In November, U.S. hyper-scalers saw their stocks sell off despite posting earnings that exceeded expectations. The downturn was largely attributed to investor unease over the massive capital outlays tied to A.I. data center expansion. Analysts are now asking the modern-day version of “where’s the beef.” Specifically, what is the ultimate return on this unprecedented spending spree?
The answer will shape whether November’s decline proves to be a temporary correction driven by profit-taking, or a more fundamental reset reflecting shifting market dynamics. Should A.I. equities stage a December “buy-the-dip” rebound, it will likely be fueled by investor faith in the industry’s bullish narrative and the promise of outsized growth.
The larger issue is whether the ethos surrounding Generative A.I. reflects the speculative excess of the 1990s internet bubble, or is it a genuinely transformative technology that markets have not fully recognized. While the debate is compelling, the pragmatic question is one of sustainability: will the A.I. surge create enduring value, or simply inflate another bubble?
Skeptics point to the flood of capital chasing A.I. startups with unproven business models, where valuations often appear detached from revenue or profitability. This dynamic recalls the irrational exuberance of the dot-com era, when companies like AskJeeves.com, Pets.com and other casualties of the 1990s tech boom prioritized growth and market share over economic fundamentals.
Still, today’s leading A.I. firms differ in important ways. They are anchored by profitable core businesses, disciplined capital allocation, and self-funded growth, making them far more resilient than many dot-com predecessors burdened by debt and limited revenue streams. Unlike the 1990s, A.I. is driving tangible investment in semiconductors, data centers, and cloud infrastructure, while already delivering measurable productivity gains.
Moreover, A.I. is deeply integrated across enterprise workflows, consumer applications, and industrial systems – signaling a level of adoption and impact that dwarfs the early internet.
Continuing with the theme of integration, many analysts believe Generative A.I. will emerge as the ultimate disruptor, reshaping corporate strategy, operations, and culture at every level.
A recent MIT Iceberg Index study underscored the scale of this shift, estimating that in the current environment, A.I. systems could replace 11.7% of the U.S. workforce – roughly 20 million jobs. Extending that outlook, a CNBC survey of HR professionals suggested that by the end of 2026, nearly 89% of U.S. jobs will be affected in some capacity by A.I.
The central question is whether this disruption will translate into greater corporate efficiency. Put differently: can the promise of future cost savings and productivity gains justify today’s extraordinary levels of spending?
Oracle: The Canary in the Coal Mine?
When it comes to the scale of spending, Oracle stands prominently at the forefront – serving as the proverbial canary in the coal mine. To understand why, it helps to revisit the backstory.
In its most recent earnings release, Oracle delivered results that far exceeded expectations – so much so that “better than expected” hardly captured the magnitude. The stock surged, and for a moment, majority shareholder Larry Ellison claimed the title of the world’s richest man. The distinction, however, lasted about as long as it takes for a snowflake to melt on a warm summer day.
Oracle: Year to Date 2025
To be fair, Oracle reported better than expected earnings. Good but not stratospheric! The umph hinged on a backlog of orders propelled by a commitment from OpenAI to spend ~US $30 billion per year on Oracle’s cloud infrastructure. This massive agreement disclosed in mid‑2025, represented one of the largest such deals ever announced.
The deal underpinned Open AI’s “Stargate” project which is a multi‑gigawatt AI infrastructure expansion in partnership with Oracle and financed partly by SoftBank. The announcement set a new standard by significantly boosting Oracle’s cloud revenue outlook.
The deal is logical given OpenAI’s need for immense computing capacity to support ChatGPT’s hundreds of millions of weekly users and to train next‑generation AI models. Its Stargate initiative forms part of a planned US $300 to US $400 billion build‑out of AI data centers across the United States, with Oracle positioned as a key partner.
Here is the challenge: to fund this unprecedented expansion, Oracle must invest ~US $300 billion in cloud infrastructure. That financing will likely come through new debt issuance or the sale of treasury shares. Neither option is appealing to shareholders. Debt would weigh on Oracle’s balance sheet, while equity sales would dilute shareholder value.
The strategy only works if two conditions are met: 1) OpenAI must secure sufficient private‑market capital to finance its side of the deal and 2) Oracle must successfully tap debt or equity markets to fund the massive data center build‑out. As investors absorbed the scale of this undertaking, risk aversion set in. Oracle’s stock tanked, to a current value that is below its pre‑earnings release level.
The following compares the size and scope of the commitment Open AI made to Oracle with other deals that were already in place with other players:
OpenAI’s US $30 billion annual commitment to Oracle is historic in scale, yet it must be understood within the broader context of hyperscale A.I partnerships that are securing cloud contracts worth hundreds of billions. This surge in demand underscores how artificial intelligence is transforming the cloud market into a multi‑hundred‑billion‑dollar arms race. While the “bigger is better” narrative remains compelling, investor sentiment has shifted – from unbridled enthusiasm to measured caution -reflecting a more sober evaluation of both risks and opportunities.
Mixed Results: Successes, Shortfalls and the Road Ahead
So far, adoption by hyper-scalers such as Microsoft, Google, Amazon, and Meta have not generated meaningful cost reductions… nor were they expected. The current line of attack is capital expenditure and infrastructure expansion to secure a competitive advantage in the A.I. race. With A.I. still in its infancy, this investment cycle could persist well into the next decade.
The risk arises when investor optimism gives way to demands for tangible results. Some analysts warn that A.I. may be approaching its own “metaverse moment” – a phase of massive spending without a clearly defined payoff.
Between 2020 and 2022, Meta invested more than US $60 billion into Reality Labs to advance Mark Zuckerberg’s metaverse vision. After years of outsized spending with no clear path to profitability, investor confidence eroded, drawing comparisons to high-profile tech missteps like Google Glass. By November 7, 2022, Meta’s stock had collapsed to around US $112, underscoring the dangers of speculative overreach.
The Meta example highlights the pivotal role that investor confidence plays when navigating cryptic concepts. For a time, shareholders were willing to trust Mark Zuckerberg’s vision… until they didn’t!
A similar dynamic played out in Amazon’s early years. Investors accepted valuations at nearly 100 times earnings, enabling the company to raise capital cheaply and fund aggressive technology investments throughout the 1990s. In Amazon’s case, that confidence was justified as investors who stayed on course were handsomely rewarded.
This underscores the ongoing tug-of-war in today’s markets. Hyper-scalers still benefit from investor faith, but there are growing signs that shareholders are applying stricter cost-benefit scrutiny to A.I. spending. While this discipline is healthy, it also points to heightened volatility throughout 2026 as expectations collide with the realities of massive infrastructure buildouts.
Summary
We are witnessing a macro‑event that will impact every sector of the economy with no definitive investment thesis. As we look ahead to 2026, the trajectory of the A.I. buildout is likely to evolve from a “bigger is better” approach toward more pragmatic, use‑case‑driven benchmarks. Sentiment‑driven trading in hyperscale names will remain elevated through 2026. The difference is that investors eager to ride the momentum trade will be armed with an itchy trigger finger ready to press the sell button when risk-off conditions resurface.
Viewed through that lens, hyper-scalers are poised for heightened volatility in 2026. Elevated volatility leads to richer option premiums, creating opportunities for strategic positioning.
For example, rather than entering and exiting a stock position, we prefer to write covered calls when shares approach the upper end of a short-term trading range or sell cash-secured puts when stocks test the lower end of the range. This approach offers an alternative to the risk-on-risk-off playbook, while generating tax-advantaged income from the sale of the options.
To provide real world context to the strategy allow us to introduce a technical tool called “Bollinger Bands.” Developed by John Bollinger in the 1980s, Bollinger Bands consist of a moving average -commonly set at 20 days – flanked by two bands plotted above and below at a defined number of standard deviations.
On the following year-to-date performance chart of Broadcom (AVGO), we have overlaid Bollinger Bands that are set two standard deviations above and below the 20-day moving average. As market volatility rises or falls, the bands expand or contract, accordingly, providing a dynamic view of price action.
Broadcom YTD 2025 with 20-Day Bollinger Bands
Traders typically rely on Bollinger Bands to gauge overbought and oversold conditions and to frame price trends. In Broadcom’s chart, the stock is currently pressing against the upper band. While some view this as a bullish signal that could trigger a breakout, we interpret it as a test of the upper boundary within a volatility‑defined trading range.
For investors holding AVGO at a cost base below current levels, one strategy is to sell a call option with a strike price roughly $10–$15 above the market. Should the stock continue to rally in line with the Bollinger Band thesis, we participate in the upside until the share price bumps against the option’s strike price. If instead, AVGO pulls back from the upper band, we retain the option premium, generating cash flow while maintaining the core position.
The same logic applies on the downside. When the stock approaches the lower band, selling a cash‑secured put $10–$15 below the current price allows us to monetize volatility, earn premium income, and potentially average down the position. The key distinction is that selling cash‑secured puts obligates one to purchase AVGO shares at the strike price, making this strategy appropriate when the stock moves toward the lower trading band.
Overall, this approach recognizes that hyper-scalers like AVGO are likely to experience heightened volatility in 2026. Selling options in this environment can generate outsized income streams, particularly in the run‑up to earnings announcements. Notably, Broadcom is scheduled to report results after the close of trading on December 11th, 2026.
CANADA’S ENERGY AMBITIONS
Canada has long been defined by its wealth of natural resources notably the “Black Tar” housed in Alberta’s oil sands. For decades the Federal government has viewed the oil sands as our dirty little secret. But now, thanks to the tariff whims of the US President, Canada’s energy ambitions have taken center stage.
With major infrastructure projects underway – pipelines to the Pacific Coast and expanded port facilities to reach overseas markets – the country is positioning itself as a rising global energy superpower. Analysts are now asking whether these developments could ignite a new oil boom reminiscent of earlier eras.
In many respects, Canadian energy is entering a new chapter. The Alberta oil sands currently generate about 3.5 million barrels per day, and projections suggest production could climb by another million barrels using existing infrastructure. This potential growth highlights both the scale and resilience of Canada’s energy sector, which continues to advance even as global debates over climate policy and the shift toward renewables intensify.
One of the most misunderstood aspects of the oil sands is the cost of production. Yes, the upfront bill is massive but once it’s set up, it just keeps running… for decades. In fact, some studies suggest that Canadian reserves could last more than 40 years, which is longer than most marriages, and certainly longer than the average Canadian winter feels.
Competition makes Canada’s case even stronger. In the U.S., shale oil relies on fracking and those wells can decline as much as 50% in the first year. Conventional wells are only slightly better, fading at about 10%. Meanwhile, Canada’s oil sands are the tortoise in this race: slow, steady, and with near‑zero decline rates (see table).
Then there’s the tantalizing prospect of another commodity super cycle. Between 2000 and 2014, energy stocks crushed the broader TSX by a factor of three. If history repeats, Canadian energy companies could – cue the music – deliver outsized gains in 2026. Names like Canadian Natural Resources (CNQ), Suncor (SU), and the iShares S&P/TSX Capped Energy ETF (XEG) could be next years’ gold standard providing the get-up-and-go to propel Canadian equities to another banner year.
Of course, Canada’s energy ambitions aren’t without challenges. Environmental concerns loom large, and global demand patterns can shift faster than TikTok trends. Still, with infrastructure expansion, resilient oil sands, and the chance of another super cycle, Canada looks ready to flex its muscles as a major energy power. For policymakers, investors, and industry leaders, the next decade could be pivotal, like the season finale of The Bachelorette where everyone’s waiting to see if Canada finally gets the rose.
Summary:
Canada’s drive to establish itself as an energy superpower carries consequences that extend well beyond the oil sands and commodity cycles. A strong energy sector not only bolsters fiscal stability through tax revenues, royalties, and export earnings, but also enhances Canada’s leverage in global trade negotiations. Expanded pipelines and port access to overseas markets position the country as a dependable supplier at a time when energy security is a serious global concern.
The influence even spills into geopolitics. Countries hooked on Canadian energy imports may suddenly become very agreeable to signing trade deals, cozying up diplomatically, and nodding enthusiastically at Canada’s policy proposals. Domestically, steady energy revenues give governments fiscal flexibility to fund infrastructure, social programs, and setting a path to cleaner technologies. Nothing says “long-term competitiveness” like being able to pay for both pothole repairs and solar panels.
In short, Canada’s energy ambitions aren’t just about barrels of oil or mining output; they’re about shaping the nation’s role in the global economy. By flexing its resource muscles, Canada can boost resilience, expand geopolitical influence, and secure a stronger position in an increasingly interconnected world.
And when it comes to oil wells, Canada’s oil sands are the marathon runners compared to the Balkan sprinters. Balkan wells often deteriorate faster than a New Year’s resolution, while Alberta’s oil sands are long‑duration assets with near‑zero decline rates. Structurally resilient, they’re the tortoise in the race – slow, steady, and still winning decades later.
THE CASE FOR INDEPENDENCE
In less than nine months, the US Executive Branch has become a one-man legislative factory. Congressional checks and balances look more like suggestions than actual oversight. And to be fair, by the time an oversight committee is set to review one executive order, three more pop up. It is whack-a-mole at the highest level.
But enough about the litany of executive orders that have touched on everything from banning cashless bail to regulating shower pressure. We were particularly concerned about Trump’s letter of termination to the US Federal Reserve (FED) Governor Lisa Cook.
To be “fair and balanced”, the termination letter (available on the internet at Document.com) was well-written, had respectable punctuation, solid structure, and just a hint of authoritarian bravado. You would almost believe that Trump has the authority to terminate for cause based on a questionable accusation about a mortgage application that occurred long before Ms. Cook became a Fed governor. But, as with most of Trump’s short-sighted power moves, it will ultimately be adjudicated by a federal judge.
The greater concern is that efforts to remove a sitting FOMC member resemble an Executive Branch attempt to assert control over the central bank. History shows this is a classic authoritarian tactic – the first move after consolidating power is often to seize control of the nation’s finances.
Most surprising to us is: 1) the “meh” attitude in the financial markets and 2) the deafening silence among politicians. We will discuss this in a moment. But before doing so, it is important to consider the gravity of the question of independence.
Like many central banks, the Fed has a dual mandate to manage inflation expectations and ensure a healthy labor market. To accomplish these objectives, the Fed issues currency, regulates money supply, and sets interest rates.
Central bank independence rests on the principle of shielding monetary policy from political influence. Elected officials operate within short-term election cycles, where partisan measures – such as distributing $2,000 tariff rebate cheques to Americans earning under US $100,000 – often take precedence over long-term economic stability. Independent decisions, while not always correct, are at a minimum unbiased.
The foundation of unbiased decision-making lies in credibility. When investors trust that a central bank is committed to controlling inflation and preserving stability, expectations align accordingly, enhancing the effectiveness of monetary policy. However, if independence is undermined, fixed-income investors may demand higher yields to offset inflation risk.
Such unpredictability fuels greater market volatility and can weaken the host currency (see chart). This risk carries global implications, given the pivotal role of the U.S. dollar as the world’s reserve currency.
US Dollar Index Futures
Source: www.marketwatch.com
The spillover risk to interconnected global economies when governments have reservations about central bank independence can be dire. The loss of confidence in the world’s reserve currency has widespread implications for foreign exchange markets. Weaker currencies with fewer checks and balances can lead to an economic collapse.
Notable examples include Argentina (1970s–1980s) where political interference in monetary policy contributed to chronic inflation and repeated currency crises. Another is Turkey (2018–2023) where political pressure from strongman Recep Tayyip Erdoğan to lower interest rates caused price spikes of 80%+ and loss of investor confidence. History is rife with examples where political control leads to vicious cycles of inflation, currency instability, and economic hardship.
Capital flows get disrupted as investors move away from economies where politically influenced monetary policy creates added uncertainty. Other less friendly regimes will seek to replace the US dollar as the world’s reserve currency (note recent salvos by the BRIC’s consortium).
Pressures will mount for the International Monetary Fund (IMF) and the World Bank to engage in stabilization programs. Most notably, given the Fed’s global liquidity provision that backstops, among others, the European Central Bank, independence is critical to maintaining international financial stability. The bottom line is supported by historical precedence; politicized monetary policy often ends in crisis. The confidence underpinning independent thinking is fickle. Lose it and you may never get it back!
Ultimately, this brings us back to the question of why financial markets have reacted so quietly. Explanations often point to the size, strength, and resilience of the U.S. dollar, though some suggest it may simply reflect Trump being Trump – another attempt to divert attention.
That may be true, but a more compelling framework is the “boiling frog” analogy, where the situation escalates gradually until it reaches a tipping point. For now, investors remain comfortable, buoyed by stronger-than-expected corporate earnings that have overshadowed broader macroeconomic concerns. But this complacency is perilous, carrying the risk of a sudden and potentially catastrophic outcome.
What is the end game?
President Trump is adamant that interest rates are too high. He wants to reduce the US deficit and, more importantly, the cost of managing the debt. He could have done this by shelving his big, beautiful bill which seemed to extend tax breaks for the people who least needed it. Unfortunately, lowering interest rates by 300 bps (his desired outcome) may not have the desired effect. Especially for the people who do need it!
The Fed only controls the overnight lending rate. The bond market controls the rest of the yield curve. If bond investors believe that lower short-term rates will lead to significant inflation, then rates could rise for two-, five-, ten- and thirty-year maturities. Those are the points along the yield curve that mostly affect mortgages and consumer behavior. If the FED were to dramatically lower the overnight lending rate it may end up doing more harm than good. Mid to longer term bond yields could rise which would slow economic activity and negatively impact stocks.
It’s a classic market lesson of “be careful what you wish for.” Investors are quick to support aggressive growth strategies from massive capital commitments or lower interest rates – until the very scale of those ambitions expose untenable balance sheets, liquidity risks, and unintended consequences.
Richard N Croft