Balance sheets beat hype in AI race

AI continues to be a key theme in the tech space this year, and the winners and losers will depend on execution, energy autonomy, and balance-sheet durability, says Mickey Ganguly, associate portfolio manager at CIBC Asset Management.

“Capital structure will continue to play an important role in differentiating winners from losers,” he said in a Feb. 5 interview. “We prefer to own companies who have a strong free cash flow and can pay down their debt in a relatively short period of time.”

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Equally important is a company’s ability to launch, automate, and execute on multi-step workflows, he said. “We’re already seeing this with multiple product launches from the likes of Anthropic and OpenAI, who are racing to automate facets of professional services.”

Power source is another key consideration. Companies with secured or self-sourced power will lead, especially those with behind-the-meter supply, Ganguly said. He likes companies that use renewable energy — particularly nuclear power — and he’s cautious on companies that use public grids due to reliability concerns.

Companies that aren’t quick to evolve to customers’ needs and keep up with competitors are at risk of losing, he said. “If you are AI washing, which is essentially trying to put an AI wrapper onto legacy applications, you will likely not succeed.”

The biggest risk to companies is the cost of the buildout, and whether there will be return on investment, he said.  

“If a company builds the infrastructure that it can’t monetize fast enough, that will likely cause downward pressure on the share price. Another risk is if a company builds a data centre for a client whose revenue growth stalls, the builder may not see a return on their invested capital.”

This is why balance-sheet durability is especially important, Ganguly said.

“He looks for companies with favourable credit-and-return metrics, which can highlight their ability to withstand potential shocks, and he likes XPU providers, software companies and technology-adjacent companies. He also has some exposure to hyperscalers to diversify risk.  

“I try to focus on companies who not only have a diverse range of customers, but multiple revenue sources,” he said. “This further provides downside protection, whereas customer concentration, along with revenue concentration will be more challenging in periods of volatility.”

Ganguly maintains an overweight position in Alphabet, and is on the sidelines on Oracle. Alphabet, he said, is starting 2026 strong, powered by Gemini 3, an Apple partnership, robust cloud growth, and a $240 billion backlog, which is supporting a $180 billion capex, nearly twice that of 2025.

Meanwhile, he said Oracle will have “a more volatile 2026,” despite its $523 billion backlog, which is concentrated in OpenAI. That’s because Oracle plans to raise $50 billion to fund its data centres, and this will increase debt and dilute shareholders, drawing negative credit outlooks.

“We expect Google to remain the defensive big tech AI play due to their ability to fund their growth with their own balance sheet, whereas Oracle will need to tap into capital markets to do the same,” he said. “However, once the backlog of $523 billion starts to convert to revenue, some of the overhang on Oracle stock should be lifted over time.”

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.