The Magnificent 7 used to really feel just like the market’s cheat code. Recently, it seems like a crowded door. Costs rose, expectations ballooned, and now traders need proof, not guarantees. When everybody owns the identical handful of U.S. giants, even a small crack within the story can hit quick. So, ought to Canadians begin trying elsewhere?
What occurred
During the last yr, the Magnificent 7 wrestled with a tough mixture of success and scrutiny. It nonetheless delivered massive earnings and robust earnings progress, however the tempo has began to chill as comparisons get harder. Analysts anticipated the Magnificent 7 to develop This fall earnings about 21.5%, but that marks the slowest tempo since 2023, whilst absolutely the greenback haul stays enormous.
The market additionally began to concentrate on what it prices to remain on prime. The most important names preserve pouring cash into synthetic intelligence (AI) information centres, chips, and power-hungry infrastructure, and traders are actually asking when that spending will flip into cleaner margins. The current slide was linked to mega-cap tech and fears that heavy AI spending is not going to pay again rapidly sufficient, resulting in sharp drops in market worth throughout names like Microsoft and Amazon.
Then comes the coverage noise. European regulators have stored stress on the most important platforms, and the Digital Markets Act has already produced formal findings in opposition to Apple and Meta. Add U.S. election-year rhetoric and antitrust chatter, and also you get one other layer of uncertainty that may spook a crowded commerce.
Take into account CSU
If I needed an alternative choice to chasing the Magnificent 7, I’d look north to Constellation Software program (TSX:CSU). It could not promote telephones, adverts, or cloud subscriptions to the lots. As a substitute, it buys small, sticky software program companies that run quietly within the background, usually in slim industries the place prospects hate switching. That technique matches a uneven market as a result of it doesn’t depend on one blockbuster product cycle.
Constellation additionally retains creating its personal catalysts. It retains shopping for, integrating, and bettering vertical market software program, and it funds that machine with money movement fairly than hype. In its third-quarter 2025 replace, it mentioned it accomplished acquisitions with $281 million in money consideration, plus deferred funds that raise whole consideration to about $415 million.
The earnings numbers again up the story. Constellation grew income 16% yr over yr to US$3 billion in Q3 2025. It grew internet revenue attributable to frequent shareholders 28% to US$210 million, or US$9.89 per diluted share. Money flows from operations rose 33% to US$685 million, and free money movement (FCF) out there to shareholders rose 46% to US$529 million. These figures let you know it could actually preserve investing whereas it nonetheless sends a reimbursement to shareholders by way of its quarterly dividend.
Wanting forward, the enterprise case stays easy. Firms nonetheless want software program that handles billing, scheduling, compliance, and operations, even when budgets tighten. Constellation may also profit when founders of area of interest software program companies need an exit and consumers with self-discipline present up. The principle threat sits in valuation and execution. The market hardly ever provides this inventory an affordable value, and better rates of interest can elevate the hurdle for acquisitions. It additionally carries significant debt, which makes money movement high quality matter much more.
Backside line
So, might Constellation exchange the Magnificent 7 for different traders? It will probably, if you need compounding pushed by acquisition self-discipline and unglamorous software program demand. It may not in case you crave splashy AI upside otherwise you want a discount a number of right this moment. The Magnificent 7 can nonetheless win, however now asks traders to belief huge spending and fixed regulation threat. Constellation asks you to belief a repeatable playbook, and in 2026, which will look smarter.
