Tony Ciero, Vice President & Senior Portfolio Manager, Caldwell Securities
Focus: North American large caps
Top Picks: Microsoft, ServiceNow, Tourmaline Oil
MARKET OUTLOOK:
Artificial Intelligence, Innovation Just Getting Started:
I believe artificial intelligence (AI) is creating a powerful foundation for innovation, and in many ways we are still in the early innings of what this technology will ultimately enable.
Today’s significant investments in AI chips, cloud infrastructure, and data centres are building the digital infrastructure foundation that future AI applications will run on.
To me, this resembles the infrastructure buildout during the industrial revolution, when investments in railways, electricity networks, and factories ultimately led to decades of more efficient productivity.
From my viewpoint, we haven’t yet seen the most impactful applications of AI.
Businesses across many industries have only recently begun to explore how AI can improve efficiency needed to enhance future productivity.
The improved efficiency benefits of AI will continue to be most evident in healthcare, manufacturing and logistics.
Many investors have raised concerns about an AI bubble, citing similarities to the excess capital expenditures during the dot-com bubble of 2000. While that period was marked by investments in early internet companies trying to solve the 1999/2000 date switch, amongst other things, this current excess AI spend is not trying to solve for anything in particular. Historically, periods of major efficiency advancements, such as the industrial revolution, have come with a significant cost of capital needed to build the underlying infrastructure. The development of the internet followed similar patterns.
In my view, the current wave of AI spending will not result in an AI bubble, it’s laying the foundation for the next wave of economic productivity.
- Market-moving news, fast: Get the BNN Bloomberg App now
- Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
TOP PICKS:
Microsoft (MSFT NASD)
- Generates its revenues through a diversified business model – a leader in AI Cloud Computing capabilities (Azzure).
- Trading 25 per cent below its October highs
- Main reasons for the decline:
- Large capital expenditure commitment to building out AI data centres (annual spend greater than $100 billion)/
- Slower Azure Cloud growth than expected, while pressure is increasing from competitors such as Alphabet (Google Cloud Platform) and Amazon (AWS).
- Stock was priced for very strong growth, but quarterly earnings results in January were not up to investor expectations; albeit still quite strong.
- Remains a strong long-term investment, even though profits may remain under pressure in the short term due to its large cap-ex commitments.
- The company is spending heavily on AI and cloud infrastructure, particularly through its Microsoft Azure platform.
- While these investments may temporarily reduce margins, we expected it to drive strong revenue growth and help Microsoft gain market share in the long run.
- Monetizing their 365 Copilot - AI powered assistance for their apps (Excel / Word / Powerpoint).
ServiceNow (NOW NYSE)
- American software company that supplies a cloud computing platform for the creation and management of automated business workflows. Uses AI to streamline business processes.
- Unfortunately, the company has been affected by its status as a Software-as-a-Service (Saas) company – CEO claims it is not.
- SaaS companies are experiencing what is referred to as a “SaaSpocalypse” driven by fears that artificial intelligence will make them redundant.
- Stock price down around 20 per cent year-to-date despite delivering robust earnings and strong guidance
- Most recent earnings showed 20 per cent revenue growth and successful AI monetization.
- Premature to assume AI will have this negative impact on the health of the company as it is continuing to grow its business, though some caution regarding AI-driven competition remains.
- Analysts generally rate it a Buy/Strong Buy, citing technical rebounds, high-profit margins, and a lower valuation compared to its recent past.
- IPO in 2012 – same time as Facebook (META), outperforming META substantially
Tourmaline Oil (TOU TSX)
- Canada’s largest natural gas producer (larger than Canadian Natural Resources & Cenovus) but has significantly underperformed.
- Operations primarily in the Western Canadian Sedimentary Basin, with a reserve life of 21 years.
- It has a relatively low-cost structure, robust balance sheet, and significant potential of expanding its LNG export markets.
- Currently offers a three per cent dividend yield with a history of offering special dividends – paying out 100 per cent of the excess free cash flows.
- Potential growth drivers:
- Expansion of export markets if Canada reaches new trade agreements with other nations.
- Growing AI power demand – while data centres primarily run on electricity, placing a strain on electricity demands, natural gas generators can be used as a back up.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| MSFT NASD | Y | N | Y |
| NOW NYSE | Y | N | Y |
| TOU TSX | Y | N | Y |
PAST PICKS: AUG. 1, 2025
Berkshire Hathaway (BRK/B NYSE)
Then: US$472.84
Now: US$493.35
Return: 4%
Total Return: 4%
Royal Bank (RY TSX)
Then: $177.48
Now: $222.11
Return: 25%
Total Return: 27%
Amazon.com (AMZN NASD)
Then: US$214.75
Now: US$209.10
Return: -3%
Total Return: -3%
Total Return Average: 9%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| BRK.B NYSE | Y | N | Y |
| RY TSX | Y | Y | Y |
| AMZN NASD | Y | N | Y |
