investors have had increasing inquiries around more speculative names, consistent with the Animal Spirits unleashed in recent months across the sector. Overall, our core recommendations continue to lean toward our larger coverage names that present a balance of growth, profitability / operating leverage, and strong balance sheets – namely, Shopify, Constellation Software, CGI, Descartes and Kinaxis, which have collectively seen an average group return of 37% YTD. This note delves into what we believe will be key themes for 2025 along with specific names within those themes. We wrap up the report with a selection of our best picks entering the new year.

Tse has an Outperform” rating and a (US) $140.00 price target on the Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials NYSE:SHOP), where he thinks the ceiling is nowhere near being reached.

“We think there has been a marked shift in Shopify’s attitude towards capital deployment over the past 18 months (that began with the divestiture of SFN). That shift has been towards prioritizing efficiency and in turn, capital deployment and growing operating leverage. All that has come through a combination of growing operating discipline and the application of data, internally built systems, and AI. When it comes to the latter, we think Shopify is just at the beginning when it comes to the potential operating leverage. An example of that early operating leverage is the growing automation of backoffice processes particularly in functions like customer service with a growing roster of AI agents. The result – Q3’24 saw operating margin expanding nearly +600 bps Y/Y to 13.1% vs. 7.1% in Q3’23 from a ~750 bps reduction in OpEx (S&M, R&D and G&A) as a % of revenue. That translated into a Q3’24 ROIC of 15% (+341 bps Y/Y), FCF margin of 19% (+337 bps Y/Y) with the Company exceeding the “Rule of 40” (at 45) with expectations of continued expansion in Q4’24 (from Company guidance). We estimate FY24E adj. operating margin of 16.6% (Cons: 17.7%) with additional operating leverage in FY25 towards a margin of 17.7% (Cons: 18.1%)”

Tse has an “Outperform” rating and a (C) $225.00 price target on Kinaxis (Kinaxis Stock Quote, Chart, News, Analysts, Financials TSX:KXS), but thinks he could be underestimating the company already.

“Leaning In on Growth. While our Q4’24E forecast implies ~14.0% Y/Y revenue growth in FY24 after 16.4% and 46.3% Y/Y growth in F2023 and F2022, we believe Kinaxis is looking to strategically shift towards a more aggressive growth strategy in FY25 – in our opinion, we see that driving an inflection back towards accelerating growth. Granted, while the Company is still in the midst of its CEO search, we believe that person is anticipated to be aligned with this shift. At the same time, we think an improving demand environment, robust pipeline customer pipeline, increasing momentum from system integrator (SI) partners and potential expansions via an ACV:ARR of 1.23 (vs. 1.18 in Q2’24 and 1.08 entering F2023) should support that forward opportunity”.

Tse has an “Outperform” rating and a (US) $135.00 price target on The Descartes Systems Group (Descartes Systems Group Stock Quote, Chart, News, Analysts, Financials NASDAQ:DSGX) which has says has multiple levers to achieve its aggressive targets.

“We believe the Company’s target to grow its adj. EBITDA by 10% to 15% in the new fiscal year is achievable. First of all, we’d remind investors that the Company made two acquisitions (Sellercloud and MyCarrierPortal) in the second half of the current fiscal year (F2025). The new fiscal year F2026 will have their full contribution, thus creating a nice base of growth. Additionally, the macroeconomic tailwinds mentioned above and the continued efforts in upselling will likely drive the still robust organic revenue growth, translating into additional EBITDA growth through positive operating leverage. Lastly, as a roll-up name, Descartes has plenty of M&A dry powder with a cash balance of more than US$180 million, an undrawn credit facility of US$350 million, and an estimated FCF of US$240 million in the next 12 months. If anything, the strong balance sheet and FCF represent another layer of protection to achieve or even exceed that growth target.”