The market environment continues to be dominated by the AI theme, however, volatility surrounding these perceived AI winners has increased, suggesting expectations are sky high, leaving little room for disappointment when near-term fundamentals fail to keep pace. At the same time, several forces are broadening the opportunity set beyond AI, providing investors with a wider lens to generate strong future returns.
Easing geopolitical risk and lower oil prices have created a potential tailwind for non-tech sectors, while rising Canadian defence and Arctic infrastructure spending point to a multi-year, public-sector capital cycle with beneficiaries across engineering, construction, logistics, aviation, and northern operations. Surging electricity demand is also emerging as a durable investment theme across grid modernization, utilities, power generation, and data center infrastructure. Quality companies appear increasingly attractive, with fundamentally strong businesses now available at more reasonable valuations, while providing investors with downside protection.
AI investment concentration and market volatility.
The U.S. economy and equity market remain highly dependent on a single dominant theme: AI-related investment. US GDP expanded at a 1.6% annualized pace in the first quarter, but much of the increase was driven by AI, data centers, and related technology infrastructure. Consumer spending was negative, while business investment outside the AI ecosystem contracted. This concentration has contributed to a more volatile market environment, as investors move in and out of the AI trade, and treat each incremental data point as a read-through for the broader theme.
AI infrastructure and semiconductor stocks helped push markets to new highs earlier in the year but came under pressure from May to mid-June as investors reassessed elevated valuations. Bellwether semiconductor names such as Micron now move more than 5% in either direction on limited company-specific news, highlighting how quickly expectations are being repriced. Markets have shifted from a slower information environment to one where data and investor narratives are absorbed almost instantly, making price discovery faster but also increasing the risk of abrupt leadership changes.
The IPO market has also rebounded, led by high-profile technology listings that have quickly become proxies for investor risk appetite. SpaceX’s public debut generated strong enthusiasm, but early trading has already been volatile, including a sharp three-day decline in late June, pushing it down more than 20% from its peak.
Cerebras Systems followed a similar trajectory. The AI chipmaker went public in mid-May and posted 92% first-quarter revenue growth, but the shares declined more than 10% in late June after management issued weaker-than-expected gross margin guidance. Together, these IPOs highlight strong investor demand for transformative technology themes, while also underscoring the valuation risk that emerges when expectations move ahead of near-term fundamentals.
For portfolio construction, the implication is clear: diversification and active management remain essential. A balanced portfolio reduces dependence on any single theme, while active management helps determine when fundamentals still support the thesis and valuations have moved too far ahead of reality.
Easing geopolitical risk supports broader market leadership.
Geopolitical developments have provided a tailwind for broader, non-tech equity sectors. Following peace negotiations and a ceasefire announced by President Trump, oil tanker traffic resumed more freely through the Strait of Hormuz, easing concerns around one of the world’s most important energy transit routes.
As tensions cooled, crude prices moved sharply lower, approaching pre-war levels. Lower energy prices effectively act as a tax cut for consumers and businesses, supporting retail and industrial stocks even as technology leadership has become more volatile.
Canada’s defence and arctic infrastructure opportunity.
Canada is undergoing a structural overhaul of its defence industrial base, with economic resilience and national security increasingly tied under a single policy mandate. The federal government has committed to reaching NATO’s 5% of GDP defence spending target by 2035, directing 70% of federal defence contracts to Canadian firms and increasing Canadian defence exports by 50%.
The proposed $35 billion Arctic defence infrastructure mandate extends this opportunity into a multi-decade capital program. Military capability in the North is dependent on civil infrastructure, including housing, utilities, medical facilities, and transportation. Companies with established northern operating experience are well positioned, as the geography, climate, labour constraints, and logistics requirements create meaningful barriers to entry. For investors, the Arctic sovereignty is a long-duration, government-backed infrastructure cycle with identifiable public-market exposure across construction, engineering, aviation, logistics, and northern services.
Within VCIM portfolios, potential beneficiaries include holdings such as The North West Company, which operates retail businesses in northern communities; Exchange Income Corp., which provides aviation services to remote regions; and Stantec, one of Canada’s largest engineering firms.
Value, quality, and market leadership.
High-quality companies have historically traded at premium valuations, reflecting their stronger balance sheets, more durable cash flows, and lower fundamental risk. Today, however, that premium is less pronounced, as investors have focused almost exclusively on the AI trade.
Recent work from Richard Bernstein Advisors highlights this shift, showing a meaningful increase in the number of S&P 500 companies now classified as value stocks. Roughly 60% of the value universe now also displays quality characteristics, offering investors exposure to companies with durable earnings, strong balance sheets, more disciplined valuations, and better downside protection. Recent market pullbacks have reinforced this dynamic, as investors have rotated toward quality businesses and away from the more crowded AI trade. Vancity holdings, and proven compounders, such as Visa, Waste Connections, and Moody’s Corp. are strong examples of companies that align with this theme.
Surging electricity demand
Electricity demand is entering a structural growth phase after a decade of relative stagnation, driven primarily by data centers, broader electrification, and industrial re-shoring. Data center projects are scaling from 100-megawatt facilities toward gigawatt-sized campuses, creating large, concentrated loads that many regional grids were not designed to absorb. At the same time, electric vehicles, heat pumps, and electrically powered industrial processes are lifting baseline demand, while advanced manufacturing projects add high-utilization, 24/7 loads. As a result, power availability is increasingly becoming a gating factor for new development.
A real-world example is Northern Virginia’s “Data Center Alley,” the world’s largest concentration of data centers. A single large AI-focused campus can require hundreds of megawatts of power, and some planned campuses are moving toward gigawatt-scale loads, roughly comparable to the electricity needs of a mid-sized city. In practice, that means a developer may have the land, capital, customers, and chips lined up, but still be unable to move forward until the local utility can secure enough generation, transformers, substations, transmission capacity, and interconnection approvals. This is why power has become such an important bottleneck; the data center can be built faster than the grid infrastructure needed to serve it.
From an investment perspective, the most attractive opportunities are likely to sit where demand growth meets physical scarcity. Beneficiaries include transmission and distribution equipment providers such as Vancity holdings, Eaton Corp, Schneider Electric, and Hubbell Inc.