In his weekly commentary dated October 26, 20261, BMO Global Asset Management CIO Sadiq Adatia confronts a question that has quietly replaced "will AI matter?" as the dominant investor anxiety: whether anyone can calculate what AI is worth right now. Three interconnected themes frame his analysis: the widening gap between AI conviction and AI valuations, the structural bid building under oil prices, and the strategic logic of a potential Tesla-SpaceX combination.
AI: The Thesis Holds. The Price Requires Work.
Adatia opens without equivocation. "We remain bullish on artificial intelligence," he says. "We believe it will change how businesses operate and create opportunities we probably haven't even considered yet." The long view is intact. What has changed is the demand for discipline in how that conviction is expressed.
Tesla's third-quarter results serve as the commentary's central exhibit. The company generated positive free cash flow, beating analyst expectations for cash burn. But it simultaneously cut its 2026 capital expenditure forecast by 20%. Adatia notes that better cash generation is encouraging, but investors are understandably asking what reduced spending means for the pace of Tesla's AI, robotics, and autonomous-driving ambitions. The pattern is familiar. "Investors become nervous about business models, immense capital spending and how companies will generate profits. Strong earnings then restore confidence, followed by another round of spending or borrowing to bring those questions back." This time, Adatia observes, the uncertainty is lasting longer and the capital at stake is significantly larger.
The animating tension is temporal. The further the cash flow payoff sits from today, the harder it becomes to assign a defensible valuation. Shifting compute costs add further complexity, altering the outlook for adjacent parts of the supply chain including memory suppliers. Adatia's conclusion is neither bearish nor complacent: "Some companies can justify their valuations—and others are being priced for achievements they may struggle to deliver. That's where selection comes into play." His bottom line is crisp: "We remain very constructive on AI, but investors need to separate companies with supportable valuations from those relying on overly ambitious expectations."
Energy: A Structural Bid With a Scenario It Cannot Ignore
West Texas Intermediate crude sits above $100 USD at the time of writing, driven by intensifying concerns about Middle East escalation. Adatia sees further upside risk but explains why prices have not moved even higher. China's crude imports fell early in the Iran conflict and remain below pre-war levels. Strategic inventory drawdowns absorbed much of the supply shock. That buffer, however, is diminishing. Markets are pricing Chinese imports above 10 million barrels per day in October, their highest level since March, and that demand recovery is expected to continue.
The geopolitical clock matters. Adatia does not anticipate a resolution before U.S. midterm elections, and views the post-election period as a potential escalation risk. BMO GAM has responded by increasing Canadian equity exposure over the past month, citing energy, metals, and broader commodity opportunities in the domestic market. The caveat is stated plainly: a resolution would change the picture quickly. "Oil may fall sharply, and investors should recognize that possibility." Even so, Adatia believes prices could remain profitable for many energy producers after any correction, given the time required to replenish reserves, rebuild infrastructure, and adjust supply routes. His summary view: "We see further near-term upside risk in oil and opportunities in global energy, while recognizing that a resolution could reverse prices quickly."
Tesla and SpaceX: Strategic Logic, Material Complexity
Adatia finds the potential Tesla-SpaceX merger strategically coherent. Elon Musk's ambitions increasingly bind the two businesses, and a unified structure could better coordinate technology, capital investment, and management attention. The implied combined valuation approaches $3.5 trillion USD, though terms remain unsettled. SpaceX's third-quarter results give the enthusiasm its grounding: revenue reached $14.6 billion USD, with AI contributing more than half. AI revenue alone rose more than ninefold to $7.6 billion USD, driven largely by renting computing capacity, while capital expenditure nearly tripled to $19.6 billion USD. Commercial opportunity and its cost appear in the same sentence. Adatia keeps his conclusion measured: "A merger could offer strategic benefits, but governance, deal terms and the resulting index weight would all warrant close attention."
5 Key Takeaways for Advisors and Investors
- The AI bull case is intact but requires stock-level discipline. Broad exposure to the theme no longer substitutes for genuine valuation analysis.
- The gap between AI companies that can justify their valuations and those priced for unproven ambitions is widening. Selection is the active variable.
- Oil's structural bid is real but scenario-dependent. A geopolitical resolution could reverse prices sharply; position sizing must reflect both the upside and the exit.
- Canadian equities offer a multi-commodity opportunity. BMO GAM's increased domestic allocation reflects a conviction spanning energy, metals, and related resource sectors.
- The Tesla-SpaceX merger narrative demands scrutiny before allocation decisions. Governance structure, deal terms, and index rebalancing implications are each material considerations in their own right.
Footnote:
1 Adatia, Sadiq. "AI Bulls Confront Another Valuation Test." BMO Global Asset Management, 26 Oct. 2026, https://bmogam.com/ca-en/insights/weekly-commentary-october-26-ai-bulls-confront-another-valuation-test/.
