Canadian equity markets are delivering solid earnings results, but elevated valuations are leaving investors increasingly sensitive to any sign of disappointment. Market reactions have been swift, particularly in technology stocks tied to artificial intelligence, where expectations remain high.
BNN Bloomberg spoke with Pierre Ouimet, head investment strategist at UBS Canada, about investor reactions to AI earnings, signs of consolidation in richly valued sectors and where opportunities may still emerge despite heightened uncertainty.
Key Takeaways
- Strong earnings are being overshadowed by valuation concerns, leaving markets vulnerable to sharp reactions when expectations slip.
- Artificial intelligence remains a powerful long-term theme, but margin pressure and lofty positioning are driving short-term volatility.
- Investor caution reflects consolidation rather than signs of a broader crash, particularly in heavily owned technology stocks.
- Consumer spending, especially among higher-income households, continues to support results despite broader economic worries.
- Canadian bank earnings were solid, but stretched valuations and compressed dividend yields raise the risk of sector consolidation.
Read the full transcript below:
ANDREW: Broadcom shares are down about five per cent in premarket trading. The company posted solid results in its latest quarter, but investors appear concerned about profit margins and whether its artificial intelligence backlog is growing fast enough. Let’s get more from Pierre Ouimet, head investment strategist at UBS Canada. Pierre, thanks very much for joining us. I know it’s just one day, but there does seem to be concern about whether AI plays such as Broadcom can maintain this pace of rapid growth.
PIERRE: Yes, I’m a bit surprised by the market reaction. Typically, the market reacts first and asks questions afterward. It was a beat — a clean beat. There are concerns about margins, and I think sales guidance was a bit disappointing. That’s likely what’s driving the selloff this morning. But we think it could be an overreaction, similar to what we saw with Oracle. We don’t believe the AI story is anywhere near over. From that perspective, this could be an opportunity.
ANDREW: I know you wouldn’t be buying AI stocks indiscriminately, but what about the Nasdaq 100 if you were making an index bet? Would that be something you’d consider?
PIERRE: We like technology, so that’s clearly an index we’d be looking at. From time to time, we do use indices in our portfolios. We think AI still has a long way to go in terms of penetration and economic impact. Markets go through these periods of consolidation, where even a small slip-up becomes a reason to take profits, especially when there have been significant gains. It’s also an area that’s become overowned, so any disappointment, even at the margin, can lead to weakness.
ANDREW: But you don’t see warning signs of a crash in AI stocks.
PIERRE: No, definitely not a crash. We could be in for some consolidation, and that’s likely what we’re seeing now. As we move forward, there should be more opportunities in the space. Technology is evolving rapidly, and these applications will have a significant impact economically and socially. The long-term outlook for AI remains very bright.
ANDREW: It really does feel like we’re still early in the story. Costco has been an investor favourite for some time. What stood out to you in its latest results?
PIERRE: The results were reassuring, given concerns about the U.S. consumer. They suggest the consumer is far from dead. Online sales were a key driver, which is encouraging, including for Canadian companies like Shopify. Overall, the numbers were very robust and supportive for the U.S. economic outlook.
ANDREW: Costco shares have lagged over the past year. Why do you think investors have cooled on the stock?
PIERRE: It reflects broader concerns about the consumer, which may be somewhat overdone. Parts of the consumer base are under pressure, but higher-income households continue to spend. The top income quartiles are sustaining demand, and that’s likely to remain the case. Interest rate cuts would help further, depending on how that unfolds.
ANDREW: Give us your take on Oracle, which some have called a fallen angel. Would you be putting money to work there right now?
PIERRE: We’d be a bit hesitant. We’d want to see more confirmation from future orders and clearer direction from the company. At this point, we’d be cautious.
ANDREW: We’re hearing Oracle carries more than US$100 billion in debt.
PIERRE: Leverage is a concern. The company is trying to right the ship, but that level of debt does raise questions.
ANDREW: What stood out to you from the latest Canadian bank earnings, given those stocks have been hitting record highs?
PIERRE: The quarter was very strong. Top-line growth was around seven per cent across the board. Profits before taxes and provisions were up roughly in the low 20 per cent range. Net interest margins improved slightly, provisions were not a concern, and overall results were solid. That said, valuations are now elevated. Dividend yields, for example at Royal Bank, are below three per cent, which is roughly in line with the broader market. That creates valuation concerns, and we could see the sector consolidate over the coming months.
ANDREW: That’s a low yield for a bank stock.
PIERRE: That’s what happens when stock prices rise. Right now, higher yields are more common in infrastructure and energy stocks. Canadian Natural Resources, for example, offers around a five per cent dividend yield, which is a stark contrast.
ANDREW: Pierre, great to hear from you. Thanks very much.
PIERRE: My pleasure. Thank you.
ANDREW: Pierre Ouimet is head investment strategist at UBS Canada.
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This BNN Bloomberg summary and transcript of the Dec. 12, 2025 interview with Pierre Ouimet 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.
