On Friday, RBC (TSX:RY) Capital Markets released its '2025 New Year Preview' note, highlighting top software picks and ideas for investors. Microsoft (NASDAQ:MSFT) emerged as the top large-cap pick, with a price target (PT) set at $500 and an Outperform rating.
The firm believes Microsoft is poised for sustainable growth, leveraging its leadership in mission-critical categories and potential to capitalize on Generative AI (GenAI). For detailed analysis of top tech picks and their growth potential, investors can access comprehensive research through InvestingPro.
Microsoft's stock is considered undervalued by RBC Capital, trading at 31 times its expected 2025 earnings, compared to the average 41 times earnings of mega-cap software peers. The firm's $500 price target suggests a valuation of 37 times earnings, reflecting confidence in Microsoft's prospects. Key catalysts for Microsoft include Azure's expected growth in the second half of the year, leadership in AI, adoption of Copilot products, and security enhancements.
In addition to Microsoft, RBC Capital identified MongoDB (NASDAQ:MDB) as the top non-consensus pick, with a $400 price target and an Outperform rating. MongoDB is recognized for its position in next-generation databases and potential to refute the bear case surrounding its competition with Postgres. The company's stock currently trades at 11 times its expected 2025 revenue, and RBC Capital's price target implies a multiple of 13 times revenue.
Shopify (TSX:SHOP) (NYSE:NYSE:SHOP, TSX:SHOP) is named as one of the best ideas for 2025, with predictions of outperformance due to its growth potential in next-generation commerce platforms and high profitability. Shopify is expected to maintain a premium valuation and is trading at multiples in line with its pre-COVID averages.
Lastly, Constellation Software (ETR:SOWGn) (TSX:CSU) is highlighted as a promising long-term investment. RBC Capital commends Constellation's ability to reinvest free cash flow effectively and its decentralized business model.
With an anticipated 20% growth in adjusted EBITDA and 27% growth in free cash flow per share for 2025, Constellation's valuation at 25 times its next twelve months' EV/EBITDA is deemed attractive by RBC Capital.
In other recent news, Shopify has been making significant strides in the tech industry.
RBC Capital Markets highlighted Shopify as a driving force behind the expected growth of the S&P/TSX Information Technology sub-sector for 2025. The company, which represents 52% of the sub-sector, has a price target of $130.00 set by RBC, indicating a potential 19% return over the next year.
On the revenue front, Shopify's Black Friday Cyber Monday sales reached $11.5 billion, marking a 24% year-over-year increase. This aligns with the company's broader growth trajectory, as it achieved 23.47% revenue growth over the last twelve months. Deutsche Bank (ETR:DBKGn) maintained a positive stance on Shopify with a Buy rating and a price target of $125.00.
Raymond (NS:RYMD) James also maintained a Market Perform rating on Shopify following the company's record-breaking sales during the Black Friday Cyber Monday weekend. Morgan Stanley (NYSE:MS), on the other hand, maintained an Overweight rating and a steady price target of $126.00.
In addition to these positive ratings, RBC Capital, Oppenheimer, Deutsche Bank, Truist Securities, Loop Capital, and Scotiabank (TSX:BNS) have all expressed confidence in Shopify's ability to meet market expectations.
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