The Canadian Investor - The AI Trade Gets Tested as Freight Stocks Recover

Episode Date: July 30, 2026

In this episode of The Canadian Investor Podcast, we break down Alphabet’s latest earnings and why investors are questioning the massive AI capex spending despite strong growth in Google Cloud. We also look at Celestica’s monster quarter, SK Hynix’s booming demand from AI memory, and Corning’s sharp selloff despite strong growth in its optical communications segment. From there, we discuss CN Rail and TFI International, two transportation names showing signs of improvement, before wrapping up with Coca-Cola and why it appears to be holding up better than Pepsi in a tougher consumer environment. Tickers discussed: GOOG, GOOGL, CLS.TO, SKM, CNR.TO, CP.TO, GLW, TFII.TO, KO, PEP, NVDA, AMD, AVGO, MU, META   Subscribe to Our New Youtube Channel! Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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If there's uncertainty in the markets, there's going to be some great opportunities for investors. This has to be one of the biggest quarters I've seen from this company in quite some time. Welcome to the Canadian Investor Podcast. I'm Simo Berage. I'm back with Dan Kent. We have a jam-packed episode. We are in a in the middle of earnings season. We'll be starting off with Alphabet reporting a pretty monstrous quarter. Some good, some not so good. We'll go over that. I know we did talk Dan Foch and I a little bit about it,

but we'll be digging a bit deeper on what we saw during that quarter. You'll talk about Celestica, the Canadian darling, that is benefiting greatly from the AI tailwinds. After that, we'll talk about SKI next. So the recent IPO on the U.S. market through the ADR, so American Depository Receit, that recently IPOed on the U.S. markets, they came out with their first quarter since then. Really strong quarter. We'll be talking about CNREL and TFI International in the logistics space and transportation.

See how those are going. Also be talking about corning. So one of the names that we picked for our custom indexing with QuestRae, the partnership we have, so the TCI podcast index, hidden AI winners. And then we'll also finish by talking, if we have enough time, Coca-Cola,

just have a quick look at how they compare to Pepsi, who has been struggling recently. So I wanted to compare and see if Coca-Cola is doing better or worse. So stay tuned until the end for that. So we'll have to, we'll try to get all of that done in about 45, 50 minutes. But let's get started.

There's just a whole lot. So alphabet. So I'll probably refer to it. Google for the most? Yes, everybody does. I don't know, and it's just easier. So on the surface, really massive quarter from Google, revenues were up 24%.

Google Cloud revenue was up 82%. So that's what the Bulls really focused on. Cloud Backlock increased more than 10% to $514 billion. That's another strong point from the quarter here. Net income increased a whopping 298% to $112 billion. But then there's a little last. Asterix next to that. It's actually quite a major asterisk.

So 98 billion of that was due to an unrealized gain on their investment. This is something they have to do in terms of accounting. So it looks better, but, you know, next quarter, that won't be there. So you have to zero that out because it's not really the business. Sure, these are investment gains, but they are unrealized. So you have to take that into account. But I think the quarter looked better on the net income basis than it. actually did. And operating income, which is definitely a better indicator here, that was up 30%

to 40 billion. Before I keep going, any quick comments here? I'll just say that I was actually surprised at like the number of large accounts on X that were reporting, because Google was estimated to earn, I think it was close to $3 a share. And there was a lot of accounts that were talking about how they topped estimates by like 300 some percent. That $3 estimate, would be adjusted earnings, whereas these were just reported earnings. So yeah, there's a lot, there's a lot of, I don't know, I guess not necessarily hate, but you have to pay attention to what adjustments are being made because some companies kind of abuse this. But in this case, it is 100% reasonable to take out paper gains on investments when you're looking at earnings.

Yeah, exactly. You want to know how the business actually does. Not just a one-time thing. And of course, to the defense of some of those accounts, I think sometimes they just rush to get information out there as the earnings are coming out so they don't really dive into it. But to me, you know, something I would always look for when something's like way above expectations, there's usually a reason. If you're beating expectation, it's one thing. But if you're smashing them and it's like almost a head scratcher at first gun, there's usually a reason. And in this part, it would be the other income portion of things. So just make sure you look at that when you look at at earnings. The stock was down 7% a day after earnings. And I guess it's recovered about half

of the loss roughly since then. And a lot of people I could see on Twitter, especially some big accounts, they were just wondering like what's going on, why the massive drop. They had massive growth like we just talked about, like what's going on. Well, earnings also look really good. Like we talked about it, even when you zero out these unrealized gain. But in the span of six months, it's really a CAPEX story. Cpex in terms of their guidance. So if you go back to Q4 of 2025, when they started providing guidance for 2026,

they increased their CAPEX guidance at the end of Q1 as well, and now they increased it again. So since the end of Q4, the guidance for CAPEX has increased 11%. So that's a lot of spending. Now it's going to be in the range of like $200 billion for this year, for CAPEX, which is actually crazy. And then the chart that was going around on social media is the one I'm showing right now for a joint TCI subscriber, as you'll see it.

So essentially, for those who are just listening, just think about it, Google being free cash flow positive forever. And then this latest quarter, negative, close to $6 billion. That essentially means that they spent more on CAPX than they generated operating cash flow. It's that that's what free cash flow is. That's pretty big. And it does raise some concerns. I think those are valid concerns. Is that okay, like this is a massive amount of spending?

On top of that, they said it will actually be higher next year. So it's not ending anytime soon. And they were asked on the call actually several times, not just ones, but they were as analysts were just asking, okay, like, it's, okay, you're spending a whole lot of money. like what kind of return on invested capital do you see? And Google did not answer. So they essentially, it comes down to two things, right? If you're an investor, when they provide non-answer and they were non-answered, they said it's going in the right direction.

These like vague terms that mean nothing, either they know and it's not good and they're not disclosing it or they don't know. And either way, I think this is concerning when you're an investor and you see a business investing billions and billions of dollars. say that AI is providing tailwind for the business, and it's one of the reasons why you saw that strong growth into cloud, but again, they don't break it, they don't actually break it down. And that's the problem. So when you're an investor, you're an analyst, you're trying to like almost decode what they're saying, but they're not giving you concrete numbers. So for, I think the, the bearish case here is that, look, you're looking at this massive amount of spending. Will it help earnings going forward probably but the other question is depreciation so that amount of

capex will be depreciated and you're seeing depreciation go up 60% already year over year and i can only see that increase significantly in the years to come as all this capex spending actually continues to be depreciated and this is just an accounting principle but it just to show that yes on an ed income basis google might look fantastic but that's net income might actually be facing some headwind going forward. And then you had another question, okay, they're depreciating over six years. But what if the actual useful life of these chips and this equipment is actually closer to three to four? And then you get into a bigger problem because then you have to start increasing your capex even quicker after that. So there are some legitimate

questions here. Obviously, the bullish case is that the stock is down. And this will be, massive tailwind to the business going forward in three, four, five years. These are necessary investments. But it's really, the reality is, I think I'll finish on this because we have a lot and you give me your thoughts. But I think some, the reality is the business model is completely changed for Google. It used to be an asset like business. That's why people loved it is they were not spending a whole lot of money and acquiring new clients at a marginal cost. So it was almost all profits all the extra revenue that they actually captured. Now it's flipped over on this head.

That's the reason I was talking about that free cash flow is because it was so strong because it was an asset light business, but these are no longer asset light businesses. And the bulls will say, oh, it's more of a temporary thing and they'll return to that. And AI will be such a tailwind. But again, I think there's some very real legitimate concerns here with Google. And to be honest, all of the hyperscalers that are invested massively here. Yeah, I think you have what you have the largest company in the world. I would imagine they're still the largest.

They'd have to be pretty close. I think it's Apple now. I think Apple's back on top. Yeah. Yeah. So their second largest company in the world who is no longer on a cash basis, at least, free cash flow basis, even pulling in money anymore. Like they're profitable on an accounting basis, like in earnings for share basis.

And then you have them go on the call and really not mention anything about, you know, what they expect in terms of this. So yeah. And not only were they, I think everybody expected this to happen, like the negative free cash flow. I'm pretty sure this was expected. But now they say it's even going to get worse over the next year or so. So when you don't have the free cash flow to do it, you're eventually going to tap the debt market more.

You're going to tap the equity market more. Like I would not doubt we see more offerings, share offerings from these companies in the future. They pretty much, I don't want to say they all. Yeah. Yeah. Yeah. Amazon did one. Well, they did alphabet,

that one way. Berkshire was part of it. Yeah. So they issued some equity. And I think they're all issuing debt. I don't know if meta is issuing equity just yet, but they're definitely issuing dead. The credit default swaps,

which is essentially just insurance against bonds defaulting for a company. So you get a credit default swap. It's an institutional product. And they've been rising, actually, for all the hyperscale. It's not like to crazy levels, but Oracle is the one that's Yeah, quite up there.

SpaceX for obvious reasons. But yeah, I think that's kind of the gist of it. Anything else before we move on to Celestica here? No, that's about it. I mean, I'm still pretty bullish on Alphabet. I owned it, but I was definitely mixed, I guess you could say, about this quarter, even though I expected the negative free cash flow. When they say it's going to get worse moving forward, it's a bit of a concern, but I haven't done anything.

I wouldn't touch it with a 10-foot pole. That's my opinion. Just because it's not, no, I'm not saying because, like, I can see a way where, like, it becomes a much better business. When management does not answer questions, like, okay, you're spending $200 billion this year and you have no idea what your return will be. And you cannot give us concrete numbers. That is, like, red flags in my mind. That is like, it was a weird call. Yeah.

I cannot invest in a business when there's that much doubt around it. Like, basically the biggest thing happening with the business, they don't even know or they're not telling us. So I know I can be harsh, but you know what? Simone chained, that's my honest opinion here. Realistically, does anybody know? None of these companies know. They're like shoot first, aim later right now when it comes to building this stuff out. Yeah, exactly.

So anyways, that's just my opinion. Obviously, you know, Dan, things differently. You're probably listening to this. You might have the same or different opinion. That's just my opinion when management, especially something big like that. That's a big no-no for me. There is an old saying in investing. It's not about timing the market, but time in the market. The most successful investors aren't usually the ones trying to catch every top and bottom.

They're the ones who spend the most time in the market. I've been a quest trade user for over five years, and the reason I stick with them is that they remove the friction of regular investing. With no commissions on stock and ETF trades, you don't have to wait until you have thousands of dollars saved up to make a move. You can contribute small amounts regularly and keep your portfolio growing consistently, removing the stress of trying to time the market. And they keep making it easier to build a well-rounded portfolio. Soon, you'll be able to trade precious metals through Questrade,

giving you even more ways to diversify. Questrade makes the whole process seamless, allow you to focus on what really matters your investment strategy, not trying to avoid fees. Ready to invest, head over to questray.com, open and fund your account with code TCI and receive $50. Conditions apply. We've booked a cottage for early July, and I'm already picturing the kind of trip where the days are pretty simple. Mornings outside with coffee, my daughter running around with our new puppy,

afternoons by the lake, and those quiet evenings with my wife watching the sunset with a glass of wine after everyone else has gone to bed. And while we're away enjoying that time together, the timing also made me think about our own home back in Ottawa. Early July is such a busy time in this city, with Canada Day and Blues Fest bringing so many people in. That got me thinking about how our home could be put to good use while we're out of town as it's just sitting empty. Listing our home on Airbnb could create some extra income to help cover part of the trip, while also letting another family enjoy our neighborhood during one of the best time to visit Ottawa. They could walk over to a local coffee shop, spend the afternoon at a nearby beach, and use our place as a comfortable home base after taking in everything happening downtown.

Your home might be worth more than you think. Find out how much at Airbnb.ca slash host. So let's move on. Another AI place, Celestica here, so the Canadian darling here. Yeah, a company that has benefited substantially from all of these hyperscalers spending huge money. Pretty big quarter from Celestica. It's pretty wild. Since the start of 2023, Celestica has a 145% compound annual growth rate on earnings and 34% on revenue.

So earnings outpacing revenue is primarily because they shifted the business model from, I guess you could say manufacturing to like designs, like they're designing. a lot of stuff for these hyperscalers and it's it's causing margins to expand revenue on the quarter like year over year revenue grew 62 percent earnings 83 percent free cash flow by 23 and all of these numbers came in well ahead in my opinion of their expected guidance on the quarter quarter as well operating margins came in at a company record they were up 0.8 percent to sit at 8.2 so you're looking at a 10 percent plus increase in terms of their their previous to now The company announced it expects to commence with deliveries of custom rack solutions for OpenAI. I don't follow this company a ton.

I do a little bit, but apparently they had some unknown customer that was expected to make a large amount of purchases. And that is apparently has been revealed is Open AI. And again, as I had mentioned, one of the main reasons Celeste has been. It's unknown or large customers or key customers when it's all related to like AI. spend. It's like, okay, we kind of know which one it is. Yeah, exactly, but they don't want to say it. Yeah, they don't want to say it. Yeah, they don't know. They've said it now. It's Open AI. It was, is anybody surprised? Probably not. But yeah, they, they've been able to transform the margin profile of the company because of the custom

solutions for companies like Open AI they're working with. So the use to just manufacture the systems, the GPU racks, whatever it may be. They do like networking switches and stuff as well. Again, not like 100% versed in this company, but they do pretty much the vast majority of what they do now, especially with how explosive they've grown is AI related. So they get these companies in. They build custom solutions, which makes switching a pain.

It makes it harder because they already have these integrations with the company. They know the systems. They design the systems. So they've also locked in some deals with AMD and Broadcom moving forward in terms of the research and development and design of some networking switches. And the company's connectivity and cloud solutions, plus its hardware platform solutions segments are growing by 84% and 58% respectively. So these are those segments that are exposed to AI.

Not really that's surprising. It's advanced tech solutions, which is kind of like work they do for aerospace, industrial companies, things like that. That's the lowest margin business kind of quickly becoming an afterthought in light of the AI side growing so fast. It's, yeah, it's wild. The company did mention that demand is not an issue whatsoever. It's just the materials.

Judging by the commentary on the call, the company's guidance, if there wasn't a material bottleneck, would be way higher. And they're mentioning that some of the lead times on materials are more than a year. So, yeah. So because that demand is so high,

they had mentioned that customers are pretty much entering into non-cancelable and non-refundable orders. So they buy it now. And even if, you know, something were to hit the fan in the future, they're non-refundable. They get the money anyway. Is my idea from it? This is why they're so confident they can hit guidance for the next bid here. The orders are in.

The companies are so desperate for this type of stuff. They're effectively paying up front and cannot change your minds. And if they do, they don't get their money back. Oh, the same kind of thing with Micron. Micron's doing like tanker pay. So similar to what pipelines would do. So kind of minimum commitment that. you're basically paying for it whether you use it or not.

Yeah. It's a good spot to be in because even if demand were to crater, they would still get paid. Don't get me wrong if demand were to go down this share price would crater. There's no question because obviously your future orders would be impacted. But they expect demand to remain so high that they're already kind of in discussions for capacity requirements in 2029. So we're talking three years ahead. Buybacks are on pause. And kind of the gist I took from it is they're doing this because they need the money to expand capacity internally.

So they're not buying back shares anymore. Capital expenditures are expected to make up around 5.5% of revenue, which is still pretty capital light, really, 5.5% of your total revenue to KPEX. But it was only 1% last year. So you can see how fast this is accelerating. They bump guidance. They now expect 65% revenue growth this year. earnings growth, 87% free cash flow of 600 million. That's about 100 million upgrade.

They were expecting 500 million. Pretty much double digit upgrades across the board. And again, I mean, you just look at this company. It's so wild. Four or five years ago, it was a small cap company. And now it's, I know when we did that ranking the TSX stocks at the start of the year, I think it just broke the 30 mark. But we'll see over the next few years here how big this comes in terms of, you know,

largest AI companies or sorry, TSX. companies. But three of its customers make up two-thirds of its revenue. So there's a lot of concentrated exposure here. So I mean, I don't really want to scare anybody or anything, but I mean, in my opinion, you're one hyperscaler leaving from it being obliterated in share price. Yeah, exactly. You got 66% of your revenue from three companies. You lose one. You might think, okay, well, they still have the other two. But as soon as you lose one, there's the fear that how many more are you going to lose? So, um, will they lose them? I don't really know. I don't know the business well enough to know how sticky that, you know, the development side of it is and the design and all that stuff. So I can't

say that, but it would not be good if they lost one. Okay, well, let's move on now to S.K. Hynex. So like I mentioned, essentially they broke a record for a foreign IPO on the U.S. market. I think that was a few weeks ago. And this was the, you know, Yeah, the largest ever U.S. IPO by a foreign company. And now this was the first quarter they reported since then. So revenues were up 257 percent, you over a year and 51 percent quarter over a quarter. Operating margins actually hit a whopping 76 percent. So I'm showing this chart for Joint TCI where it shows 71 percent up, but that was the last quarter.

And essentially this chart for those just listening, it goes back all the way to pretty much 10 years into the pass and it's cyclical right so memory makers they're cyclical businesses so you have up and down margins improve as essentially there's more demand and then there's just a lot of cyclicality so it goes from essentially negative margins all the way up to 53% except for the period we're in that it just keeps climbing higher and higher and i think it's a good visual just to show how much craziness like lack of better word there is in this space right now. And Celestica is another great example where there's just so much spending. And it's almost like any kind of restraint has gone out the window. They'll just throw away money at it. I mean, this is one of the reason why IBM tanks so much is essentially

some of its clients are like, yo, look, we just have to spend on AI related stuff. And we just don't have any leftover money to buy your things. So your mainframes, right? So that's essentially what's happening. Well, in this situation, it has to be like a name your price. I would imagine that's why margins are going so high. Yeah, like SKINX is the same kind of thing. So similar to Micron and what you said about Celestica, they now have long-term agreements contract with 10 key customers. So I'll let people just guess which these customers are, which includes deposits. I'm assuming the deposits are not refundable. So again, they're just baking in more revenue. I guess some of the downside with these kind of

contracts as if demand kept going up, then they're kind of locking in the pricing. So, but again, these are highly cyclical businesses.

So locking in the pricing is probably not a bad thing. And they believe that demand should stay strong for sometimes. They believe that hypers are starting to see better monetization from AI build out,

which would then justify more investment in requiring more high band with memory, DRAM and storage. They didn't give revenue guidance, but they guided for 10% increase in DRAM shipment and low single digit for storage. Demand continues to far exceed the supply.

So same kind of story there. And they're spending to increase capacity. So they expect to spend about $27 billion in USD this year in CAPEX. I just did the conversion because they report in Korean one. That's a 60% increase versus last year. So SKINX, same kind of story as Micron, just demand is through the roof. And again, the same kind of risk that you mentioned for Celestica is if you start seeing a pull back on those expenses. Like, they think it's going to continue.

But I have my doubts, right? They, like, they're not going to say that, oh, stuff is going to hit the fan and things are going to crater. Like, they clearly, you know, they'll be more positive than not. But as you're seeing, like, you can see, you can look up on the internet. There's aggregators that compare the cost per AI models. and there is more and more models that are coming up that are quite good and probably good enough to do a whole lot of things that businesses require. So it's putting some pricing pressure on those most advanced models and the most advanced models because they are more expensive. They definitely are more capable.

But why would you pay for the most advanced model when you can get, you know, a quarter, 10% of the cost, whatever it is, a cheaper model that does the exact same thing as well. as a more advanced one for this exact function. It might not be able to do something super advanced, but you don't need it to do that. And companies will go to whatever gives them the best ROI. So I think it's just important to remember. And I think this is one of the things that now the market is starting to grapple with is like, okay, is a lot of the demand that these frontier models are seeing,

is it going to fall off a cliff because there's just these more, these cheaper models that can do, 80% of the task as well, if not better. Sure that next 20% will keep that business, but it does come into question in terms of the business model. Yeah, I think that's why you've seen, like, look at Sandisk. It's down. We were at 2184 bucks on June 18th.

And now we're, what, a little over a month later and we're down 52%. Yeah. I mean, there's, yeah, there's a lot of, a lot of volatility. in these companies. I think S.K. Hynix is in like the biggest drawdown, maybe since it's IPO.

Yeah, I mean, the IPO hasn't been lost. No, I mean like, like, Oh, you mean it's Korean IPO? Normal exchange, yeah. Okay, yeah, because they're, I was reading something about the MSCI ETF.

It's like an emerging market's ETF. It might have been Korean ETF. It was down like 40% or something. Yeah, it's basically SKI Nix and Samsung. Yeah, there's like two big companies in there. Yeah. Yeah, it's like something like half the index is like those two businesses. It's something crazy like that. I'm not like I don't know the exact numbers, but it is like something like crazy like that. Like these two businesses essentially like account for half the market. But yeah, because they were talking about their their market or whatever bombing. And then you look at it and you're like, okay, that that makes a little bit of sense because they're so big. 52% drawdown. So yeah. So that is if you're just looking. Yeah, it's basically. 52% in the last month, essentially, in change, which is absolutely crazy. But yeah, anyways, so we'll keep going. We have a lot on the slate.

So up next, let's get to some boring businesses here, Canadian National Rail. Not boring in terms of returns this year. That's for sure. Maybe not. Yeah. The railways have seemed to turn things around. The EP reports tonight, I think we're filming, we're recording this Wednesday, a, what's the date today, July 29th, and they report aftermarket tonight, so we haven't seen

anything from CP yet. But judging by CN's quarter, I'm guessing it's going to be pretty good. I had mentioned on the, back in the year in review at the end of last year that the railways had been underperforming the index for three straight years, and they had never, they had never gone on to underperform the TSX for four straight. We're only halfway through the year, but CNs up around 33% CP 27%. So there is some signs of life here. Revenue and earnings both increased by 11%. Free cash flow increased by 19%.

More impressive thing is revenue increased 11% while revenue ton miles only increased 5%. And this would be kind of the revenue they make per weight and the miles. It's just the railway is getting more efficient if you see that. If you see revenue kind of outpace that. So along with that, gross ton miles increased 3%. This generally indicates heavier car loads.

Fewer empty miles, like empty track, empty, what we call it, tracks on the, on the total train, which is no doubt going to lead to pretty strong results. You don't want empty cars on the tracks. Operating ratios went up 0.5%. This is an operating margin. It's operating ratio, which is not a good thing. Operating ratio is pretty much whatever costs CNRail to generate a dollar of revenue. So you want lower.

but the thing is when you look at it. It's the opposite of operating margins. Yeah. Flip the operating margins over and you get the operating ratio. Yeah. And most logistics like railways trucking companies use this. So it went up 0.5% but fuel added 2% to that ratio. So the fact they were able to only see a 0.5% increase when fuel cost 2% to the entire number is actually pretty good.

It means if we get some sort of stability and fuel prices, which they can typically pass along anyways for the most part. It should start to improve again. They ended up raising guidance, which is a pretty strong signal for kind of the entire industry. Revenue Uton mile growth is now expected to increase by low single digits. I'm fairly certain before this they were projecting flat or even slight declines in this area. Adjusted earnings expected to increase mid to high single digits. And before this, they just kind of mentioned that earnings will slightly exceed revenue ton mile growth. And I think that that pretty much said that they're going to buy back some shares and that's where the most of the earnings growth would come from because everything else was

going to be generally flat. So the rail loves to buy back shares. Yes, they do. The company bought back around 450 million shares on the quarter. And I think buybacks at this point in time for the railways kind of a no-brainer, they're relatively cheap here based on historical numbers. And we've talked about this before. I just kind of wish that CN hadn't blown as much money as it did, buying back shares during the peak COVID environment. Because if they had that money today, it would be much better placed. And you look to a company like CPE, they pretty much stopped buybacks completely during that time. A lot of people will say it's because of the Kansas City Southern acquisition acquisition,

but they started scaling them back before that acquisition closed. So I think it was kind of an element of management. and kind of thinking prices were a bit too expensive, but I think CNRail spend, yeah, we're looking at probably $11, $12 billion in buybacks from 2022 to 2024. Like if they had that money now, it would have been good to reduce that debt, let's be honest. I think that would have been nice for them to do to reduce that debt. We've beaten like that horse down quite a bit so we won't go at it again, but I think that would have been that much better use of capital.

Yeah, yeah. It was a good quarter. I mean, CN Rail is not a bad company. I don't want to give people that impression. I just own CP instead because of the stuff we're not going to dig into detail this episode about. But it was a good quarter. And, yeah, I expect we'll probably talk about CP next week, but I would expect it'll be just as good. Yeah, no, exactly.

I mean, it's, I think you'll be fine owning Canadian National Rail. I just think the capital allocation decision from the management team over the last five, six years not been the best. Yeah. But, you know, when you have as good. as a durable mode than that you do with this kind of company, don't have to make the best decisions to still give some returns to shareholders. There is an old saying in investing. It's not about timing the market, but time in the market. The most successful investors aren't usually the ones trying to catch every top and bottom.

They're the ones who spend the most time in the market. I've been a quest trade user for over five years, and the reason I stick with them is that they remove the friction of regular investing. With no commissions on stock and ETF trades, you don't have to wait until you have thousands of dollars saved up to make a move. You can contribute small amounts regularly and keep your portfolio growing consistently, removing the stress of trying to time the market. And they keep making it easier to build a well-rounded portfolio. Soon, you'll be able to trade precious metals through Questrade, giving you even more ways to diversify. Questrade makes the whole process seamless, allow you to focus on what really matters

your investment strategy, not trying to avoid fees. Ready to invest, head over to Questrade.com, open and fund your account with code TCI and receive $50. Conditions apply. We've booked a cottage for early July, and I'm already picturing the kind of trip where the days are pretty simple. Mornings outside with coffee, my daughter running around with our new puppy, afternoons by the lake, and those quiet evenings with my wife watching the sunset with a glass of wine

after everyone else has gone to bed. And while we're away enjoying that time together, the timing also made me think about our own home back in Ottawa. Early July is such a busy time in this city, with Canada Day and Blues Fest bringing so many people in. That got me thinking about how our home could be put to good. use while we're out of town as it's just sitting empty. Listing our home on Airbnb could create some extra income to help cover part of the trip while also letting another family enjoy our neighborhood during one of the best time to visit Ottawa. They could walk over to a local coffee shop, spend the afternoon at a nearby beach, and use our place as a comfortable home base after

taking in everything happening downtown. Your home might be worth more than you think. Find out how much at Airbnb.ca slash host. So let's move on another AI place. So Corning, ticker GLW in the U.S. This one was one of the names that I actually picked for our custom index that we created with Questrade, the TCI Podcast Index, Hidden AI Winners. Really was really curious to see how it's done. To be honest, hasn't done well in returns in the last month.

So it's down 51%. So a little bit like SKI.NX. You do wonder if it's, I'm looking at the SKI Enix chart, but no, it is corning that I'm looking at in the last month here. So yeah, the stock went around 255. A share, now it's 124. So yeah, just cut in half. Yeah, at the end of June was essentially when, you know, when it really picked. Thankfully, we picked it for the IDN AI winner when it was much lower.

But again, we weren't looking at things based on that. We're pretty clear on that. So, yeah, to get back to Corning here, really interesting quarters. So Corning, for those not familiar, it's a specialty glass company. It's essential for smartphone displays, TVs, and also major producer of fiber optic cables and connectivity equipment. That's a little part that's very much AI-driven. If you look here at the segment, the optical communication revenue, that one was up big,

So it was up 32% for the quarter. I'm just bringing the right chart here. And that's within that segment. That includes a 65% increase in enterprise network. So clearly the demand for AI is still very strong here. And essentially just to make things kind of easier to understand if you're not like fully sure. Essentially, it's just a transmission of data that's required for AI, right? Like that's what they do.

And sales grew 17% year over a year. adjusted EPS was up 30%. They said that they expect their growth rate to reach about 20% by the end of the year. They said they continue to see strong demand for their Gen AI product offering and will increase CAPEX to spend to $2 billion this year to increase capacity for their optical communication segment. Again, same kind of story. If they had molar capacity, there is enough demand.

Essentially, yeah, if they could produce more, they would sell more. From a stock price perspective, like I said, it was a rough one. The stock was down more than 15% just on the earnings release. It really looks like it's a story of expectation where the market was expecting higher numbers for Q3 sell guidance. So it's really, you know, guidance didn't really come in line with what the market was expecting. And honestly, I think it just comes down to expectation and valuation, right? So you're looking at the company that's still trading at around 34 times price to earning and 81 times price to free cash. Despite being down 50% in the last month.

And I think that's a story we'll see more and more with these AI plays, whether it's the picks and shovel, but the obvious picks and shovels or actual, yeah, AI, you know, like company is hyper-scalers and stuff like that is they may start becoming a story of expectations and just valuations being too. too high. Yeah, and I think the price to free cash flow valuation ratio is going to get pretty dicey for a lot of these companies. And is going to look absurdly high. But yeah, it seems like every conference call from these companies is the exact same thing. There's so much demand. We don't have the capacity.

So we have to spend more to get the capacity. So, yeah, it's kind of a broken record with all these AI companies. Let's hope the demand doesn't drop off. That's essentially, that's a risk right there, right? Yeah. So especially as some of the. them expand capacity like what happens if demand drops off a cliff and that's why i mean it's a bit off topic in terms of company but that's kind of why i like Taiwan semiconductor because

they've said that outright they're like we're not going to spend a ton of money building out the capacity we need now and then you know if demand craters and it's just a bunch of i don't want to say wasted money but no but you have idle capacity essentially have to you know produce You invested and you're maybe using 60 or 70% whatever. I'm just throwing numbers out there. But people probably understand the idea. And I think that's one of the biggest risk right now, especially, you know, we talked at the beginning of the episode, the credit default swap. So essentially the insurance that you buy against companies defaulting on their bonds.

And those are actually the insurance costs is going up. Meaning that the market is likely going to start to demand higher yields. you're talking about all the hyperscalers here, they'll demand higher yield for debt being issued and how do they start finance, like how do they finance all this CAPEX? They either, there's two options. They dilute shareholders, they issue equity or they issue debt. And if debt starts becoming too expensive because there's not as much demand for their debt, then they'll have to dilute.

Then obviously dilution is not good for a shareholder. So it is kind of a tricky thing where, you know, it's a number. on zero chance that there is some pullback in spending because they realize, look, we're just not going to dilute our shareholders that much. And the debt we're trying to issue is just, it's becoming too expensive. So something to keep in mind, I'm not. It's just one of the is that I think people need to be aware of. But let's, let's move on here to TFI International. Yeah. So TFI, this was probably the best quarter I've seen from TFI in a couple of years now, Not necessarily that the company has done anything wrong.

It's just the macro backdrop was very, very poor for this company. Revenue increased 12%. Earnings were up 38%. Operating income up nearly 30% and free cash flow up. The earnings absolutely crushed their outlook. So they were $1.85 a share versus $1.50 expected. And the one important thing to note is around half of their revenue growth came from fuel surcharges. But if you look to the earnings growth and operating,

income growth, it kind of far exceeds even the core revenue growth of around 6%, which is the more important thing. Truckload revenue grew 7%, less than truckload grew 3%, and logistics 10%. Less than truckload growing at 3% is nothing really amazing. But when you consider the kind of absolute beat down this segment as face for TFI since pretty much coming out of the pandemic, it's a huge positive sign. So prior to this kind of big surprise quarter, TFI had posted sequential declines in less than truckload revenue in six of its last eight quarters. So pretty big turnaround for them. And I think for a company like TFI, especially with the management team they have, the conference call is way more important than the earnings.

I don't know if you remember when TFI posted that ugly quarter and they did the conference call and just absolutely ripped the bandaid off. And I can't even remember what the stock fell that day. It might have been 40% in a single day because it was massive, but it was refreshing. I'll be honest. Like, it was good to hear. Like, they just, they just said it how it was. They don't beat around the bush, like, at all. He, they mentioned how terrible it was going to be for the next two years.

And the stock absorbed that commentary on the day. And if you had bought it back then at whatever it fell to, $110, you've pretty much been a double at this point in time. There's a lot of companies who tend to try to beat around the bush and, you know, kind of try to delay the inevitable, but they have not done. So the comments this quarter were kind of centered around the trend. truckload cycle right now and how it's a bit more durable as it been in the past, which kind of bodes well for long-term performance. They mentioned that in Q3, we're going to see again, another major improvement in our truckload sector. They also mentioned how the less than truckload segment might continue to struggle as they took on too much volume at poor prices to fill the network

to keep trucks on the road. I imagine they will eventually work through this. And now that the environment has improved, now that the environment has improved, pricing will ultimately improve, but it might take some time. The market for the most part is going to know this and we'll kind of front run the price. That's why you see that segment struggle, but the company is hitting all-time highs. They mentioned they're using AI to help them with this. So they say by utilizing AI, they're able to very quickly identify unprofitable shipping routes and business lines at a pace. They've never been able to do so before so they can shed those, which should help pricing as well. And as a result, they kind of mentioned that less than truckload volumes will actually decline over the

next bit because they're going to be dumping that dumping all those unprofitable lines cheap freight things like that they're kind of getting ahead of the situation they paid off quite a bit of debt on the quarter around 117 million they've scaled back buybacks materially so last year during this quarter they bought back around 85 million worth of shares now only around 4.5 million and if you do look to a buyback chart of this company you can tell they don't really use them as a headline but more for strategic purposes so big buybacks when the stock was cheap now they're kind of of scaling them back and instead of de-leveraging. I think with TFI hit rock bottom share prices,

they probably saw more opportunity to accumulate their own shares than they did to pay down debt, which is precisely. That's how you do it. And I remember them back when it was really ugly. They mentioned their buying back shares, not making acquisitions because the best buy at that point in time was their own stock. So acquisitions, they mentioned they're not going to be making any massive moves, but they could make moves.

and they still are not issuing full year guidance. So they mentioned they need a bit more confidence in less than truckload before they do so. But yeah, it's a pretty good quarter. I think it went up 7 or 8% on the quarter. It's now sitting at 100. It's down 5% today. So pretty much wiped out the quarterly earnings. But it's done very well since the ugly lows back in 2025.

Your defense, it's been a wild day just looking at what's going on here. So yeah, who the hell knows what's going to happen. I feel like we started recording a couple hours ago, recorded a few episodes, and I feel like, you know, it's, things are quite volatile and probably changing from a couple percentage point, depending on the company you're looking at pretty quickly. So let's move on to the last one here. Coca-Cola. So we don't talk too often about it, but I thought it would be really interesting to see how it compared to Pepsi. And when we went over Pepsi a few weeks ago, I don't know if you recall. I'm sure you do.

Organic growth had really slowed in big part because of the Frito Lays divisions, right? The snacks, exactly. Yeah, and they were doing a bunch of discounts to try and get people to buy them. And it just, yeah, it just did not work, which kind of shows their way too expensive, even marked down. Yeah, it turns out that I feel like snacks are more interchangeable than beverages. I feel like people end up being a bit more loyal to the brand name beverages than they. are to the actual snack business. And I'm kind of trying to think, I don't really mind, like, I really don't care.

Like, if I'm having Coke, Pepsi or the store brand, usually it's for rum and Coke, so I don't really care. I put enough lime juice in there and taste exact same, but I don't really care. But it seems like it's really, that seems to be the story. Because if you're looking at Coke, I mean, the comparable sales that I'm showing here for Joint TCI, it's really, I mean, it's really impressive compared to Pepsi. I didn't really, I'm trying to see if I can zero out a bit further here. Yeah, so there you go.

Really, they were both doing quite well during the pandemic in the aftermath of the pandemic. And then, of course, it's trending down with inflation, less pricing power and so on. But Coke is looking at, you know, five, six percent organic growth over the last several quarters, even the quarter prior to this one, they had 10 percent. And you're looking at Pepsi now that organic growth. organic growth has been stalled in the low single digits for, wow, like three, four, three years at least now. No, to be fair, they've both been declining, but Coke has been much more sustainable.

And whether in maybe that's a little bit in part because the FIFA partnership that they had that fed into this quarter, but then again, the World Cup is only once every four years. I don't know to what extent you can really attribute that to the quarters prior. But that is really glaring. I didn't notice how much of a difference it was for the two companies here. Yeah, and I don't know if Pepsi, I know they got in a lot of difficulties raising prices. I don't know if they just raise prices a lot more for the beverages versus the food. And that kind of what got them in trouble in 2023.

And that's why it's decelerated because Coke is cheaper. I don't know if it is. I don't buy pop. I don't know if Pepsi is like the more expensive product. But I would imagine because even if you look at Pepsi's just strictly revenue or sorry organic beverage growth, it's not even close to Coca-Cola, which is usually they're pretty head-to-head. And there's definitely a huge deviation here. I don't know why. But yeah, Pepsi struggled on the snack fruit front.

Coke has done very well on the beverage front, whereas Pepsi's kind of just treading water. Yeah, I was trying to find a KPI that I could kind of compare for. Pepsi but yeah I don't they have the beverages organic revenue growth which is yeah but it's pretty much flatlined as well one percent yeah over the last while um and it was going up by yeah it's yeah it's i guess coke has probably more brand power in that point or they didn't increase prices as aggressively i'm not quite sure but you're definitely seeing you know these two companies usually you know you think of coke you think of Pepsi and vice versa as a competitor like a duopoly in the space and it's just very interesting how divergent it was and

the quarter was good for a coke even aside from organic grow revenues up 7% adjusted EPS grew 11% and the cherry on top of that for the the cherry on top of the Sunday is that they also raised their guidance for organic growth EPS and free cash flow for the year so the stock did quite well after the earnings release but it it is just I find it fascinating in the world of inflation that and we've talked about it before, you have these store brands. And I feel like, you know, Pepsi probably tried to squeeze every drop out of that price-increased lemon during the pandemic, especially on the food side. And then I think they just did not see to what extent consumers would be willing to switch to cheaper store brand options. Because I, like, I don't even consider now, like, any of the chips.

Like, it's just ridiculous. Like, you can get, we don't. don't buy chips very often, but you get a large bag. I mean, we've talked about it before, but you know, you can, I think it's like a buck fifty, two dollars on the store brand, depending which store you go to. And then you have the same bag that's like double the price from Frito Frito Lays, like one of their brands. Like I'm, I'm sorry, but I find it tastes the exact same. The Doritos might be a bit different, but double the price. I'll, I'll deal with the slightly different price. Yeah, and I think that's what's hitting

Pepsi pretty hard. Because I, when I do have pop, I've had like private label pop. It's, I'm not a huge pop guy, but it's, I find it pretty gross. So maybe the beverages are a little more, because I've found no difference, almost no difference in the chips or anything, but the beverages I do find a difference. So maybe that's a other element of, of Coca-Cola. But I mean, a lot of people, I remember back in COVID, we're kind of criticizing like Berkshire, you know, because they own.

huge steak in Coca-Cola because it went nowhere for... But they've had it for like 40 years or something. Yeah. They've had it forever. And it went nowhere from probably 2021 to 2024. And everybody's like, oh, well, you know, they own companies like this, all that type of stuff. But now it's, I mean, since 2024, it's up. Let's see here, about 50%.

So, yeah, it's done, especially for like kind of a legacy mega-cap, slower growing company. It's done. Buffett. He knows what he's doing. Yeah. That's the moral of that story. But I saw you were drinking at bubbly. You know who makes that? It's Pepsi. It is Pepsi. So you're still, you're contributing. So I have a bubbly guy. I'm contributing to that organic growth. Yeah. I love bubbly. I don't drink too much normal water anymore. No, I drink regular water, but that is one thing. Like, I like bubbly, but I don't care really if the store brand's cheaper for sparkling flavor water, I'll have that, like I really don't care.

I've never even investigated that part of the, part of the store. You should check maybe. I feel like I'm going to be saving you money if you have a look and you'll be like, you know what? Next week, I'll have one. Yeah, there you go. So I think that's a good point to call it an episode. It was fun, lots of earnings to look at.

We tried to go fairly quickly just because there was so much to talk about. We tried to pick the biggest names. I think today meta is going to be reporting at the end of the day. So I'm really fascinated to see what's going to. to come out. There's a lot. I feel like it's not going to be good for meta. Like,

they're probably going to be, the Cappex is going to be scrutin on it. Yeah, they've just been hammered. So, Microsoft and meta tonight. And then on the, on the Canadian side, I think CPs,

CP is one of the, one of the only ones after market tonight. But there's going to be plenty to talk about next week as well, for sure. Yeah. Now, yeah, I'm excited for that. So it's a fun time every quarter

where we have more than enough content to talk about. So yeah, I appreciate everyone listening. This one will be available for a joint TCI subscribers, but on Monday we'll have a regular episode coming up, which we have four stocks that we're watching right now. So make sure you tune that in. A couple of them that you may not have heard before, so make sure you watch that episode.

But we appreciate all the support. Dan Foch and I will be doing a live episode like we usually do, although it's going to be Thursday. So we had some scheduling conflict on Friday. So if you'd like to watch a live show, follow us on Twitter or YouTube. You'll be able to watch it there. It should be around noon Thursday. So if you're listening to this Thursday morning, make sure you join us there.

If not, enjoy your long weekend, I think, for Ontario residents. I don't know if it's the same in Alberta. Okay, Alberta. I don't think Quebec has one. So for the provinces where you get a long weekend, enjoy your long weekend. And for those who don't, well, it sucks to be in that province. What can I say? Thanks for listening.

The Canadian Investor podcast should not be construed as investment or financial advice. The host and guest featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.