The Waiting is the Hardest Part

We made it! Another week gone by, another weekend on the horizon. Investors were given a small reprieve as markets were less volatile than what we’ve been seeing over the last two months and the jaw-dropping headlines were kept to a minimum for the week. Less chaotic, however, does not mean a lack of developments as we have a few stories worth recapping.

Nvidia the Forgotten

When things change as fast as they have in 2025, I think it only normal to reassess your investment thesis to see if it still holds or requires some modification. While we have rotated 25% of our portfolio since November, our long-term core holdings have not changed considerably and our appreciation of the AI story is still intact even though we do acknowledge that in a time like this, investors care less about future earnings as much as they worry about the immediacy of a recession. The sell off in tech has created some good entry points for investors who may have missed out on the rally of the last two years, although we would not recommend doing all your buying now as any further increases in uncertainty will likely provide us with more entry points.

All this being said, Nvidia, the pearl in our AI trade, presented at the GTC conference and updated us on several fronts: Blackwell Ultra chips offer a 50% performance boost and are scheduled to release later this year, the next generation chip entitled Vera Rubin is due in late 2026 and we also got an update on a joint project with Google on a humanoid robot. Ever since the DeepSeek story in late January, momentum in the AI trade has faded yet many within the industry have suggested that large drops in training costs is welcomed and will only require more computing power for inferencing. CEO Jensen Huang projected this week that advanced AI models will necessitate a 100-fold increase in computing power and expects global data center spending to reach $1 trillion annually within the next 4-5 years.

Understandably, Mr Huang will promote an optimistic future for his company, but that enthusiasm is not unique to the Nvidia boardroom. Investors will need to balance their immediate urge to secure their portfolios with the need to be well positioned for the future; those who are ignoring the AI trade outright,?may be doing so at their own peril.

The Federal Reserv-ed

Fed Chair Jerome Powell addressed markets as the FOMC decided to maintain the federal funds rate at 4.25% to 4.5%. He acknowledged that the recent use of tariffs will increase inflation although he also stated the belief that those inflationary pressures would be temporary. Mr Powell also explained the Fed’s revised 2025 economic growth forecast which is now at 1.7% and reflects the trade tensions as well as other uncertainties. The market appreciated the cautious tone, experiencing its best ‘Fed-day rally’ since July as the S&P 500 posted a gain of 1.1%.

It is important to note that the data-dependent Fed has more headlines than raw figures to work with now and that explains the current wait and see approach. As several economists have warned over the last few weeks; there is a lagged effect from all the changes we’ve had to account for since the end of January and, that it will take some time to show up in the data. The positive response from the market is in direct response to the Fed pre-acknowledging the rising economic risks; not too long ago, in 2021, the Fed was accused of ignoring the rising inflation risks before it manifested in the data. Several news outlets made the parallel between this week’s commentary on inflation risks with that of 2021 as the word ‘transitory’ was used again. Cue the repressed emotions associated with that word….

Private Markets Showing Their Value

As volatile as headlines and markets have been, we’re only in correction territory and far from entering a bear market (20% drop) but we wanted to circle back to our private equity investments amidst the weakest market backdrop in more than two years. As we have stated to our clients, private businesses are not necessarily better insulated from a weakening economic picture, however, the valuations are less sensitive to headline noise. There is also a lagged component to the values we see on our statements as it typically takes two months for an update to show on our end; the pricing we see today reflects end of December pricing and January data will show up in early April.

While the markets can swing several percentage points in a day, these holdings don’t move daily, thereby minimizing the fluctuations we see in our portfolio. In the scenario where a recession is avoided and market confidence recovers slightly, it is even possible that our investments in the private market space never show any drop at all. While publicly traded companies are subject to a million different factors impacting their valuations: a minute-by-minute shift on the 10-year yield, a large option bet or even the choice of words used by the Fed chair, the valuations of private businesses are not reacting to this on a daily basis. Don’t get this wrong; a large shift in yields that holds for the medium term would likely have an impact on private market assets as well.

Think of your private market assets as your home; there’s no index which your house trades on. That means you do not see your home value fluctuating on a daily basis, and you do not see the value reflecting every little daily development. That does not mean that your home would not fluctuate throughout the year; if your home is listed during a week where tariffs are announced, the price might be lower than if you posted it the week that tariffs were removed. What’s most important for us, as long-term investors, is that our investments reflect as much as possible their long term expected values as opposed to a knee-jerk-reaction-to-headline, valuation. As we have recently gone through this, we just want to remind our clients that there’s a modest cost to this approach; our private market assets do not offer daily liquidity. If we sell a stock, the funds are available in one day while if we sell out of one, or both, of our two preferred private market strategies, we must wait 3 and 5 months, respectively for the funds to become available.

If you are unsure of your Nvidia or private market exposure, don’t hesitate to reach out with any questions you may have.

Healthy Distraction

The new Formula 1 season is in effect, with the first race going to McLaren’s Lando Norris. This weekend sees the Shanghai International Circuit hosting the race and Ferrari’s Lewis Hamilton has secured the pole position. It feels weird to say Ferrari’s Lewis Hamilton as the sport’s most successful driver had built his career racing for Mercedes before making the move this off-season.

The sport has grown significantly in the last ten years with new races all over the world and new teams like Audi and a joint Andretti-Cadillac venture expected to join the grid in 2026. Not only have we seen new circuits and teams, but the product has also changed considerably; there is more overtaking during races and there are several drivers who are capable of winning any given race. The partnership between Formula 1 and Netflix has proven to be very successful and has brought in a new generation of fans.

For long-tenured fans, one recent development is worth paying attention to: there are rumors of a return to the V-10 engines. While these cars are stunningly loud, the sound of the V-10 is in its own category; I, for one, would be thrilled to hear that sound again.

We have this weekend to get through, first, so for now I say Forza Ferrari!

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of BMO Nesbitt Burns Inc. (“BMO NBI”). Every effort has been made to ensure that the contents have been compiled or derived from sources believed to be reliable and contain information and opinions that are accurate and complete. Information may be available to BMO Nesbitt Burns or its affiliates that is not reflected herein. However, neither the author nor BMO NBI makes any representation or warranty, express or implied, in respect thereof, takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. This report is not to be construed as an offer to sell or a solicitation for or an offer to buy any securities. BMO NBI, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. BMO Nesbitt Burns Inc. and BMO Nesbitt Burns Ltee/Ltd. ("BMO Nesbitt Burns") will buy from or sell to customers securities of issuers mentioned herein on a principal basis. BMO Nesbitt Burns, its affiliates, officers, directors or employees may have a long or short position in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. BMO Nesbitt Burns or its affiliates may act as financial advisor and/or underwriter for the issuers mentioned herein and may receive remuneration for same. A significant lending relationship may exist between Bank of Montreal, or its affiliates, and certain of the issuers mentioned herein. BMO NBI is a wholly owned subsidiary of BMO Nesbitt Burns Corporation Limited which is an indirect wholly-owned subsidiary of Bank of Montreal. Any U.S. person wishing to effect transactions in any security discussed herein should do so through BMO Nesbitt Burns Corp. and/or BMO Nesbitt Burns Securities Ltd.