Barlow’s Research Roundup: Three big questions about AI and its market leadership, and what to expect from the TSX earnings season

Daily roundup of research and analysis from JOBFlocks’s market strategist Scott Barlow

Energy infrastructure top picks

BMO analyst Ben Pham previewed profit results in the dividend-rich energy infrastructure sector,

“Q3/26 earnings season kicks off on Oct. 29 with ALA first out of the gate. We make estimate changes to ~50% of our coverage and expect twice as many in-line/misses than beats. Following discussions with management teams and analysis of public data sources, we point to notable potential Q3/26 beats from ALA, TRP, and TA and potential quarterly misses from KEY, ENB, and NPI. Lastly, we are elevating TA to our Top 3 Best Ideas (after TRP and ALA), replacing ACO.X where we are now restricted”

AI rally ending?

BofA Securities U.S. equity and quantitative strategist Savita Subramanian identifies the big questions about AI and how long they can keep driving the global market rally,

“Most of our equity meetings are 90% AI, 10% everything else. But they all boil down to the question above. In our view, (1) AI capex likely has further to run; (2) monetization vs. cost of capital is the only question that matters; and (3) the best opportunities right now may be outside Tech–AI adopters, commodities/physical buildout plays. We see balanced risk/reward for the S&P 500 over the next 12m, and long-term bulls on Corporate America. Across Info Tech and Comm Svcs, the playing field is more level, more rational after 2026’s PE compression. We are market-weight both sectors.

“What’s the goldilocks scenario for AI capex from here? Instead of tracking AI capex in a vacuum, investors should track it relative to AI revenues. Hyperscalers’ free cash flow is expected to shift from negative to positive by 2H27 as AI-related revenue growth accelerates and AI capex decelerates. The risk: AI capex has surprised by a much wider (and accelerating) amount than revenue– 50% vs. 20% this year - so 2027 expectations imply a marked shift in trend … AI returns boil down to consumer, enterprise and government spend. The bull case is easy: AI is a need (like Utilities) but purveyors have pricing power. Case in point: we pay 50% more for streaming content than we did for cable in 1995 in real dollars. Enterprise spend could be gargantuan if just 10% of US workers are rationalized: $13tn US wages translates to as much as 3tn annual AI TAM [Total Addressable Market] …Catalysts for selloff? Hyperscalers WACC [weighted average cost of capital] just doubled. The WACC for hyperscalers is now 10%, up from 4% in 2023 … What’s the long term impact of AI on stocks? Productivity!”

TSX profit preview

Scotiabank strategist Hugo Ste-Marie provided a TSX earnings season preview,

“While Canadian GDP growth remains stuck in the slow lane, TSX earnings growth remains firmly in double-digit territory. Key highlights: Quarterly EPS. TSX Q3 EPS is expected to come in at C$515, up 24% y/y. Revisions mixed. Index-level Q3 EPS estimates decreased by 4.4% over the past three months, pulled lower by steep negative revisions in Materials/gold, Utilities, Communication Services, and Staples. EPS growth - solid sector breadth. Eight sectors are expected to deliver double-digit EPS growth in Q3. Resource sectors should assume earnings leadership.”

“While peak earnings growth is likely behind us (+32% y/y in Q2/26; +24% in 2026), earnings should continue to advance at a healthy, albeit slower, pace in 2027 and 2028. In other words, the pace of growth is slowing, but the earnings cycle remains firmly positive with growth well above historical average … Tech, Health Care, Industrials, and Discretionary have benefited from slight positive revisions since the end of June … Eight sectors are expected to deliver double-digit EPS growth in Q3, led by Energy (+55%), Materials (+39%), and Technology (+23%). Laggards are mostly defensive/rate-sensitive sectors”

Bluesky post of the day

Diversion

“Scientists Uncover a 500-Year-Old Secret Hidden in a Book Henry VIII Wanted Destroyed” = SciTechDaily