One of the questions we hear most often.

“The market keeps going higher. Is it overvalued?”

The answer isn’t nearly as simple as most headlines suggest. In our view, today’s market is best understood as a tug-of-war between optimism and gravity.

On One Side Is Optimism

Artificial intelligence (AI) has the potential to transform almost everything we do, reshape entire industries, cure disease, and create economic value unlike anything we’ve experienced before. We don’t even know, what we don’t know yet.

Corporate America certainly believes that. Companies are investing hundreds of billions of dollars into AI infrastructure because business leaders see this technological revolution as only the beginning.

At the same time, corporate earnings have reached record levels. Take Nvidia, for example. Its share price has risen from roughly US$3 in 2019 to more than US$200 today, valuing the company at over US$5 trillion. Putting that into perspective, Nvidia alone is now valued more than every company in the entire Toronto Stock Exchange. Yet despite that remarkable rise, Reuters reported earlier this year that Nvidia’s forward price-to-earnings ratio had fallen to roughly 20 times earnings, its lowest valuation since before the AI boom began. Remarkably, in terms of valuation, Nvidia is cheaper today than it was in 2019. How can that be?

Because earnings have grown even faster than the share price. Price alone doesn’t tell you whether something is expensive. Expectations and earnings matter just as much. So, maybe the optimism driving today’s market isn’t irrational at all. It’s supported by remarkable innovation, extraordinary profitability, and the engine that keeps the market moving forward: earnings.

But remember physics class. Every force has an equal and opposite force.

On the Other Side Is Gravity

Government debt continues to grow at an unprecedented pace. Interest rates remain well above the ultra-low levels investors enjoyed for much of the last decade. Persistent government deficits and rising debt can contribute to inflationary pressures over time, particularly if accompanied by accommodative monetary policy (aka low rates and money printing). This leads to inflation that silently erodes purchasing power, and if it proves to be “sticky”, central banks may be forced to raise interest rates.

Interest rates are like gravity to the economy.

High interest rates slow borrowing, reduce spending, compress valuations, and can place pressure on future earnings. When central banks raise interest rates, it’s like taking oxygen out of the room. Going deeper into debt is fun while it lasts, but like any party, there is an eventual hangover to deal with. Or, as I often say…

“It works… until it doesn’t.”

The fear of higher inflation and higher interest rates begins to matter most when expectations are already exceptionally high. Both forces are real. Both deserve respect. That’s why asking whether “the market” is overvalued may be the wrong question. The better question is:

“What expectations are already priced in, and what can go wrong?”

A great company isn’t always a great investment if investors pay too much for it. History has taught us this lesson repeatedly. The internet changed the world. Many technology stocks became so expensive during the late 1990s that it took years, even decades, for investors to recover. Some never did.

Intel, for example, reached US$70.56 in August 2000, then fell below US$20 and didn’t return to that level until April 2026. Investing is a long-term proposition, but twenty-six years just to break even is a long time to wait. The internet was real. The technology succeeded. Intel may have been a great company but wasn’t a good investment at that price. The investment experience depended on what you bought, when you bought it, and the price you paid.

Today’s AI revolution may prove every bit as transformative. The opportunity is real. The question is whether today’s prices already assume a nearly perfect future. This is where we believe many investors become confused.

The headlines talk about the market; we spend our time thinking about portfolios.

Those are two very different things. A well-constructed portfolio doesn’t make concentrated bets, nor does it require every sector to outperform all the time. Understand the story driving returns and don’t get caught up in the hype.

The good news is you don’t have to choose between innovation and resilience. We believe you can own businesses benefiting from transformational trends like AI while balancing them with companies that have historically demonstrated resilience during periods of inflation, higher interest rates, and economic uncertainty.

  • If AI changes the world, we want exposure to the companies creating that future.
  • If inflation proves more persistent than expected, we want businesses with pricing power.
  • If interest rates remain elevated, we want companies with strong balance sheets and dependable cash flows.
  • If markets become more volatile, we want growing dividend income that continues regardless of the daily headlines.

We don’t rely on one economic outcome; we prepare for several.

That’s one reason we’ve long favored high-quality dividend-growth companies that can benefit from innovation while also possessing the characteristics needed to navigate more challenging economic environments.

They may never dominate the headlines the way the latest technology stock does, but they continue doing what ultimately drives long-term wealth creation:

  • Growing earnings.
  • Growing dividends.
  • Generating dependable cash flow, so you enjoy predictable growing cash income for life.

These are the businesses that drive the mathematics of compound interest—the closest thing investing has to a law of nature.

After more than 35 years navigating markets, this is certainly not our first rodeo.

Markets will fluctuate. New technologies will emerge. Economic conditions will change. But disciplined investing remains remarkably consistent.

We don’t predict, we prepare.

Perhaps the market isn’t simply overvalued or undervalued.

Perhaps it’s just misunderstood.