Jonathan Wellum: AI Valuations, U.S. Growth & Why Gold Still Wins in 2026

Key Concepts

• AI Valuations: Concerns regarding inflated valuations of AI-related stocks despite the technology’s potential.
• Precious Metals (Gold & Silver): Significant outperformance in 2025, driven by underlying fundamentals and geopolitical factors.
• US vs. Canadian Economies: Contrasting economic outlooks, with optimism for the US driven by policy changes and pessimism for Canada due to structural issues.
• Value Investing: A strategy focused on identifying undervalued assets with strong fundamentals, prioritizing free cash flow and sustainable growth.
• Commodities: Anticipation of a commodity cycle, with specific interest in energy (oil) and materials (copper, uranium).
• Interest Rate Policy: Expectation of dovish monetary policy from the US Federal Reserve, potentially fueling economic growth and inflation.
• Canadian Banking Sector: Analysis of the Canadian banks’ performance within the context of a weakening Canadian economy.

Market Reflections on 2025 & Outlook for 2026

The discussion began with a reflection on the market performance of 2025, characterized as a “hell of a year.” A key surprise was the exceptional performance of precious metals, with silver exceeding $80 and gold topping $4,500, representing gains of over 100% and 70-80% respectively. While long positions in gold and silver were already held, the magnitude of the returns exceeded expectations. Another point of concern was the high valuations of AI stocks, despite acknowledging the transformative potential of the technology. The S&P 500 and Nasdaq experienced gains of 16% and 20% respectively, largely attributed to the “AI wave.” Nvidia’s market capitalization, for example, surged from $400 billion in November 2022 to over $4 trillion.

Concerns Regarding AI Valuations & Investment Strategy

The speaker expressed continued skepticism regarding the valuations of AI stocks like Nvidia and Palantir, noting they trade at multiples that are difficult to justify. He emphasized that overall market indexes are trading at above-average valuations compared to historical norms (20-30 year averages). However, rather than avoiding the AI sector entirely, the investment strategy focuses on identifying companies that will benefit from the AI buildout without paying a premium for the hype. This includes investing in infrastructure companies (data centers, energy), and commodity producers (copper) that support the AI ecosystem. The approach prioritizes businesses with strong free cash flow yields (4-5%), consistent low double-digit growth, and independence from solely relying on tech spending. This strategy is rooted in a value investing philosophy, seeking “great businesses at good prices.” He drew parallels to the tech bubble of 1998-2000, warning that inflated valuations are unsustainable and will eventually correct.

Sector Focus: Beyond AI – Precious Metals, Energy & Infrastructure

Beyond AI-related investments, the discussion highlighted several key sectors. A strong conviction remains in precious metals (gold and silver) due to long-term drivers like debt levels, deficits, aging populations, currency wars, and central bank demand. The speaker anticipates continued strength in these metals, despite acknowledging the potential for short-term pullbacks. Energy, particularly oil, is also viewed as a potential opportunity, with the belief that valuations are currently cheap. Infrastructure investments, supporting the buildout of data centers and AI infrastructure, are also favored. Specific examples included:

• Real Estate: Prologis (benefiting from data center demand)
• Energy: Companies involved in increased energy demand due to AI.
• Commodities: Copper (through royalty companies) and Uranium (Camo).
• Insurance: Tura, Kinsale, American Coastal (growing businesses with conservative portfolios).
• Automation/Robotics: Amazon, ServiceNow.
• Software: Constellation Software, Roer Technologies, Tyler Technologies.

US vs. Canadian Economic Outlook

A significant portion of the discussion focused on the diverging economic trajectories of the US and Canada. The speaker expressed strong optimism regarding the US economy, anticipating potential GDP growth of 4-5% in 2026, driven by tax cuts, deregulation, capital inflows, and increased business investment. He contrasted this with a pessimistic outlook for Canada, citing a lack of economic growth, a weak labor market (8% unemployment in Ontario, 9% in Toronto), and a housing market slowdown. He attributed Canada’s struggles to policies that stifle capital investment, particularly in the resource sector, and a growing public sector. He stated that Canada is “doing everything wrong” and risks becoming more like Venezuela.

Monetary Policy & Inflation

The expectation is for a dovish shift in US monetary policy, with potential rate cuts driven by the incoming administration. This is seen as beneficial for economic growth and debt management, although it could also lead to a temporary increase in inflation. The speaker believes that the focus should be on unleashing productive capacity to drive long-term economic growth and control inflation, even if it means accepting a short-term inflationary bump. He emphasized the importance of increasing production and becoming more efficient.

Canadian Banking Sector Analysis

Despite the strong performance of the Canadian banking sector in 2025, the speaker expressed caution. He noted that the banks’ success is largely tied to an oligopolistic market structure and expansion into the US. He expressed concern that their growth will be limited in a stagnant Canadian economy and that they are overweighted in the portfolio (4% allocation vs. 30-35% of the TSX). He anticipates challenges for the banks in the coming years, particularly if the Canadian housing market continues to weaken.

Specific Investment Examples & Royalty Companies

The discussion included specific investment examples, highlighting a preference for royalty companies in the precious metals sector. Key holdings mentioned included:

• Wheaton Precious Metals: Praised for its strong management and business model.
• Franco-Nevada: Another highly regarded royalty company.
• Royal Gold: Formed through consolidation, offering exposure to diverse assets.
• Gold Royalty Company: Backed by Abati royalties, offering potential upside.
• Vox Royalty: A smaller royalty company with growth potential.
• Spratt Inc.: A play on the broader commodity sector through fee-based revenue.
• Amazon: A long-held position, viewed as reasonably valued within the “Magnificent Seven.”
• ServiceNow: An AI-driven software company with a high client retention rate.
• Power Metallic Mines: A smaller, more speculative investment in Quebec.

Portfolio Allocation & Investment Philosophy

The firm’s portfolio is heavily weighted towards US investments (80-85%), reflecting the perceived superior economic opportunities. The investment philosophy is rooted in value investing, prioritizing disciplined analysis, a 3-5 year investment horizon, and a focus on fundamental business quality. The firm avoids chasing short-term trends and emphasizes buying “great businesses at good prices.” They offer portfolio reviews and investment advice, focusing on long-term wealth creation.

Conclusion

The discussion painted a picture of a complex and evolving market landscape. While acknowledging the potential of AI, the speaker cautioned against excessive valuations and advocated for a diversified, value-driven investment approach. A strong conviction remains in precious metals, and a bullish outlook is held for the US economy, while a pessimistic view prevails for Canada. The emphasis throughout was on identifying sustainable businesses with strong fundamentals and avoiding speculative investments.