A Comment -- General Comments From an Expert (A Commentary)

You have to look at the entire stack of all similar companies together. You have the hyperscalers, the semiconductors, the supporting infrastructure, and the power component. Across a particular stack, look for dislocations where you have these massive selloffs. A lot more air can come out of the market when it comes to multiples. 

You will get opportunities to pick up some of these long-term growers, with very strong fundamentals, as they sell off and the multiples compress.

When you look at the dot-com bubble, today it's a different buildout. Back then, it was funded very much with debt. A lot of the companies were taking on very aggressive debt profiles, with very high interest payments.

This time around, we have the hyperscalers that are extremely cashflow generative. They've enjoyed decades of monopoly-like businesses to give them strong cash balance sheets. So a lot of the growth is getting funded with cash. 

On the other side, we're also starting to see a lot of the revenue come up. On the cost structure, companies are also starting to optimize. A lot of operating leverage as companies roll out their solutions. These companies are also eating their own cooking, as they implement a lot of these AI applications internally within their own ecosystems. This also adds to the operating leverage.

People are now asking whether AI will eat software. There's a case to be made that if you look at individual point solutions, then they will absolutely be decimated. But you still have power, infrastructure, and platform companies.

Look at LPSN, which automated call centres. Low-hanging fruit that got crushed 98% as soon as ChapGPT came out. Market's still trying to figure out what's going to happen to a company like CRM, which has been a behemoth in the space. Its software is expensive, but it isn't great. Co-CEO left to start his own company with an AI-first principle, and that's what other companies need to adopt.

Revenue models need to adapt and adjust to this new normal. Per-seat models have to shift to some sort of consumption model, because AI adoption leads to fewer "seats" to sell to. CRM is trying to do this.

An area of software he really likes is infrastructure, everything that powers the back end behind the scenes. 

Software as it exists today should be dead soon, as you can build a lot of it yourself. But you still need the back end and infrastructure to support it. Companies need to reimagine their fundamental DNA and their business models. 

Analysts come into the year perhaps overly optimistic. We get to the end of August, and they say "Oh boy, I better cut back my estimates." Seasonally, we've seen a lot of weakness at this time of year. But that's in every year.

This year, analysts took estimates down pretty sharply in Q1 and Q2. They've now been revising up later in the year. That's one thing that's different.

Second thing is, the market came in on a pretty good footing into the middle of August. That makes it different as well. In years when the market's come in on pretty solid footing, Q3 doesn't wind up being so bad.

That being said, he generally comes into this time of the year with 5-7% cash. Global markets are behaving really well. Canadian markets are, too. But you have to address the fact that markets can be sloppy from the end of August till the end of October.

If you look at the revisions that have been taking place over the last month, a little over 60% of them have been higher. Revisions are going higher in Q4 of this year and in Q1 of 2026. That's positive. 

There are sectors where we're seeing that. Financials, industrials, tech, and communications show this trend. But healthcare is going the other way. So it's sector by sector. There are definitely haves and have nots in the market right now.

He's continued to add positions in global markets, as they look really constructive. And he has more Canada than he'd typically have. Canadian market is solidly outperforming the US. Breadth of stocks performing well is better in Canada than in the US.

In a bull market, you need 20-25 positions for a diversified portfolio. If you own a store and your inventory isn't selling, then you mark it down, get rid of it, and replace it with stuff people want today. You only have so much shelf space. Same in your portfolio. When something isn't working, and there's no sign that you can find to say it's about to change, then probably move on and do something else. Because you only have so much capital.

Catalysts for Higher Equity Prices: Lower Interest Rates

Small caps depend more on borrowing and typically pay higher rates. When interest rates fall (as expected in the U.S. this year), small companies’ funding costs drop, supporting higher future earnings and stock price appreciation. Historically, small caps have only begun sustained outperformance several cuts into the rate-lowering cycle, so extended monetary easing could act as a catalyst for movement. There is also a big investor sentiment shift when rates start to move lower, and investors are more willing to take on risk with investments in smaller companies.
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He expects Fed Chair Powell to sound cautious. There are a lot of moving parts. The recent labour stats showed cracks. Another labour print before the Fed meets again, which he will want to see. Also, US inflation has been sticky, especially services. Expects Powell to say it's data dependent and won't show his cards. The bull market continues, still led by few stocks and sectors (communications and tech). Healthcare, energy and discetionary have struggled, though, but is not unusual. Bull markets get narrower as they mature. Small caps: he's had great success if you're a stockpicker. Lower interest rates favour small caps which are heavily levered.

Many focus on taxes, but lose sight of investing--to make money. Some want to avoid paying tax so much that they make poor investment decisions. Nobody likes capital gains, but they are a part of life.

Beware of online scammers. Someone is perpetuated a fraud under his name, promising returns and such. He would never do that on social media, except offering advice on YouTube. The Fed this week: What will they do about the future? Trump wants to take away their independence. Many expect the Fed to open the door towards a rate cut. He's not sure, expecting them to be more hawkish and September will be a coin flip based on data (job losses).

He loves alternative strategies, because these funds take no or little direct market risk. Instead, they pick the best ideas and go long, with leverage, then short some names to create the leverage of names they don't like. Few managers are good at this. A manager called AQR, in Connecticut, is one he uses and likes. He loves multi-strategy funds that will be huge in coming decades.

Population growth is based on net immigration and births minus deaths. 20 years ago, Washington forecast a 1.4% productivity rate. The actual growth to 2025 is 1.1%. We need a lot of growth to climb out of this current debt. We're creating jobs, wonderful, but there's a lot of talk of AI to steepen productivity. Getting a liberal arts degree won't cut it in terms of where the growth will be in the future. Rather, the economy needs people trained in STEM research, those who can contribute to AI.

AI spending is at an all-time high, the fastest in the history of any tech the world, including the internet. No, valuations are not excessive, and he's still invested. These companies remain the best-positioned, because immigration policies means a labour shortage, especially in small business whose margins will suffer because of a lack of cheap labour. Stick with the Mag 7.

Tech has been so strong but some sectors like Healthcare that have been really beaten up are starting to rotate. Energy is not ready yet but the gold sector is strong and should accelerate. Valuations are getting stretched in big tech and they could start to grow into their multiples. September is one of the weaker months along with early October. People returning from summer vacations may start examining their portfolios more closely and look at taking profits.