Morning Markets for Thursday, Dec. 4, 2025

Key Concepts

• Canadian Banks' Financial Performance: Analysis of Q4 earnings for CIBC, BMO, and TD Bank, focusing on revenue, dividends, net income, and specific business unit performance.
• Telus's Financial Strategy: Discussion on Telus's dividend pause, debt deleveraging, DRIP (Dividend Reinvestment Plan) adjustments, bond repurchases, and strategic initiatives in urban mining, AI, and data centers.
• Market Outlook and Economic Trends: Insights into global growth, consumer resilience, the "K-shaped economy," real estate (REITs), and the impact of AI on market valuations.
• AI and Technology Sector: Examination of AI's role in various companies, including infrastructure providers, data centers, GPUs, TPUs, and software companies like Snowflake, MongoDB, and Microsoft.
• Corporate Acquisitions and Deals: Coverage of EQ Bank's acquisition of PC Financial and its implications for both entities and Loblaw.
• Industry-Specific Challenges: Discussion of job losses in the steel industry (Algoma Steel) and the pulp mill industry (Crofton Mill) due to economic factors and government regulations.

Canadian Banks' Financial Performance

CIBC

• Q4 Performance: Shares were up due to a raised dividend and exceeding revenue estimates.
• Revenue Growth: Reported a 16% surge compared to the previous year.
• Drivers of Growth: Strong performance in Capital Markets, Canadian and US Commercial Banking, and Wealth Management units.
• Dividend Increase: Boosted dividend to $1.07 per share.
• Earnings Streak: Continues a two-year streak of earnings beats.

Bank of Montreal (BMO)

• Investor Focus: Shares saw pressure despite beating earnings and revenue estimates, with investors focusing on a drop in net income.
• Reasons for Net Income Drop:
  • Reversal of a legal provision from the previous year.
  • Write-down related to the planned sale of branches in certain US markets.
  • Costs from acquisition-related assets.
• US Branch Sale: In October, BMO agreed to sell 138 branches in 11 states to First Citizens Bank and Trust.

TD Bank

• Q4 Performance: Shares edged higher after reporting profit and revenue that topped estimates.
• Drivers of Performance: Record results in its Capital Markets unit and better-than-expected performance in its US business.
• US Business Constraint: The US segment remains under an asset cap as part of its anti-money laundering settlement with US regulators.
• Dividend Increase: TD also boosted its dividend.

Telus's Financial Strategy and Initiatives

Dividend Pause and Rationale

• Reason for Pause: Telus's share price had been under pressure, leading to an increased dividend yield that the company believed warranted a pause on growth.
• Management's View: Telus does not believe the current share price reflects its growth trajectory. The pause is intended to last until the share price recovers.
• Duration: The pause is "to be determined," with no set date for resuming dividend growth. The decision will be made by the board and management based on when the yield is more reflective of the organization's value.

Dividend Reinvestment Plan (DRIP) and Expenditures

• DRIP Adjustment: Telus is stepping down the discounted DRIP.
• Rationale for DRIP Adjustment: Significant expenditures on spectrum and leading the industry in fiber build have occurred. The step-down aims to complete free cash flow maximization in the short term to pay for these investments.
• Transparency: Telus emphasizes its clear and transparent approach to this adjustment.
• Deleveraging Goal: The company aims to deleverage to a debt-to-EBITDA ratio of 3.0 within the same timeframe.

Investor Reaction and Support

• Positive Reception: Telus believes the reaction to its announcements and reaffirmations has been positive, with support from institutions and analysts.
• Analyst Ratings: Canadian analysts generally have "buy" ratings and target prices significantly higher than the current trading price.
• Execution Focus: The company aims to continue executing its plan to demonstrate its value to the markets.

Bond Repurchases

• Strategy: Telus is repurchasing outstanding bonds for cash.
• Reasoning: Certain bonds are trading at discounts, providing an opportunity to purchase debt back.
• Deleveraging Plan: This is part of the comprehensive plan to reach the 3.0 leverage level by 2027.

Urban Mining (Copper Monetization)

• Concept: Telus refers to salvaging copper from its network as "urban mining."
• Process: As fiber builds are completed and customers migrate to the fiber network, copper can be removed.
• Fiber Network Advantage: Telus's leading-edge fiber network, with significant market coverage and technology, has enabled copper liberation.
• Monetization Status: The company is in the "infancy" of this process, having monetized less than 10% of its copper to date. Steady monetization opportunities are expected over the next few years.

Artificial Intelligence (AI) Integration

• Internal Use: AI agents are being deployed throughout Telus to improve customer service and effectiveness.
• Data Centers and GPU Sales: Telus operates its own data centers and sells GPU solutions to customers.
• AI Agent Development Support: The company also assists customers in developing their own AI agents and training their models.
• Benefits:
  • Improved internal efficiency and customer service.
  • Reduced administrative work for customers.
  • Selling similar solutions to customers for their own AI initiatives.

Data Center Operations

• Smooth Build-outs: Data center build-outs have been going "very well."
• Existing Capacity: Telus already had data centers and capacity, making the integration of NVIDIA chips and GPU sales relatively easy and inexpensive.
• Customer Utilization: Customers are currently using these services, and growth is expected to continue.
• Data Sovereignty: Telus highlights being one of the first to have a sole sovereign data center in Canada, ensuring data sovereignty for customers.
• Speed to Market: The company is positioned to quickly offer GPUs, enabling organizations to digitize and become more efficient.

Market Outlook and Economic Trends

Global Growth and Consumer Resilience

• Growth Trajectory: Global growth is expected to slow but remain steady.
• Optimism Drivers:
  • Consumer Resilience: The consumer base has remained more resilient than anticipated, supporting economic activity.
  • Infrastructure Build-out: Significant infrastructure spending, both digital (driven by AI) and regular infrastructure, is contributing to stable, albeit slowing, growth.

The "K-Shaped Economy"

• Definition: A bifurcated economy where different segments experience vastly different outcomes.
• Higher-End Consumer: Benefiting from strong asset valuations (housing market, stock markets), leading to continued spending.
• Lower-End Consumer: Struggling due to elevated inflation levels, even though inflation has decreased globally. Prices remain higher compared to pre-pandemic levels.
• Impact on Economy: The spending of the higher-end consumer is buoying the overall economy.

Labor Market Concerns

• Area of Concern: The labor market is a point of worry.
• Potential Risks: Large-scale layoffs or a significant correction in the stock market (potentially related to AI valuations) could negatively impact asset valuations for the higher-end consumer, leading to reduced consumption and a hit to global economies.

Real Estate and REITs

• Stability: Real estate is viewed as an asset class providing stability in uncertain times.
• Valuation Discounts: Global REITs are trading at meaningful discounts compared to equities and their historical levels, similar to the post-Global Financial Crisis environment.
• Investor Opportunity: This presents a good opportunity for investors to gain exposure to real estate's benefits (cash flow, inflation protection) through liquid equity markets.

Secular Growth Areas in REITs

• Focus: Identifying areas with secular growth, meaning growth that is not significantly impacted by economic cycles.
• Senior Housing:
  • Demand Driver: The aging population globally, particularly in the US, is creating significant demand for senior housing.
  • Supply Constraint: There is a lack of new supply in senior housing.
  • Growth Potential: The combination of increasing demand and low supply is generating strong income growth from senior housing real estate.
  • Future Outlook: New developments are not financially viable, preventing a supply wave from impacting fundamentals. The demand driver from aging baby boomers is just beginning.

Interest Rate Environment and REITs

• Historical Volatility: Real estate has experienced volatility due to the sharp drop in interest rates post-pandemic, followed by sharp increases to combat inflation.
• Uncertainty Impact: Interest rate uncertainty is detrimental to real estate, which acts as a bond proxy in the listed environment.
• Current Environment: A normalizing interest rate environment with more stability creates a favorable outlook for REITs, offering greater certainty.
• Market Breadth: The market breadth is expected to expand, allowing REITs to participate more broadly in the global marketplace.

AI and Technology Sector

Snowflake

• Performance: Beat third-quarter sales expectations but forecast slower product revenue growth for the fourth quarter, leading to stock pressure (down over 11%).
• Investor Reaction: Not considered an overreaction, as investors prefer acceleration for high-multiple stocks.
• Long-Term Outlook: Upside is still seen in Snowflake in the long term.
• Current Positioning: Not a top pick currently, as the company is seen as benefiting from the next wave of AI infrastructure investments.
• AI Angle: Snowflake has embedded AI capabilities into its products, allowing users to interact with data using natural language (e.g., Snowflake Intelligence product). This opens up the product to a wider range of users.
• Revenue Model: Revenue is based on the number of queries.
• Future Growth: Expected to return to growing revenue over 30% next quarter.

"Picks and Shovels" for AI Infrastructure

• Focus: Companies providing the foundational infrastructure for AI.
• Networking Space: Companies involved in optical and electrical cables that connect GPUs.
• Examples: Astera Labs, Credo Technology, Marvell. Marvell and Credo reported outstanding results with significant growth.

GPUs and TPUs

• New Debate: The potential for Google's TPUs to gain market share from NVIDIA's GPUs.
• TPU Performance: TPUs perform well but are optimized for recommenders (e.g., Google's internal ad recommenders, Meta's potential use).
• NVIDIA's Advantage: NVIDIA leads in general-purpose computing due to its extensive free libraries and tools that sit on top of GPUs.
• Market Room: There is seen to be room for both TPUs and GPUs, and potentially multiple players (e.g., Amazon's Trainium chip).
• Application-Specific Chips: Over time, application-specific GPUs are expected for large markets (e.g., robotics) to achieve cost savings by running only necessary tasks. Concerns about market dominance are considered overblown.

Meta

• Underperformance: Considered a significant underperformer this year.
• Key for Improvement: The massive investment in AI needs to translate into profit and revenue growth.
• Disappointment: Coming in slightly ahead of or in line with consensus is disappointing given the investment levels.
• Positive Signal: Scaling back metaverse investments is seen as a positive for the stock.
• Required Results: Significant acceleration in revenue and profit growth is needed.
• Comparison to 2021: Similar headwinds were faced in 2021, but the company turned it around with the first generation of chips (Hopper).
• Future Potential: The Blackwell architecture and potential use of TPUs at lower costs could reaccelerate revenue growth.

AI Bubble Concerns

• Market View: Many people fear a bubble, but the analysis suggests otherwise.
• Investment Visibility: Ground-level research and discussions with companies provide visibility into significant investment over the next three years.
• Valuations: Valuations are not considered excessively expensive; NVIDIA is trading near the low end of its 5-10 year valuation range.
• Investor Opportunity: Investors are advised not to miss the next wave of AI investments.
• Due Diligence: Emphasizes the importance of fundamental research to pick the right companies, as some may overpromise and under-deliver.

MongoDB

• Business: Provider of databases, which are foundational for application development.
• Market Size: A very large market, over $100 billion.
• AI Angle: The ease of writing code with AI (e.g., code completion) leads to more lines of code being generated, requiring more databases. Modernizing legacy applications is also becoming easier and faster, acting as a growth accelerant.
• Recent Performance: Atlas cloud revenue accelerated to over 30%.
• New CEO: Bringing in Fortune 500 relationships.
• Positive Tailwinds: Strong positive outlook for the business.

Snowflake (AI Angle)

• Business: Specializes in data for analytics and business intelligence, distinct from general databases.
• AI Integration: Has embedded AI capabilities, allowing natural language interaction with data (e.g., Snowflake Intelligence). This broadens user access.
• Revenue Model: Billed based on the number of queries.
• Recent Quarter: Missed expectations after a strong run, considered a "blip."
• Future Growth: Expected to return to growing revenue over 30% next quarter.

Microsoft

• Core Holding: Considered a core mega-cap holding with a strong track record.
• Recent Pullback: Pullbacks are seen as good times to add to holdings.
• Conviction Drivers:
  • Commercial Bookings: Meaningfully accelerated, indicating large deal signings, including with OpenAI and large corporate clients.
  • Azure Growth: Expected to accelerate as new capacity is brought online.
• Earnings Growth: Projected to grow earnings per share well over 20% in the coming years.
• AI Positioning: Well-positioned in AI.
• Operating Discipline: Holding operating margins and avoiding speculative businesses, driving compounding growth.

Corporate Acquisitions and Deals

EQ Bank's Acquisition of PC Financial

• Deal Value: An $800 million deal.
• Pioneering Companies: Both EQ Bank and PC Financial pioneered high-interest and no-fee accounts.
• Synergies:
  • EQ Bank: Digital services, access to in-store services, retail, and credit.
  • PC Financial: Access to Loblaw's retail network (2500 stores and ATMs), PC Optimum loyalty program, and credit cards.
• Customer Base: EQ Bank gains PC Financial's 2.5 million customers, adding to its existing 800,000.
• Credit Portfolio: EQ Bank takes on the seventh-largest credit portfolio in the country.
• Loblaw Benefit: Loblaw can leverage data from EQ Bank to understand shopping habits and tailor advertising. Loblaw holds a 17% ownership stake in EQ Bank.
• Analyst Views:
  • Desjardins: Benefits Loblaw by simplifying its operational structure, allowing focus on retail.
  • Raymond James: Beneficial for EQ Bank over time, maintaining market performance.

EQ Bank's Earnings Miss

• Performance: Missed earnings estimates, unlike other banks reporting this week.
• Issue: Credit remains a problem, with shaky loans.
• Adjusted EPS: Reported $1.5% adjusted earnings per share, compared to a consensus of $1.9%.
• Adjusted Net Income: $63.5 million.
• CEO's Response: Announced a one-time restructuring program, driving a $92 million pre-tax charge.
• EQ Bank's "Crown Jewel": Reported 18% year-over-year customer growth and 10% deposit growth.
• Stock Performance: Stock price is up today, likely due to the PC Financial acquisition news.

Industry-Specific Challenges

Algoma Steel Job Losses

• Location: Sault Ste. Marie, Ontario.
• Job Cuts: Approximately 1000 jobs cut.
• Company's Reason: Direct impact of Donald Trump's tariffs.
• Community Impact: Anxiety in the city, with the community coming together to help laid-off workers.
• Tariff Impact: Tariffs are also squeezing margins for businesses on the US side of the border (e.g., The Mole Hole).
• Broader Community Concerns: Layoffs are expected to have a significant impact on the broader community of 72,000 people.
• Timeline: Layoffs take effect on March 23rd, giving affected employees less than four months to find new jobs.

Crofton Mill Closure

• Location: Crofton, BC.
• Closure Date: December 15th, three weeks before Christmas.
• Job Losses: 350 workers will lose their jobs.
• Mill History: An institution in Crofton since the 1950s.
• Mill Owner's (Domtar) Reason: Losing millions for years. Blames government regulations (logging approval times taking years) and being forced to source wood fiber from the US, which is cheaper and more dependable.
• Opposition's Claim: The official opposition claims the NDP government is using US trade issues as a scapegoat, attributing the closure to the government's fault.
• Premier's Acknowledgment: Acknowledged the forestry sector is in a tough spot due to the combination beetle, old-growth forest protection, fires, and low prices.
• Government Response: The BC government will try to find a way to keep the mill open.

Market Performance Summary

• TSX: On a strong run, up nearly a full percentage point and at record high numbers.
• US Markets: Mixed bag, almost a wash. S&P 500 and NASDAQ are neutral, Dow Jones is slightly off.
• BRP: Shares up 7% after reporting a 15% revenue surge and higher profit, driven by off-road vehicle deliveries and new product launches. Hiked 2026 forecast and announced a share buyback of up to 10%.
• Descartes Systems: Up nearly 11% after reporting revenue that jumped 11%, exceeding estimates. Service segment revenue was up 16%. Warns of forecasting and execution challenges for clients due to uncertainty and tariff volatility.
• Horizon Aircraft: Shares are up on news of a partnership with UK-based Motion Applied to design a key component for its hybrid electric flying taxi.
• EQB: Surging today, up almost 12%, on news of its acquisition of PC Financial.

Conclusion

The broadcast covers a range of significant financial and economic developments. Canadian banks like CIBC, BMO, and TD Bank reported mixed results, with strong capital markets performance being a common theme, though BMO faced pressure due to a drop in net income. Telus outlined a strategic shift with a dividend pause, debt deleveraging, and investments in AI and urban mining, signaling a focus on long-term value creation. The market outlook suggests a slowing but steady global growth, supported by consumer resilience and infrastructure spending, though a "K-shaped economy" highlights disparities. The AI sector continues to be a major focus, with discussions on infrastructure providers, GPUs/TPUs, and software companies like Snowflake, MongoDB, and Microsoft, with analysts generally optimistic about long-term AI investment despite short-term market fluctuations. Corporate deals, such as EQ Bank's acquisition of PC Financial, are reshaping the financial landscape. Finally, the broadcast touches upon significant industry challenges, including job losses in the steel and pulp mill sectors, underscoring the impact of economic conditions and government policies on communities.