Tech stocks have been crushed, but Ivana Delevska believes the worst of the AI sell-off may be behind us. With some AI stocks down 30%, 40% or even 50% from their highs, is this the buying opportunity investors have been waiting for? And could the highly anticipated Anthropic IPO reignite the AI trade? On this episode of In the Money with Amber Kanwar, Ivana Delevska, Founder and Chief Investment Officer of Spear Invest, explains why rising interest rates and forced selling have hammered AI stocks, even as the underlying fundamentals remain strong.
Looking to invest in high-quality companies without high fees? The HAMILTON CHAMPIONS™ suite of ETFs offers exposure to diversified portfolios of equity champions across tech, financials, utilities, and dividend strategies, all with a low 0.19% management fee, designed to help you stay invested with confidence for the long term. For more information on the HAMILTON CHAMPIONS™ suite, visit: www.hamiltonetfs.com/hamilton-
FROM AMBER’S DESK
There will be no note on Monday as I will be interviewing the Minister of Finance, Francois-Philippe Champagne, ahead of the Federal Budget in the morning. The theme of the budget was revealed this week: “Masters of Our Destiny” is intended to focus on creating conditions for Canada to strengthen our sovereignty. Expect nation building projects, perhaps a tax cut for businesses, and other major project initiatives – all with a side of rising deficits. The interview will be at the Canadian Club and likely live streamed and if all goes to plan I’ll send it out as a bonus episode this week!
Here are five things to know today
1.
Stocks in the red on tech weakness
The last trading day of the month is poised to go out on a whimper with weaker earnings from Amazon and Intel weighing on the tech trade. The S&P 500 may eke out only a modest gain for October but thanks to a rotation in the market, the equal-weight version is up nearly 6% for the month. The rotation has also benefitted the TSX which is up about 3% in October. In the US the rotation has been into laggards like consumer staples and healthcare. That is on full display this morning with the likes of Mondelez, Church & Dwight, Colgate, and AbbVie all higher in the pre-market on the back of earnings.
Ahead of the Federal Budget next week we just got a read of Canadian GDP that came in weaker than expected for August. Canada’s economy only expanded 1.5% in August year-over-year, and posted no growth from July to August. And yet the Bank of Canada still hiked rates this week. The estimate for September points to a 0.1% decline from August – so going from bad to worse. “Today’s figures suggest that momentum heading into that quarter may have been even weaker than anticipated,” writes CIBC’s Andrew Grantham. “Admittedly there’s plenty more data to be released between now and the December meeting, including the full Q3 GDP by expenditure, but today’s release is supportive of the Bank holding fire for now on a further interest rate hike.”
2.
Amazon -6.5% on higher spending, slower e-commerce
Lots of negatives to chew on: earnings missed expectations as the e-commerce giant’s spending on AI initiatives came in well above expectations. North American sales increased only 6% which was below expectations. Amazon’s cloud business, Amazon Web Services, grew 39% but that was short of expectations and less than Microsoft’s cloud business. Add to that an outlook that failed to impress and cash burn that was worse than feared – and you’ve got unhappy investors this morning.
“We acknowledge the concerns around AWS growth in 3Q, but with shares down ~7% in after-hours trading and currently trading at ~15x our updated ’28 GAAP EPS, we would be taking advantage of the dislocation in shares,” writes Citi’s Ron Josey. I own Amazon.
3.
Intel plunges 25% on weaker PC market and outlook
Demand for PC processors was weaker in the quarter while supply chain issues meant they weren’t able to meet data centre demand. The rise in memory chip prices had a twin effect on the PC market: they are in short supply and the higher prices are watering down demand. PC sales dropped 12% this year and Intel warned they will drop another 10% next year. It’s a snag in the turnaround story led by Lip-Bu Tan, who is trying to get Intel to better participate in the AI buildout.
That too was stalled this quarter thanks to supply disruptions and raw materials shortages. The sales outlook for the upcoming quarter fell short and the profit forecast was half expectations. I don’t always get it right – but I am glad I took profits on this one a few months ago selling 90% of my position. “The stock trades at 60x forward earnings, and the setback ‘highlights how expensive the stock is on next-year numbers,’ wrote Joseph Moore of Morgan Stanley.”
|
“Generally, even after this selloff, we do not find the stock compelling.” — joseph moore, morgan stanley (equal-weight) |
4.
Air Canada cuts profit outlook on higher fuel costs – again
For a second quarter in a row, the airline is cutting its profit outlook because of rising jet fuel costs. The profit outlook was cut by as much as 25% from the one forecasted just a few months ago in August. Even with these headwinds, revenue came in an all-time record. Fare increases are part of what is helping to support the top line but so is demand.
“Although higher fuel costs will weigh on earnings in the near term, we continue to be positive on Air Canada based on the following: (1) Air Canada has had some success in increasing yields as a partial offset to higher fuel costs (yield +11% in Q3) and while the timeline to a full recovery has been pushed to the right, we believe that 100% recovery is possible in H1/27; (2) we believe that higher fuel costs are weighing more heavily on the profitability of Air Canada‘s competitors, which ultimately will lead to more industry capacity cuts to the benefit of Air Canada; and (3) we see 2027 as an inflection for Air Canada as non-fuel unit cost growth should be lower and as the current capex cycle peaks,” wrote Cameron Doerksen of National Bank.
Shares are down 30% since the peak in August so we will see if the stock reacts negatively or if it is already priced in.
5.
TMX beats profit expectations
Total revenue increased 17%, with 11% organic growth, helping to power the bottom line and assuage AI disruption fears. There were concerns that exchanges would lose their edge as the gatekeepers of market data. TD’s Graham Ryding called the results strong and expects a positive reaction.
Chart caption — click and edit.
Don’t miss the next episode! Time to get your questions in! Click here to submit a question!
