Liontrust GF Global Technology Fund

The Liontrust GF Global Technology Fund continues to invest in global leaders and disruptors within the technology sector that are well positioned to benefit from the new AI-driven technology cycle.

• January saw investors digest President Trump's return to office, significant developments in artificial intelligence and the start of fourth-quarter earnings season.
• Despite near-term market noise, we continue to see excellent opportunities to invest in innovative global leading businesses plugged in to emerging structural growth trends across the industry spectrum.
• Among the Fund’s holdings, Arm notably jumped% on the news that it would be the CPU partner of choice for the massive project Stargate, while semiconductor supply chain names including Onto Innovation, Camtek, and Applied Materials rallied as hyperscalers and sovereigns alike confirmed AI datacentre investments.

Performance overview

Market backdrop

US President Trump's return to office on January 20^th was initially well received by markets, animal spirits propelling the S&P 500 to new highs as investors focused on prospects for tax breaks and pro-business policies. While still early in the new administration, President Trump has moved swiftly to implement significant policy adjustments through various mechanisms at his disposal, including executive actions. As expected based on his campaign rhetoric, his "America First" agenda has quickly taken shape through withdrawals from global organisations and a widely forecasted threat of tariffs – initially focussed on key trade partners Canada, Mexico, and China. There is also a heightened focus on improving government efficiency, with the newly implemented Department of Government Efficiency (DOGE), spear-headed by Elon Musk, ramping activity into month end.

This evolving policy backdrop contributed to heightened uncertainty late in the month, and while the Federal Reserve's decision to pause its recent string of rate cuts at its late-January meeting was largely anticipated, the shifting policy environment has added complexity to its outlook. Nonetheless US growth appears healthy, especially compared to regions such as Europe where the European Central Bank (ECB) opted to implement another 25 basis point reduction – its fifth cut since mid-2024 – citing concerns over stagnant growth alongside optimism regarding inflation reduction.

The new Trump administration has also shown strong early support for US artificial intelligence ambitions, declaring a national energy emergency to reduce environmental restrictions and boost US drilling while also aiming to streamline regulatory processes and accelerate energy infrastructure projects to support high demand from AI applications. This was followed by the announcement of "Project Stargate" – a joint venture between OpenAI, SoftBank and Oracle that will invest up to $500 billion over the next four years in US AI infrastructure. Trump framed this initiative within a broader narrative of sovereign AI development and American job creation, positioning it as critical for national security in the technological race with China.

Meanwhile, private sector AI infrastructure spending continued to accelerate in January. Early in the month Microsoft announced plans to spend $80 billion on AI datacentres this year, while Meta, following a $10 billion AI datacentre announcement in December, announced plans for $60-65 billion in CAPEX for the year ahead – a spend increase of over 50% on 2024. Supporting these ambitions, global foundry TSMC also signalled strong demand for next-generation chip manufacturing, raising its FY25 CAPEX guidance well above consensus to $38-42 billion.

This heightened AI infrastructure spending context made market reaction particularly acute when China-based startup DeepSeek released its landmark "R1" model late in the month. Built on the company's V3 mixture-of-experts framework, DeepSeek-R1 reportedly matched the performance of OpenAI's then-frontier reasoning model o1 across maths, coding and reasoning tasks – yet at 90-95% lower cost. This development shocked markets, with leading AI hardware companies – most notably Nvidia – selling off dramatically as investors questioned the existing AI scaling narrative and future infrastructure spending requirements.

However, there were some important nuances beyond the headlines. While DeepSeek’s models have undoubtedly delivered the sort of exciting efficiency breakthrough that we would expect to see in a novel technological field like AI, their headline $5-6 million training cost likely significantly understated the true cost of training and running R1. Further, DeepSeek’s models likely relied heavily on distillation – leveraging existing leading models from the likes of OpenAI to train their own – rather than pushing the frontiers of model intelligence itself.

Importantly, we believe the extreme negative market reaction was both overstated and misdirected. Lower AI system prices are likely to accelerate rather than diminish compute requirements – following the Jevons paradox, where greater efficiency leads to higher overall consumption. In short, as the cost of AI goes down, we need more compute, not less; we need more power, not less; and we need more electrical equipment for data centres, not less. This was reinforced via company earnings updates within days of the DeepSeek news, with both Microsoft and Meta reiterating their substantial AI infrastructure investment plans for the year ahead. As such, we continue to believe that the major structural trends associated with AI development, scaling, and propagation remain alive and well; that we are entering a new innovation cycle driven by AI; and that the winners of this cycle will be different to the last.

Company updates

The top contributor to fund performance in the January was Arm, notably jumping 16% on the news that it would be the CPU partner of choice for the massive project Stargate initiative working alongside SoftBank, OpenAI, Oracle, and Nvidia. The company's efficiency strengths position it well for the next wave of AI infrastructure spending – having dominated the smartphone market for the past decade, the company is now emerging as the default choice for CPU workloads across data centres and cloud infrastructure. This is evidenced by Arm's success in customising advanced silicon for major hyperscalers like Microsoft (Cobalt), Google (Axion), Nvidia (Grace), and AWS (Graviton) – with more than half of AWS's newly installed CPU capacity now Arm-based, and 90% of AWS's top 1,000 EC2 customers running on their Graviton processors. Meanwhile, Arm's transition to v9 architecture is driving strong growth in licensing and royalty streams, as smartphone makers and device manufacturers commit to their latest designs, motivated by increasingly sophisticated AI and compute requirements.

The Fund also benefited from strong performance from semiconductor supply chain names, with Onto Innovation, Applied Materials, and Lam Research rallying through January as hyperscalers and sovereigns alike confirmed ramped AI datacentre plans. As AI workloads become more complex, we are seeing a significant shift from individual chips towards larger integrated systems, with chips themselves becoming larger and more complex. This is altering value capture across the semiconductor value chain, introducing more process steps and requiring new supply chain innovations in materials engineering and advanced packaging. Onto Innovation, a leader in inspection and metrology solutions, remains well positioned for this transition as its capabilities become increasingly vital for advanced packaging processes necessary for these advanced AI chips and systems. Meanwhile, wafer fab equipment leaders Applied Materials and Lam Research benefited following the latter’s strong Q4 update which highlighted how new chip architectures are driving exponential increases in tooling intensity – for example, manufacturing a High-Bandwidth-Memory chip, critical for AI applications, requires three times more tools than a traditional memory chip. Lam also reported strong signs of recovery in the NAND memory market, with 139% sequential growth as manufacturers upgrade to higher layer counts to achieve better performance at lower costs. With consensus estimates beginning to climb but share prices still well below recent highs, we believe both companies are well positioned to benefit from powerful secular drivers for some time yet.

Elsewhere, Meta’s late-January update provided us insights into how this first-mover continues to benefit from embedding AI across its business model. Meta has initially focused on using AI for cost reduction –  operating margins expanding dramatically from 20% to 48% over the last two years – but is now also seeking to use AI to enhance customer experience and improve its ad offering (AI-driven ad placement driving a 14% year-on-year improvement in platform pricing as the right ads are delivered to the right person at the right time). The company continues to operate and invest efficiently, reflected in its return on investment improving from 18% to 28% since 2019 despite substantial capital expansion. Importantly, Meta is about to break ground on a giant 2GW datacentre − funded by efficiencies gained across the company from the first stage of AI deployment. This facility will support Meta AI, which already serves 700 million monthly active users and targets becoming the first AI assistant to reach 1 billion users in 2025

Meanwhile, companies most acutely caught up in the DeepSeek related sell-off proved key detractors to Fund performance in January, with Nvidia the largest of these on an absolute basis. In addition to our previously stated views regarding the DeepSeek sell-off, we see the negative market reaction towards Nvidia as overlooking two key developments. Firstly, the Stargate announcement has effectively introduced a new $500 billion customer prepared to purchase approximately a third of Nvidia's annual GPU production. Secondly, DeepSeek has actually ignited widespread demand for inference using Nvidia's Hopper chips, evidenced by rental prices for H100s and H200s on AWS rising sharply since the announcement.

As always we maintain our strict valuation discipline, allocating capital to innovative technology companies where we see the greatest upside opportunity. We were particularly active throughout the month given this severe market dislocation, adding to positions in a number of companies hit hard post-DeepSeek including key large holdings such as Nvidia, Broadcom and Amphenol, as well as smaller positions which we had been prevented from adding to on valuation grounds such as Credo and Astera Labs (the latter hit particularly hard and a key detractor to January Fund performance).

We also took the opportunity to initiate positions in oversold companies on our watchlist, including SoundHound AI – a provider of voice AI solutions that allows businesses to integrate customised voice assistants into their products and services. We also re-initiated a position in Apple late in the month, prompted by DeepSeek's breakthrough in on-device AI reasoning. One of the key insights from DeepSeek is that advanced reasoning for small models at the edge will require far less computational power and memory than currently anticipated – a development that should accelerate the device upgrade cycle. While the first-order opportunity lies in these device upgrades, Apple is also well positioned to benefit from the second-order effects of increased AI application usage through App Store monetisation. We plan to build this position over time, particularly during periods of share price weakness.

On the other hand, we reduced or exit positions in companies when they reached target prices or we saw better upside opportunities elsewhere. In January this included trimming recent top performers such as Lam Research, Meta, and Halma, as well as exiting our positions in ASM, Dell, and Technoprobe.

Looking ahead

Meanwhile the AI landscape looks set to remain dynamic, with incumbent players expected to respond to the recent DeepSeek developments. More broadly, we expect to see the AI acceleration and propagation story continue apace, with competitive advantages accruing to leading early adopter across sectors.

Despite this dynamic backdrop, we remain optimistic about the opportunities for innovative global leaders as we enter this new innovation cycle. As always, we will maintain our valuation discipline, focusing on companies that can deliver strong earnings and dividend growth by capitalising on structural trends while trading at attractive valuations.

KEY RISKS

Past performance does not predict future returns. You may get back less than you originally invested.

We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.

• Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund.
• This Fund may have a concentrated portfolio, i.e. hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the Fund's value than if it held a larger number of investments.
• The Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
• Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties
  (e.g. International banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
• Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails.
   

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DISCLAIMER

This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.

It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.

This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.

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