Canadian tech stocks are perking up, this analyst says

In an April 20 sector update, Paradigm Capital analyst Daniel Rosenberg said small-cap technology is showing signs of a risk inflection point after rebounding since late March, though software remains the clearest laggard and still trades below historical valuation levels.

Rosenberg said the turn appeared to begin on March 30, when a U.S. peace proposal helped improve market sentiment. In the U.S., memory- and AI-related names led the rebound, while in Canada tech also recovered but continued to trail the broader market on a year-to-date basis.

“While broader market risk-appetite has improved, Software remains a laggard and below historic valuation levels,” Rosenberg said.

The analyst said the shift has been especially clear in Canada since March 30, with a rotation back toward risk. Over that period, technology rose 21.1%, ahead of materials at 14.6% and financials at 13.0%, while more defensive groups such as health care, utilities and consumer staples lagged.

Within technology, Rosenberg said software has seen the sharpest reversal off the lows, but AI-related hardware remains the main driver of performance. He said the same pattern holds on a year-to-date basis, with hardware leading and software still materially behind.

On valuation, he said hardware multiples moved above software earlier this year as investors priced in AI-related disruption risk. While both segments have improved recently, the spread has remained largely unchanged, leaving software still below historical levels at about 1.9x forward EV/sales.

“While broader market risk-appetite has improved, Software remains a laggard and below historic valuation levels,” Rosenberg said.

Against that backdrop, Paradigm continues to favour high-quality, defensive names, with Rosenberg saying macro risks remain in place and the AI overhang on software has yet to fully clear.

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