Hello and welcome to The Download. I'm your host, Dave Richardson, and it is time to catch up with our favorite tech bros. Do you mind that, Marcello and Rob? Do you like being referred to as tech bros, or do you prefer something else?

I prefer something else, but if it's okay for you, we'll allow it.

Yeah, I have seen Rob wearing a vest. So that's what makes me think that it fits.

Yeah, he's got a black turtleneck as well. For special days.

Are those up or down days, Rob?

This year, up. I mean, we'll see next year.

This year, up. So hey, let's get into technology. Obviously, it's an area that's led the market for a long time now. People are very excited about it, particularly around artificial intelligence, as we've spoken about on previous appearances. And by the way, you can check out Rob and Marcello's previous appearances by subscribing to us anywhere you get your podcast, anywhere you listen. And you can subscribe on YouTube if you want to see what tech bros look like in Canada because it's different than the tech bros you see on TV that are mostly from the US. So maybe I'll start with Marcello. What are we seeing? What are your thoughts on what's going on in the technology space overall? And then maybe, if I'm right saying AI has had finally some skeptics pop out and say, hey, maybe we've gotten ahead of ourselves. Is there any legitimacy to that? What's going on in the tech market if we just look at the month of November?

Yeah, okay, so what's going on in tech? There's a lot going on. There are all sorts of waves coming from different directions. Your point at the beginning was that there's some skepticism that perhaps for the first time has come in. But as we're talking earlier, we’ve gone through multiple ways where skepticism has come into the market. If we go back to last summer, there was concerns about, would there be a return on the AI spending? And then back in the fall of last year, there was concerns about the scaling laws, and would the LLMs continue to get better? Then in January, at the beginning of this year, there was all the noise around Deep Seek. Now the skepticism has come full circle, and we're back into, are we going to see a return on some of the spending that we're seeing here? That's justified, given how much spending we've seen coming out of the hyperscalers. And on top of that—the press has really piled in on this—we have a service that we've been using, which basically measures the incidence of particular narratives that are going on in the marketplace. Right now, skepticism on AI is at all-time highs. So any negative noise that comes out gets amplified in the marketplace right away. And we've seen that transpiring in the stocks. On top of that, if we back up, there was this view that Google didn't know what they were doing for quite a while and that OpenAI was running away with everything. What's happened with the release of Gemini 3.0—and Dave, we've talked about this a lot in the past—it was naive to assume that Google didn't know what they were doing. They were talking about this back in 2015 when they first acquired Deep Seek. Clearly, they know what they're doing. And finally, at least publicly facing, they've gotten their act together. And we've seen this fury of models coming out, whether it's Nano Banana or Gemini 3. And most recently, just in conjunction with the Gemini 3, we saw the Anti-Gravity Development platform, which has really caught a lot of people by surprise. And so now it's like, well, hold on a second, Google really knows what they're doing. So you've got the market bifurcating into these cohorts or these groups. So there's the AI, there's the ChatGPT OpenAI group, and there's the Google group. And you can see that there's trading going on back and forth between them. So for example, Oracle—by virtue of all the announcements that have gone on with Oracle and ChatGPT—Oracle is viewed as being part of that camp. And so when Gemini 3 came out, it's like, oh, look, this has beaten everybody on all of the rankings. We started to see selling in Oracle and part of that cohort of companies. If you look at what's been happening with Google, it's been basically off to the races. The whole Google cohort, which here in Canada includes Celestica, we've seen this rise. So traders are trading these things back and forth. Then there's the whole NVIDIA story. Maybe I'll hand it off to Rob to talk a little bit about NVIDIA since it is the poster child of the whole AI.

Yes. Thanks, Marcello. What I'd say is that, just in addition to what Marcello was saying, is that it's been important in these types of junctures to take a step back and look at things fundamentally and try to separate noise from fact. The fact is both AI and non-AI fundamentals remain fairly solid across the board within the tech sector. Now, obviously, there's going to be one offs here and there where there's pockets of concern. But in general, fundamentals remain very strong. We look at channel checks very closely, especially within in the Asian supply chain, and things look very, very good. There's a lot of noise trying to create a narrative around bubbles peaking and bubbles bursting. You know what? That's great for this trade prolonging because I don't think these things end when there's a massive wall of worry. These things end when everyone says, this is going up in forever and there's nothing that's ever going to destroy this opportunity. We don't see that. Clearly, there's some things that have come onto the radar screen that has caused some angst, things around circular financing. For the first time we've seen a step up in debt finance to support some of these buildouts on the AI CapEx side. Clearly, things we’re paying attention to. But again, stepping back, fundamentals remain solid. There's other bigger market factors that were hurting momentum trade and things like that that also affected tech that weren't necessarily about tech, what was happening with central banks, particularly in the US. There's a lot of that, and then you try to craft a narrative around it. From NVIDIA's perspective, the stock, again, had a phenomenal quarter. It's a phenomenal guide. They're going to generate close to $500 billion of revenue over the next five quarters is what they've talked about. Everything looks great there. There's concern around Google as a competitor of the chips side. But to be frank, right now we're still at the stage of the game where there's just not enough capacity. It's not a winner-take-all, zero-sum game. This is still about the market growth phase, and the market is growing and share will shift back and forth. But in general, fundamentals remain strong. We're looking for every reason to get negative about a fundamental churn, and we're just not seeing it yet. We're in the stage of trying to figure out how to continue to tune out some of the noise and really focus on what's happening in the market. In general, things remain very promising.

Yeah, I think you actually said it the last time that you were on the broadcast, either yourself or Marcello, that the only bubble is a bubble in talking about a bubble. That's typically when everyone's just sitting there waiting on pins and needles for that bubble to pop, as you say, that's not when it pops. It pops when there is just complete belief that nothing bad can happen, and then boom, that's when something goes bad. But I am—what can I say after Marcello?—the service that you've pulled together that aggregates all these different narratives, I'm the human version of that. That's why I'm a podcast host, because I'm tracking all of these narratives and sometimes making up my own to ask smart people like you two about what's actually happening. And I do look back and somebody just mentioned to me a few days ago, Cisco Systems, which if you go back to the Internet era, and I know there's a lot of people listening to the podcast who are old enough to remember the tech bubble. There's some of you who are not. So the tech bubble was the beginning of the Internet. And of course, the Internet was going to be a massive thing. And the backbone of it was networking. I'm being far too simple. Either one of you can fill in the blanks on this where I'm off course. But of course, Cisco became the world's most valuable company at the time. It crossed, I believe it was a half a trillion dollars, first company to cross a half trillion dollars in market cap. And the Nasdaq, which is largely made up of technology stocks, rose up over 5,000 at the time. It's sitting at, I think, around a little over 23,000 today. But back then it had moved up significantly through the late 1990s. I don't think anyone could now, with 2020 hindsight, look back and suggest that the internet is not real. The internet was a life changing and everything that surrounds it, phones, everything that makes our life so much easier today—or harder if you listen to psychiatrists, but that's not for this podcast—but it was going to be a real thing. And yet Cisco Systems dropped 90% from its high, almost, and the Nasdaq dropped 80%. It's not surprising that when we've seen a run this long and you start to see some of the valuations on some of these companies, that people start to think that way. Maybe I'll give this one to Marcello because we've spoken about it a few times. We're not in the same world at all as we were back then, correct?

In my opinion, no. And by the way, I was there.

I know.

Yeah, my handle on one of the social media services of the time was Ground Zero Canada. It was quite something. But yeah, just as a starting point, Cisco was trading at something like 100 times earnings at the time. The biggest difference right now is that this is actually being fueled by companies that have real cash flows and real revenues. And so there's some of the greatest business models in the history of mankind, if not the best business model of all time, which is Google's ad business. So we started from really high valuations, like when we were up at 5,000. So there was a long way to come down. And because this was something that was relatively new. Nobody had ever seen anything like this. There was all sorts of bubbles forming around the periphery, things that never should have gotten the type of valuations that they did. Everyone always points out at web fans and stuff like that. Anyone who knew how to design a router or a modem, basically, was in the marketplace. The capital markets was basically fueling all of this. It wasn't companies with internally generated funds that was fueling, it was all the capital markets. Then Barron’s put out an article in the summer, pointing out how precarious everything was if the capital markets shut down. So what happened was the conditions for failure happened with a couple of companies missing. And then MCI Worldcom at the time. You talk about Cisco being at the epicenter, but there was also MCI Worldcom because they had the biggest backbone for internet traffic, and it was called UUNET. And they came out, I think it was in October 2000, basically said, yeah, by the way, the internet's not doubling every six months. That basically just pulled the entire plug underneath all of this. It was all basically supported by the capital market. The funding dried and everything just collapsed. Like Warren Buffett always says, when the tide comes out, you see who's swimming naked. We basically saw who was swimming naked, and it was very ugly. I hate to leave you with that visual. Anyway, so today, like I said, the companies are a lot more stable, internally generated funds. There are pockets of, I'd say, bubble behavior in some areas, in crypto and things like that. And especially, you think of some of the nuclear reactor companies. They've got plans for building a reactor, but they've never built one before. To be quite frank, it's very hard for anyone to sign up for a first of a kind reactor because there's all sorts of concerns around that type of stuff. So you get these peripheral bubbles that you need to be careful. And that's where I'd be more worried. But in our funds, we don't play that game.

Yeah. And like you said, Google might have the all-time best, greatest business model. And your comment earlier about not thinking that Google would get this right. When Wayne Gretsky first skated behind the net and stayed back there, people were wondering what the heck he was doing. But he knew what he was doing, right? And so that would be the corollary to that. But Rob, any of your thoughts around those peripheral bubbles or even just valuation concerns. I really want to put people at ease around investing in the broader market. So the quality in tech and the quality in the broader market, and not getting caught up in, as Marcello said, these areas that just went crazy. There's quantum computing, there's nuclear, there's some tiny AI companies that put .ai in their name and made sure that they said AI a thousand times when they did their conference call on their earnings. But that's not the broader market this time. And that's really something that's different.

For sure. What I would add to what Marcello said is that, looking back at the 2000 bubble, what happened was you were building the infrastructure in anticipation of demand materializing. So it was a build-it-and-they-will-come kind of philosophy or the way that the build-out was put together. This time alone, there's so many gaining factors to keep the supply in check so that right now you can't even build the infrastructure to meet the demand because of the lead time it takes to get the chips, and more importantly, the lead time to get the power and to build the data center. Right now, you're not even building the infrastructure to meet the demand. That's a big difference. It's not to say that this thing couldn't end poorly one day. It's just to say that there's many more gaining factors that put a little bit more parameters around how far ahead we're going to be able to build the supply. Now, obviously, we need to see more end-customer applications develop, and we are very confident that's going to happen over the next many years. But the ability to lay dark fiber was much easier than the ability to build out the data center CapEx or the data centers to support the type of demand that we're seeing today. A very big difference. Not to say that we're not looking for risks. Like Marcello said, pockets of the market that are not overvalued. A lot of this is happening on the private side. That's where there is overvaluation. We're trying to think about the second and third degrees of how this might spill over into the tech market and working with our financial colleagues, how this could feel over to private debt and what that means from a broader market perspective. We're not naive to the fact that there are second and third derivatives of how this could play out, but it's not the whole market. Overall valuations, when I talk about tech, specifically are reasonable. You look at it in NVIDIA and you can get NVIDIA for below 25 times earnings. Maybe it's expensive, but it's not astronomical. It's not 100 plus time multiple that you were paying for Cisco at the peak in 2000. Look, there's always going to be pockets that are overvalued, pockets that are undervalued. We're just trying to lay our bets across the spectrum and give good risk-adjusted exposure to clients through the funds that we manage. We still think that there's opportunities there.

Just to add one last thing. We listen to a lot of people in the industry, and one resounding message that keeps coming out is, anytime capacity comes on, it basically gets eaten up almost instantly. It's basically gone as soon as it comes out. That tells you how tight the market is. Still a lot of upside, I think.

I think that was your indirect way of saying that I've recently gained 20 pounds, which I have because I've eaten everything that people have put in front of me this fall. I don't know why I'm so hungry, but I'm like the AI market in terms of my appetite for being able to manage data and power and all those things. But I think one of the main messages we've tried to deliver over the five years that we've been doing this podcast—and if you go back and you listen to the other episodes, you'll hear it come out time and time again—is our overall philosophy to first have a financial plan, know where you're trying to get to, and then as you're building an investment plan, it's about diversification. You do not want to avoid some of the great companies in this space, and that's where you want to focus your attention, whereas there's stuff on the periphery which looks exciting, and you double your money in a day or double your money in a week, or double your money in a month. But when you're invested in something like that, it can go the other way very quickly. That is a bubble. That's gambling. That's speculation. If you're investing, as you're doing in the technology space, you and Rob, you're looking for quality and you're looking for the companies that are going to benefit from the build out of AI and many other areas of technology as well, no?

Yeah, absolutely. Absolutely. When we look at RBC Life Science and Technology Fund, one of the powerful things about that fund is that when there are some concerns on the AI side, healthcare is a fantastic hedge. We've seen that over the last month in particular. Healthcare started working middle of the year, but really the last month, you saw it as a great barbell against AI. One, because of the defensive characteristics of it. Secondly, over the very long term, healthcare is maybe one of the areas of the economy that benefits the most from AI. If you want to hedge, RBC Life Science and Technology is a great hedge. You'll get the AI exposure both offensively and with some defensive characteristics to support some of the risks that could materialize over the near and medium term.

Yeah. Good point to make that the mandates that you two are managing, you've got the offset of technology with Life Sciences. And as you say, I think you were on in September and you were saying, hey, there's something bubbling up here in biotech. That's exactly how it's played out because it's been a fantastic place to be, as you said, from the middle of the year. Is this something you see continuing? Because those stocks, I guess, were absolutely beaten down over the years, were they not?

Oh, for sure. I mean, health care and biotech in particular have underperformed for several years. So this is a few months reprieve, but it's not necessarily the end of it. Again, stepping back near term, there was some technical action in it that was preparing for what was going to happen with the US Federal Reserve. As I think I talked about before, they tend be interest-sensitive play. As interest rates are coming down, biotech tends to do well. There's a little bit of a play on that. There's a little bit of, as I mentioned, a barbell against some AI unease. But yeah, I actually think fundamentally, the group is still set up well. Who knows what happens over the next one or two months. But I think fundamentally, lots of catalyst into 2026. M&A is going to be continuing to be very prevalent in the space. And yeah, we're still excited, looking for lots of idiosyncratic opportunities to add to the portfolio.

And Marcello, maybe we'll just finish off with you as you look the last month of the year, perhaps a little Santa Claus rally and then some momentum into 2026, or should we just expect a little bit quieter year as we come into 2026.

I don't like to make predictions like that. I like short-term predictions. I'm pretty confident that this is the place to be on a two- and three-year time frame. In the short term, anything can happen. And that's the way we've always talked to all of our unit holders and to you. We've got our eye on the big prize. We're always thinking longer term, and that's the way we tend to roll. Typically, December is one of the strongest months. If history repeats, then it should be a decent month. Coming back to your earlier question, with all the different waves coming at us, at the same time this year, we've also had this situation. It wasn't just OpenAI versus Google in the AI space, but you had unprofitable tech versus profitable tech. They've been going back and forth in terms of what's working, what's not. I think in the last month, it was profitable tech that did better than unprofitable tech. There's all sorts of different things going on, and who knows how it's going to play out in the last month. But I mean, if it's a big Santa Claus rally, I'd say probably unprofitable tech might do a bit better than profitable tech. But like I said, we try to think 2-3 years out.

I think the other thing that we haven't mentioned yet in that constant comparison back to 2000 is interest rates were rising then. Right now, interest rates are falling. And there's a reason why they say, don’t fight the Fed. And in this space, that's a particularly important thing to factor in because for some of these companies, the big money is way down the road. So lower interest rates help. Excellent. Well, guys, great. Always great catching up with you. I know we want to get you back in January, and then we will see if we do have a rally at the end of the year and see how things set up for the next year. Maybe Rob will dig a little bit more into biotech next time because there should be a lot of interest there as we come into a new year investing. You'll see what to invest in in 2026. I'm sure that's going to be on the tip of people's tongues. So we'll catch up in more depth there. But guys, have a really happy holiday season. And thank you for being so generous with your time in 2025. Look forward to seeing you next year. And Happy New Year to you and your family.

You too.