U.S. markets opened the week on uncertain footing as investors awaited Nvidia’s earnings and long-delayed U.S. economic data. Concerns over overstated tech earnings, weakening free cash flow and shifting sentiment toward AI leaders added to the tension.
BNN Bloomberg spoke with John Zechner, chairman and founder of J. Zechner Associates, who discussed the risks emerging in mega-cap tech, the shift away from high-valuation AI names, and the opportunities he sees in beaten-down stocks affected by tax-loss selling.
Key Takeaways
- Concerns are rising that major AI-driven tech firms may be overstating earnings due to aggressive depreciation schedules.
- Heavy AI infrastructure spending has pushed some tech giants into negative free cash flow, weakening a major pillar of the bull case.
- Nvidia is expected to beat expectations again, but lofty valuations raise the risk of post-earnings selling.
- Investors are rotating toward value-oriented tech names as uncertainty grows around high-valuation AI stocks.
- Opportunities are emerging in stocks pressured by tax-loss selling, including renewables, telecom and transportation names.
Read the full transcript below:
ANDREW: U.S. stocks wobbling at the open this week. We’ll have one big earnings report — the Nvidia release. Let’s get more from John Zechner, chairman and founder at J. Zechner Associates. John, thanks very much indeed for joining us. What do you think? Is there a smell of fear in the air over the AI stocks and whether they’ve gone too far?
JOHN: Well, there is, Andy. And, I mean, it’s interesting. I mean, you’re knocking out sort of two of the pegs that have kept the bullish argument going for the AI stocks for a while. The first one being the depreciation schedule. People are suddenly worried about what was brought up last week — like this, all this equipment that’s been put in, and then the growth, and suddenly using like six- to eight-year depreciation schedules. And what if the, you know, because of obsolescence and the need to upgrade more quickly, what if the useful life is more in the, you know, the four- to six-year period? These companies are not depreciating the assets enough at a quick enough rate. And if they’re not taking enough depreciation, you’re overstating your earnings. And let’s face it, earnings have been one of the great sort of backstops of the growth story of technology overall.
When people say, well, it’s different than 2000 because the earnings are better — well, not if the earnings are overstated. And then the other thing is, well, people may say, okay, well, earnings don’t really matter, it’s cash flow that matters, that’s just an accounting entry, depreciation. Effectively, it doesn’t impact cash flow. Absolutely true. But what we’ve noticed is — and again, a second argument — it’s the free cash flow. The free cash flow was a great argument for these big tech companies. For a year, they generated gobs and gobs of free cash flow. You know, they were like banks. They were like, you know, large governments or anything, in terms of the cash balances they had. They could buy back stock, or they could do acquisitions. But now what we’re finding is they’re moving into a negative free-cash-flow, and after getting financing elsewhere, including the bond market.
You saw, you know, Meta’s deal for $30 billion in bonds. You know, Alphabet has come in. Obviously OpenAI is, you know, doing a major raise even though they’re not a public company yet. So the second argument — that they’ve got this great free cash flow — that’s not true. So then you start to worry about, okay, when do you start to monetize AI? Maybe there’s a bit more of a rush to monetize this AI, because if these companies are, like I say, overstating earnings, and if they’re not generating free cash flow, you know, this story better start generating some profit in a hurry.
So, you know, we get the bar set a little bit this week with Nvidia. I don’t expect a miss, Andy. I mean, these guys have knocked the ball out of the park over the last two and a half years. I remember back in early ’23 when the first quarter, I think they were expected $9 billion in revenue, and they hit almost $11 billion, and now you’re looking at $54 billion, I think, the expectation for a quarter. So we know they get the lion’s share. But, you know, we saw good earnings from some of these tech companies that did not turn into great stock performance. You know, look at Palantir, Microsoft, Meta. So the bar’s set very high. And, you know, can they beat that? And, you know, what are the sales to China, and how fast are they rolling over the equipment?
So, you know what? Everybody’s in the story. People love it. It’s maybe a little bit overhyped. And some things coming up from the woodwork lately are a little bit reminiscent — to say it — of, you know, 2000 when you overbuilt telecom and, you know, you had different valuation models. Maybe it’s better today, but maybe not that much better.
ANDREW: And apparently Peter Thiel, who knows a thing or two about tech investing — his hedge fund sold off its holdings in Nvidia in the third quarter. It’s now betting on Apple, Microsoft and a reduced stake in Tesla. But interesting — so we get the Nvidia numbers on Wednesday, as you know, after the close. Maybe you could put up a one-year chart. Interesting — a smart player like that backing away from Nvidia.
JOHN: Well, everyone’s made a lot of money on these stocks, Andy, as you point out. And, you know, the shifting may be to safer bets. I mean, obviously you saw the thing on Berkshire Hathaway taking a stake in Alphabet as well, which — you know, the Alphabet, Meta stick out to me as more value-oriented plays in the sector. These guys will probably monetize AI sooner and better than anybody else, because they can deliver to their, you know, clients through their apps or through their public clouds, which Google have the benefits of AI more quickly. And they can, you know, sort of benefit from that and sort of monetize it more quickly.
So you can see people shifting to that and away from these high flyers that have no earnings and you don’t exactly know what the valuation is going to be. So we’ve reduced our bet overall in the sector, Andy. I mean, you know, we’ve always got to be in technology. There’s still a great growth sector. But right now, in terms of what we’re adding in the portfolio, I’m looking more at some of the beaten-up areas, some of the tax-loss-selling candidates, where I think, you know, you’re creating a bit of opportunity if you’ve got a little bit of patience to ride these things through. Because, as you know, I mean, the one thing is, sometimes good earnings are met with selling, but bad earnings have been absolutely decimated. I think that’s creating some opportunities out there.
ANDREW: One stock that you’ve got your eye on is Northland Power. They just slashed the distribution. The stock tanked. Is that one you say shows potential?
JOHN: Yeah, that’s a classic example of it. Yeah. Trading now at about seven to eight times cash flow, which is, you know, great for renewables. I mean, renewables are out of favour. And that dividend cut — yeah, that’s it. There are a lot of dividend investors out there, and that 27 per cent selloff or whatever it was the other day just wiped out the year’s gains. That had been actually a pretty good performer. But, you know, that was on the conference call, and when you listen to what management was saying about why they missed it, it’s really because they’re seeing more opportunities available to them.
I mean, their two major projects — Long Bay and North Baltic — are coming along just fine. I mean, they’re going to put them into production over the next year and a half or so, generating cash flow. And what they’re seeing is more opportunities because, you know, with what’s going on with the U.S. administration and their sort of way to move away from renewables — I mean, it’s some opportunities for others with capital. But, I mean, cutting a dividend is not the way to do it.
And you know, another name we’re buying in here is Cargojet recently. Again, a bit of a disappointment on the numbers. It’s economically sensitive, but the stock got absolutely decimated. It usually traded, you know, 10 to 15 times operating cash, so now it’s down to six to seven times. And then I noticed the founder came in last week and he bought — spent a million dollars buying stock himself, which I always love when I see the founder, you know, one of the original principals in there, buying stock. So things like that. I mean, you know, you’ve got to have a little patience. Sometimes it’s hard buying the dogs like that. I mean, but, you know, maybe it’s just me. I’m, you know, I’m a marathon runner, Andy. I’m used to pain. Maybe that’s it.
ANDREW: BCE, our parent company — you see potential there?
JOHN: Another example exactly, Andy, of that valuation. You know, they cut the dividend. Everybody’s come out of the stock. They dislike it. But look at the valuation of the telecom sector in general. I find it very attractive. And, and everyone’s sort of, you know, poo-pooing the idea of, you know, what they’re doing with Ziply and what they’re doing in fibre in the U.S. I mean, you know, BCE knows fibre well. I mean, they’ve done a great fibre buildout in Canada, and all they’re doing is levering that expertise a little bit into regions of the U.S. And I think it’s a smart way to continue to grow within the telecom business.
You know, they’ve monetized some assets recently. They’ve sort of cut, obviously, you know, cutting the dividend, and improved their cash flows a little bit. And then when I look at the long-term valuations of all of these players, I think, yeah, I don’t see much downside. I see a dividend yield protection a little bit. And I see some upside if investors come around to it a little. So I think sometimes you’ve got to chase those opportunities, particularly this time of year.
Because in a year where you’ve had a strong market — and I’ve seen that in our client accounts, where, you know, we’ve got a lot of capital gains this year, and people are sort of looking, okay, have I got any losses I can crystallize as I reduce those gains, reduce my tax bill next April? And they’re putting extra pressure on these stocks, and I think that creates opportunities like BCE, Northland Power, Cargojet, MDA Space, Arc Resources. It’s a bunch of names that I’ve seen have been under pressure lately that I think will relent after that, and the valuations and the stories are still good.
ANDREW: John, thank you very much indeed.
JOHN: Andy, have a good day.
ANDREW: You too. John Zechner, chairman and founder at J. Zechner Associates.
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This BNN Bloomberg summary and transcript of the Nov. 17, 2025 interview with John Zechner are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
