An early bet on artificial intelligence thanks to a simple investment framework is helping the T. Rowe Price’s Global Technology Fund (PRGTX) outperform the market for a second straight year. “AI has to be the biggest productivity enhancer for technology, for the economy since electricity” said the fund’s portfolio manager, Dominic Rizzo. “Our framework led us to be early to this AI trend, [and] led us to be early to the chip intensity of this AI trend.” The fund has jumped more than 26% in 2024 after surging nearly 56% in 2023. That’s due in part to its winning bets in AI names and semiconductor stocks – many of which have outperformed the S & P 500 and Nasdaq Composite . Rizzo, a T. Rowe Price lifer who took the helm of the fund in 2022, attributes a four-step investing framework to PRGTX’s success. The first pillar is what he calls “linchpin technologies” critical to a company’s success. This includes artificial intelligence for semiconductor companies such as Nvidia. The fund manager also looks for innovation in secular growth markets, or companies that are taking market share in fast-growing markets and more quickly than competitors. Another factor is improving fundamentals, as measured through improved free cash flow or operating margin expansion, and reasonable valuation. “The way you get burned in tech is if you buy either extremely expensive stocks, or often if you buy extremely cheap stocks,” he said. “That’s because in tech, extremely cheap stocks are often cheap for a reason, [while] the extremely expensive stocks are too expensive to earn an outsize return.” Early bets on AI Key to the $4.5 billion fund’s recent success has been early positions in AI stocks and chipmaking darling Nvidia . The AI leader — added to the fund at the end of 2021 — today accounts for nearly 18% of the portfolio. Shares are up 166% since the start of 2024. “Nvidia is clearly the linchpin of AI,” Rizzo said. “They’ve done such a tremendous job building up all the different pieces that you need, whether it’s the central processing units, the graphics processing units, the networking technology, the software ecosystem. They really have all the different pieces necessary.” But the AI darling is far from Rizzo’s only semiconductor commitment on the AI theme. Taiwan Semiconductor Manufacturing and Advanced Micro Devices make up 5% and 4% of the portfolio, respectively. Chip equipment maker ASML Holding and semiconductor maker Analog Devices also make the fund’s top 10 holdings, at about a combined 5%. Beyond chipmakers, Rizzo’s also made significant bets on Apple and Microsoft , which account for 12% and about 10% of the portfolio, respectively. The pair are the fund’s second and third largest holdings, behind Nvidia. Rizzo highlighted Microsoft’s enterprise software leadership and Apple’s consumer dominance. Together, both stocks also lend stability to the portfolio and trade at reasonable valuations with compound earnings growth potential, he added. For Apple, Rizzo touted healthy growth in the company’s services business and smartphone growth in emerging markets as potential catalysts for the stock. More critical still is Apple’s AI vision, which the MBA from the University of Chicago Booth School of Business expects to fuel a smartphone upgrade cycle. Apple unveiled its long-awaited AI plan at its Worldwide Developers Conference this week, calling it Apple Intelligence . Features include upgrades to the Siri digital assistant that integrate ChatGPT. Microsoft appeal For Microsoft, Rizzo highlighted the company’s partnership with OpenAI that strengthens its AI prospects as well as the unique position of its Azure cloud computing business. Rizzo also views software holdings such as SAP and ServiceNow as next-stage beneficiaries of AI tailwinds, and well positioned to benefit from the data needed for AI. “We had the right framework, and the right investing style for this type of market,” Rizzo said. “I hope that the investment framework will prove itself to continue to work, regardless of the market environment.” The fund has a $2,500 minimum investment, charges a 0.94% net expense ratio and is rated two stars by Morningstar, which said in a report late last year that the Global Technology Fund is “off to a good start” and “has some promise but has much to prove” after the revamp that brought Rizzo onboard in 2022.
Early AI bets are helping a global tech fund outperform a second year
on Jun15
by admin | Comments Off on Early AI bets are helping a global tech fund outperform a second year |