Change can be positive or negative, depending on how prepared your organization is to capitalize on opportunities and mitigate risks. This analysis of the year ahead can help you understand what changes may be coming up quickly — and what actions you can take to seize these opportunities.

It is vital to understand these five key trends in the technology sector that may impact your business in 2025:

• AI takes center stage
• The impact of falling interest rates on M&A
• A renewed focus on building lean teams
• The importance of cyber security
• The acceleration of clean tech

Artificial intelligence (AI) was the dominant tech success story of 2024 as valuations skyrocketed and startups started to emphasize the use of AI in their products. The federal government announced a $2.4 billion investment in the AI Compute Access Fund in April 2024, aimed to expand the AI sector and support technology adoption.

Canada is home to a handful of significant AI organizations, including:

• Element AI — This Montreal-based company focuses on developing AI solutions for a variety of industries, including finance and logistics.
• Vector Institute — Located in Toronto, this research institute is dedicated to advancing AI through collaboration with industry partners and academic institutions.
• DeepMind — Although originally a UK-based company, DeepMind, a subsidiary of Alphabet Inc., has a significant presence in Edmonton, Alberta, where they focus on reinforcement learning and other AI research.
• Cohere — This company is based in Toronto and specializes in natural language processing. It has developed advanced language models used in various applications.
• DarwinAI — DarwinAI is located in Waterloo and focuses on explainable AI, helping businesses understand and trust their AI models.
• Borealis AI — A research institute backed by the Royal Bank of Canada, Borealis AI works on machine learning and AI applications in finance.
• BlueDot — Based in Toronto, BlueDot uses AI to track and predict the spread of infectious diseases, providing valuable insights for public health.

Will the AI boom continue in 2025? Research from the Business Development Bank of Canada (BDC) suggests it will. In a September 2024 report, the BDC found that the majority of Canadian businesses are using some AI tools, and 97 percent of businesses say they’re seeing benefits. This early feedback is a positive sign — and suggests that business leaders could be open to further investment if they can find AI products that solve critical business issues.

However, there is a risk beneath the surface of AI popularity: governance and regulation. The federal government has committed resources to AI regulation, but Canada lags behind other countries. This lack of regulatory clarity makes it difficult for Canadian tech leaders to move forward because of the risk that new policies could negatively impact their products.

Actions to take

• Explore opportunities to leverage AI in your current operations
• Understand how AI is impacting your industry and how your competitors may attempt to integrate it into their products or services
• Pay attention to local and global AI regulation

Interest rates are starting to drop in both Canada and the U.S. Could this spark new funding or M&A opportunities for the Canadian tech sector?

M&A activity was relatively stable in 2024, with transaction volume and value staying consistent over the last two years. However, lower interest rates should support growth — and increased interest in AI means some startups will become appealing acquisition targets in such a competitive landscape.

Changes in Canadian and U.S. politics could have downstream impacts on the tech sector. Canada’s proposed changes to capital gains may dissuade some investors. However, the U.S. may be altering its approach to capital gains as well.

Actions to take

• Keep due diligence teams at the ready
• Review your tax strategy with advisors to ensure your approach is up to date

The tech industry has experienced a rocky road in recruiting and retaining new talent over the last five years. In 2021 and 2022, the industry went through a huge hiring spree but followed it up with a wave of layoffs from organizations of all sizes in 2023 and 2024.

These situations create many challenges for organizations. Individuals lose their jobs, businesses lose key talent and institutional knowledge, and the retained employees might feel a lack of security or lose morale.

Tech organizations will need to start hiring again as interest rates come down and investment activity picks up. Do they add significant headcount or adopt a different approach this time around?

Exploring new opportunities could be more attractive for this cycle. Tech leaders should consider outsourcing some support functions, such as HR or IT. This approach makes it easier for organizations to scale up and down as necessary, while also gaining access to top-level talent that can provide significant strategic value.

Immigration policy changes are the other key consideration for 2025. The 2025-2027 Immigration Levels Plan reduced the number of new permanent residents, which could make it harder for the Canadian tech sector to hire the talent it needs. If your organization typically relies on recruiting global talent, you should start to explore what other talent options are available.

Actions to take

• Perform a critical review of your future staffing needs in support departments
• Explore other ways to round out the support functions of your business

The volume of cyber crime is rising, with tools, tactics, and techniques that are becoming much more sophisticated and efficient to execute. While there is no way to prevent your organization from becoming a victim, it is crucial to take the right steps to prevent as many attacks as possible and prepare to minimize the impact.

Tech startups are vulnerable to cyber threats because they’re often running on thin budgets and underinvesting in infrastructure. Additionally, this industry is a prime target because tech companies often have valuable intellectual property (IP) or handle significant amounts of personal data — two highly sought-after assets for cyber criminals.

Major tech companies, some with revenues exceeding US$1 billion, have been the victim of cyber attacks in recent years. If these large companies are vulnerable, smaller tech startups are also at risk.

Software companies are also performing double duty by protecting not only corporate infrastructure and systems but also ensuring the security of software products or platforms. Threat actors target software and tech startups because they could potentially gain access or information on hundreds if not thousands of customers.

The trend of using third-party vendors for different services is another key driver of the increase in cyber crime. The tech sector is uniquely vulnerable because it operates on both sides of the equation — many tech companies use third-party vendors, and some tech companies are the third-party vendor.

Tech companies need to pay close attention to cyber security and evolving threats in 2025 to protect their businesses and maintain a competitive edge.

Actions to take

• Ensure that your organization is following the fundamentals of cyber security for both your corporate IT infrastructure and your product or service
• Review best practices for safely working with vendors if your business deals with a significant number of third-party vendors
• Conduct an in-depth review of your secure SDLC (software development life cycle)

If 2024 was the year of AI, will 2025 be the year of clean technology? Climate concerns are not going away, and the impacts of climate change are also accelerating — as demonstrated by a growing number of natural disasters in Canada and beyond.

There are signs of a clean technology boom both at home and abroad. Canada will need to leverage technology to achieve 2030 emissions targets. The federal government has created a new clean economy grant, made significant financial commitments to manufacturing batteries for electric vehicles, and continued to cap greenhouse gas emissions from the oil and gas sector.

AI’s energy demands are also leading to more clean tech opportunities. Businesses such as Microsoft, Google, and Amazon are investing in nuclear power to fuel the significant demands of AI tech.

This combination of public and private investment should provide lots of opportunities for Canadian clean tech. Even if your organization has no direct application for clean tech, these companies are growing and may be a potential customer. Is your organization prepared to take advantage?

Actions to take

• Explore clean tech funding opportunities
• Gather your leadership team to understand the potential downstream impacts of clean tech and how your product could fit
• Understand the impacts of rising energy costs and what you could do to mitigate this risk