To my clients:

If you prefer, read this week’s update on my website. Feel free to share the link with family, friends and colleagues:

It was a mixed week for North American stock markets with the Canadian TSX finishing down 2.1%; the U.S. Dow Jones Index finishing down 1.0%; and the U.S. S&P 500 finishing up 0.3%.

This week I’ll quickly reiterate two topics from last week and then briefly address a rapidly emerging investment theme: artificial intelligence (AI).

Revisiting the topics from last Friday’s update, shifts in sentiment continue with respect to the U.S. debt ceiling. Earlier in the week sentiment was negative and markets reflected this sentiment. Today sentiment is better and markets are likewise reflecting this sentiment. I reiterate: this is politics in a polarized world, so I’d not be surprised to see further shifts in sentiment over the coming days. But I also reiterate that it would be folly for the U.S. not to get a deal done, so I continue to expect it. The other topic from last week was the downshift in weekly jobless claims (a favored leading indicator of recession here at RBC) from a spike higher a week earlier. Yesterday’s jobless claims figure confirmed the downshift in jobless claims so, for the time being, the spike higher two weeks ago seems to have been a blip. Nonetheless, I’ll continue to track and monitor.

Now for a few words on artificial intelligence which has been a pet interest of mine for over 20 years. Without getting into the metaphysical implications for humanity of growing computer intelligence and the potential for computers to become, perhaps sooner than anticipated, “self-aware”, I’ll suggest that the rising chatter about AI will continue to grow and is here to stay. While there are echoes of the early “dot com” days in the late 1990’s, I’d suggest that there is significantly more substance to the growing interest in AI. And lest we forget, while there was certainly an egregious bubble in the valuations of early internet companies, the fact is that the internet as a concept and tool has radically changed all of our lives over the 20+ years since and some of the planet’s biggest companies sprouted from that era. There is no doubt in my mind that the changes brought about by AI will also be profound – only these changes are likely to occur more quickly and have an even greater impact upon our collective lives.

Reflecting these prospects, the demand for computer chips driving this revolution are skyrocketing. On Wednesday, the company at the forefront of this advanced chip development, Nvidia, confirmed this exploding demand with stellar results and equally stellar forward guidance for its chip products; its stock price surged accordingly. The company’s valuation is now knocking on the door of the elite $1 trillion club, presently represented by companies such as Apple, Google (Alphabet), Microsoft and Amazon. All four of these latter companies have varying interests and exposure to AI and also responded nicely to Nvidia’s results. Luckily, all four of the latter companies are held in client portfolios, while Nvidia is not. Put simply, while Nvidia is a phenomenal company, it is also very expensive. Perhaps its future growth will justify this expense, but it is not a valuation I’d feel comfortable exposing clients to. Referencing again the dot-com bubble of the late 90’s, I see it s my job as a Portfolio Manager to prudently expose my clients to this rapidly emerging theme while not paying egregious valuations for said exposure. Most certainly I’ll stay far away from companies with minimal business plans which look to capitalize upon the AI boom through dubious associations.

That’s it for this week. All the best,

Nick

Nick Scholte, CIM, FCSI

Senior Portfolio Manager

Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com

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