NVIDIA and AI rules the week, just as there are expectations that artificial intellgence (AI) will rule the world for the next decade or three. NVDIA (NVDA) reported absolutely spectacular results this week. Revenue was up 409% compared to the same quarter of 2023 while earnings increased 765% year over year. Those results and general enthusiasm for the potential of AI lifted all boats. It was a good week for stock markets at home and around the world. Will AI power your portfolio? Plus a great mix of Sunday Reads, from Berkshire Hathaway earnings to Canadian Banks who are set to report.
The AI tipping point
From NVIDIA co-founder and CEO, Jensen Huang.
“Accelerated computing and generative AI have hit the tipping point,” Huang said in a statement. “Demand is surging worldwide across companies, industries and nations.”
Huang also added …
“Generative AI is a new application,” the 61-year-old Huang said. “It is enabling a new way to create software. It’s a new way of computing. This is enabling a whole new industry. This is driving our growth.”
Here is a very good profile on Jensen Huang in The New Yorker.
Double dipping with more chips
AMD (AMD) shares rose 7.5% in early trading, while Broadcom (AVGO), Qualcomm (QCOM), Micron Technology (MU), Marvell Technology (MRVL), Arm Holdings (ARM) and Taiwan Semiconductor (TSM) also saw strong gains.
Taiwan Semiconductor manufactures processors for Nvidia, along with AMD, Apple (AAPL) and others. It is expected that there will be a spin off effect that will benefit many chip makers.
Microsoft (MSFT) is also seen a benefactor in any AI revolution.
Our U.S. stock portfolio is well positioned. We hold semis in Qualcomm and Texas Instruments, plus Apple and Microsoft. In my TFSA I also hold the semi conductor sector thanks to Horizons sector ETF – ticker CHPS. That’s a Canadian Dollar ETF.
And any AI revolution will be a force on the broader economy. Analyst Dan Ives wrote …
Over the next 3 years and we believe 60%-70% of enterprises will ultimately head down the AI use case path as we estimate a $1 trillion of incremental AI spend over the next decade …
Many will suggest the exuberance has gone too far. In fact the valuation of NVIDIA is now greater than the GDP of Canada. The capitalization of NVIDIA (company worth) increased by about two Royal Bank of Canada’s in one day. Such is the pricing of companies that are growing at hundreds of percent per year.
I would not argue with anyone who suggests we manage the risk and proceed with caution, with any direct invesment in ‘AI sector’.
I certainly remember the lost decade for U.S. stocks.
Index investors are powered by AI
And here’s the good news for those who hold wonderful and simple ETF portfolios, you will have meaningful exposure to AI, from the chip makers to those who benefit from any greater AI revolution. Here’s the top holdings for iShares All Country (Excluding Canada) ETF – ticker XAW. It is a Canadian Dollar fund.
That fund invests in global stocks and is certainly overweight the U.S. market. It is a wonderful one-stop ETF for Canadian self directed investors. You can build a Canadian stock portfolio and bolt on XAW. In one-ETF fashion you can own an asset allocation ETF such as iShares XEQT. And yes I need to updated that iShares ETF post.
Buy ETFs for free at Questrade
Here’s the XEQT top holdings weightings …
And the geographic breakdown. Personally I like this allocation. You might consider the weighting if you build your own portfolio.
Buffett on Charlie Munger, Berkshire’s architect
In his annual letter Warren Buffett offered a heartfelt and very articulate tribute to Charlie Munger, his longtime friend and business partner.
Buffett is still building cash …
- 2024: $168B
- 2023: $157B
- 2022: $109B
- 2021: $149B
- 2020: $140B
- 2019: $136B
- 2018: $120B
- 2017: $92B
- 2016: $85B
- 2015: $63B
- 2014: $48B
- 2013: $47B
- 2012: $40B
- 2011: $47B
I am so thankful that Berkshire Hathaway is the largest holding in my wife’s accounts – almost 40% in her spousal RRSP. On its own it should create a few years of retirement income. But of course, it will only be trimmed along the way to supplement income from other accounts including her personal RRSP and pension amounts.
Berkshire is back to its outperforming ways. I have long suggested BRK.B as a staple for retirees or near retirees. It is usually around times of market stress when Berkshire outperforms, and that’s when Buffett puts his cashpile to work – buying assets on sale and setting the stage for greater growth.
Warren Buffett, eh is GAAP Man …
Canadian banks step up to the plate
And next week Canadian investors will be keeping close tabs on the Canadian banks as they report earnings. Twitter pal Shazi shared this BNN video analysis …
In the Globe & Mail Scott Barlow offered …
TD bank analyst Mario Mendonca is constructive on the sector and sees a potential buying opportunity ahead in BMO,
“The Big-Six banks will report Q1/24 results from February 27 to 29. We expect Q1/24E EPS to be down 9.4 per cent year-over-year … Our Q1/24 estimates are at or slightly above consensus for all banks, except BMO. After a year when banks routinely missed estimates (2023), we expect the group to meet and marginally beat estimates in 2024. We see two reasons for the change: a) 2024E consensus EPS was down 13 per cent in 2023 (estimates now appear to appropriately capture the earnings growth challenges) and b) several banks took material restructuring charges in 2023. While we do not have the group reporting positive operating leverage in Q1/24, we expect expense growth to moderate materially in Q1/24, reflecting the benefit of expense initiatives and acquisition synergies. By Q2/24, we expect the group to collectively report positive operating leverage, the first quarter since Q1/22. We have BMO missing estimates this quarter. While we continue to believe BMO is one of the two banks to BUY in 2024 (RY is our other BUY-rated bank), we believe BMO’s Q1/24 consensus estimate is too high. We have BMO reporting strong positive operating leverage, but not until Q2/24″
More Sunday Reads
At My Own Advisor Mark says the stock market is easy to beat. Well let’s just say that he addresses the notion. I’ve observed that in Canada is sure is easy to beat the market. I can find no better model than the Canadian Wide Moat Portfolio, but certainly consider the more moats option that includes grocers, railways and utilities.
And with respect to the earnings parade let’s head on over to Dividend Hawk.
Banker on Wheels gets the weekly reads in gear by asking – do you need real estate in your portfolio? I am a big fan of holding some REITs or a market REIT ETF, especially if you don’t have much personal exposure by way of your principal residence, vacation and rental properties. Here’s the link to the Morningstar real estate post. Real estate (as a real asset) is a unique asset class that usually does not move with the stock markets – adding a useful layer of diversification.
I’ve long been a fan of the Purpose Real Asset ETF – ticker PRA. That’s an inflation hedge with real estate in the mix with gold and commodities and oil and gas stocks. You can bolt that on, if you build your own ETF portfolio or use with an all-in-one asset allocation ETF.
Rob has another portfolio update at Passive Canadian Income. Well done.
And there’s a mix of good posts this week at Jonathan Chevreau’s Findependence Hub.
Retirement stuff
Back with another wonderful post, Fritz delivers 9 retirement suprises.
Here’s the sub head surprises …
- You’ll worry less about money
- You will retire sooner than expected
- Your retirement transition will be more abrupt than expected
- Your life will be better in retirement
- You’ll travel less than expected
- You’ll be tempted to take social security early (CPP in Canada)
- Talking about money will remain taboo
- Most retirees don’t have legacy plans in place
- You’ll wish you saved more money
Fritz will often remind us that the life plan is perhaps more important than the money plan. We need a retirement life filled with a nice mix of purpose and pleasure.
For the money plan (optimized cash flow) many Cut The Crap Investing readers and other self-directed investors head to Cashflows & Portfolios.
Fritz added his main takeaways:
If you’re still working, recognize the risk that you’ll be forced into retirement earlier than planned. Plan well, and chances are you’ll worry less about money in retirement than you expect. Recognize that a gradual transition to retirement can be difficult to execute. Find an opportunity to talk with your family about your money, and put a legacy plan in place. Finally, be optimistic: Done well, retirement can be the best years of your life.
I find that Cut The Crap Investing retirees and near-retirees are in wonderful shape on the financial front. It is the life plan that might need more attention.
Why you might still use that spousal RRSP
Tim Cesnick explains why the spousal RRSP can play a meaningful role (subscription required) in retirement planning. The goal is to create two equal pots of income (between spouses) in retirement for tax efficiency. A spousal RRSP allows the higher income earner to contribute to the lower income spouse’s RRSP in a dedicated account. The account will be owned by the lower income earner and will be taxed in their hands.
How to split your pension income – CRA
Tim offers …
When it comes to income in retirement, it’s a little easier to split income thanks to the pension income-splitting rules. These rules were introduced in 2007 and they allow you to deduct up to one half of your eligible pension income on your tax return and report it on your spouse’s return. Eligible pension income includes, most commonly, payments from a work pension plan (but not CPP benefits). And if you’re age 65 or older at the end of the year, it can also include payments out of a registered retirement income fund (RRIF) or annuity payments out of an RRSP, among a few other less common amounts.
There are a few considerations including …
Facilitating low-income years. While an RRSP is primarily used for retirement, a spousal RRSP could also be used to provide income to the lower-income spouse if they’ll experience some years of little or no income – such as during a sabbatical, parental leave or a period of unemployment.
Making withdrawals before age 65. If both spouses retire before age 65 and you need to make withdrawals from your RRSP or RRIF, you won’t be able to split that income until age 65.
Enhancing income splitting. The pension splitting rules may not achieve equal incomes in retirement if one spouse has other non-registered investment income in retirement that can’t be split.
You should consider joint accounts when possible.
Thanks for reading. You can follow this blog, it’s free and I do answer all questions for readers. Have a great Sunday.
Cut your fees when you cut the crap
Earn a break on fees by way of many of these partnership links.
CANADA’S TOP-RANKED DISCOUNT BROKERAGE
Cut the Crap Investing readers can earn a break on fees at Questrade by way of that partnership link. At Questrade, you can buy ETFs for free. It is a good place to build your stock portfolio as well.
I have partnerships with several of the leading Canadian Robo Advisors such as Justwealth, BMO Smartfolio, Nest Wealth and Questwealth from Questrade.
But, here’s Canada’s top-performing Robo Advisor, Justwealth. You can get advice, planning and l0w-fee ETF portfolios all at one shop. You can have it all.
Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.
CASHFLOWS & PORTFOLIOS
The self-directed investor might consider the service provided by Mark Seed from My Own Advisor. He runs Cashflows & Portfolios where they will provide options for that optimal retirement funding strategy. That service is provided for a very reasonable fee.
If you do head to Cashflow & Portfolios (as do many Cut The Crap Investing readers), be sure to tell them Cut The Crap Investing sent ya.
OUR SAVINGS ACCOUNTS
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 2.5% and 3.0%. You’ll find some higher rates on GICs up to 5.2%. They also offer U.S. dollar accounts. We use EQ Bank, they have been awesome.
OUR CASHBACK CREDIT CARD
We make between $40 to $70 every month! And that’s on everyday spending. There are no fees with …
The Tangerine Cash Back Credit Card
For January we received $50 in cash.
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me (try to) pay the bills for this site. But they don’t, ha. That will allow me to keep this site free of ads and easy to read.
Hi Dale …..
You seem to prefer XAW over VXC …. do you have some reasons for this that perhaps you can share?
Hi Steve, they are both great. The returns are near identical. The only concern is the extremene concentration in the U.S. but that’s where they keey the growth the past 15 years.