BMO remains constructive on Canadian banks but says valuations are now expensive, with limited upside and a more selective preference for Royal Bank (RY). Scotiabank highlighted AI-linked software beneficiaries Datadog, Snowflake and MongoDB, while remaining cautious on Elastic, and BofA upgraded Nutrien to Buy from Neutral on rising fertilizer price risk tied to a possible Strait of Hormuz disruption. The piece also notes narrowing S&P 500 breadth, with the median constituent still 13% below its high despite the index at a record.
The common thread is not “AI helps software” but that capital intensity is migrating up the stack: hyperscalers are funding AI infra, and the monetization is increasingly accruing to observability, data management, and app-layer middleware. That favors DDOG and SNOW most cleanly because their usage expands with workload complexity rather than with seat count, while MDB benefits if AI applications proliferate beyond experimentation into production. ESTC looks like the odd one out: search/logging is still important, but the market will likely demand proof of differentiated AI workload capture before rerating it alongside the faster compounders. The bank setup is more of a dispersion trade than a sector call. RY screens as the highest-quality long-duration franchise if ROE durability is the key variable, but the broader implication is that upside in Canadian financials is now more dependent on capital markets and credit normalization than on multiple expansion. That makes the group vulnerable to any flattening in loan growth or a turn in funding costs; the easy money was made on the re-rating, and from here earnings beats need to do more of the work. NTR is the cleanest geopolitical convexity in the note. The market is likely underpricing the time-sensitive nature of fertilizer logistics versus planting calendars, which creates a non-linear setup: if trade routes normalize quickly, the stock can drift; if delays persist into the key buying window, pricing and sentiment can gap higher fast. The second-order effect is on grains, not just fertilizer—higher nutrient prices can eventually tighten crop supply and lift corn/wheat, which would partially offset margin pain for growers but still tighten the ag complex over a 6-12 month horizon. The breadth data argues for caution on indexing into the rally. With a small subset of mega-caps carrying the tape, a benign headline cycle can mask deteriorating participation underneath, so long-only beta here is more fragile than the headline highs suggest. That makes selective longs and hedges preferable to blanket exposure, especially if macro or rates shock the narrow leadership cohort.
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