Market review
Global stock markets showed a mixed performance in December as investors reduced risks ahead of the start of the new US administration on 20 January 2025. The Fed added to the overall uncertainties, with Chair Jerome Powell acknowledging that some Fed officials had begun thinking how Trump’s fiscal policies would affect the economy and potentially lead to more inflation. As a further consequence, the central bank downgraded its view on inflation progress for the year ahead and scaled back its plans for additional cuts. The US 10-year bond yield climbed back up, finishing the month at 4.6%, up from 4.2% the previous month, thereby nearly reaching the highs of 4.7% in April.
Strategy performance
The Strategy slightly receded during the quarter, by 0.1%, outperforming the broader market, as represented by the MSCI All Country World Net Total Return Index, by 0.9% (in dollar terms).
Marvell Technology, from the ‘Energy efficiency of Big Data’ subcluster, reached all-time-highs as the company easily outpaced consensus estimates, including the January 2025-quarter guidance of $1.8bn sales at mid-point, surpassing consensus estimates of $1.65bn. Data centre sales, which were already 73% of total sales in the quarter (and grew 98% y/y) are hereby expected to grow by another 20-25% q/q on continued momentum of the company’s custom application-specific integrated circuit (ASIC) ramp and optical interconnects.
The Strategy initiated a new position in Tesla, with the company’s massive investments into autonomous driving/ robotaxis expected to add significant corporate value over the medium to long term
A new position in the electric vehicle (EV) car manufacturer Tesla played out favourably as the company is seen as a relative winner under a Trump administration, with a more favourable regulatory environment likely for AI ventures such as autonomous driving/robotaxis. Recent reported positive progress on its “unsupervised” full self-driving (FSD) ambitions as shown by the latest version FSD v13.2 is making it increasingly likely for the company to roll out pilot programs for its self-driving robotaxis starting in 2025.
Vertiv Holdings, a supplier of electric power equipment and thermal management to data centres, trended higher as the company updated its roadmap and raised its long-term targets at its investor day. The management now expects a 13% sales CAGR at the mid-point through 2029 (compared to 9.5% through 2028 previously), including c250bps of market outgrowth. An operating margin target of c25% by 2029 was also set, implying c600bps of improvement over the next five years. The company also slightly adjusted its dollar opportunity per megawatt (MW) with data centre compute generating c$2.75-3.5m per MW, expecting 13-20GW of power to be added each year, or c100GW of cumulative power from 2023 to 2029.
Other positive contributors included Credo Technology Group Holding (Credo), GE Vernova and Siemens Energy.
First Solar, the US-based thin-film solar module manufacturer, fell on uncertainties around regulatory changes from the new US administration. Meanwhile, we expect the company to continue to profit from US domestic content requirements.
Monolithic Power Systems, the high performance semiconductor power solutions provider, corrected sharply as the company’s reported revenues in the enterprise data segment raised concerns about stronger competitive threats for its discrete voltage regulation business.
The performance of Renesas Electronics, the Japanese power semiconductor and microcontroller company, remained subdued on persistent uncertainties concerning the industrial and automotive end markets.
Other negative contributors included Fluence Energy, Lynas and Prysmian.
Strategy activity
We maintained a strong weight in the ‘Energy efficiency of Big Data’ subcluster. We also increased the position in Broadcom, a global leader in energy-efficient custom silicon (ASICs) for AI workload processing as well as in networking chips for data centres.
We bought a new position in Alchip Technologies, a Taiwanese AI ASIC designer and a competitor to Broadcom, as the company is expected to profit from continuing strong spending of global AI capex. We took some profits through trimming Marvell Technology, Lumentum Holdings and Credo and reduced our position in Lattice Semiconductor.
Inside the ‘Industrial efficiencies’ subcluster, we initiated a new position with Hitachi. The company has a diverse industrial portfolio, in which the recently acquired businesses of GlobalLogic and Hitachi Energy (formerly ABB Power Grid) are driving strong earnings growth. We consider the company to be very well positioned to benefit both from the global digital transformation and green transformation trends.
Market participants will monitor very closely any impact of the announced import tariff hikes by the new US administration on inflation and overall growth
We also increased the position in nVent Electric, a US-based electrical equipment supplier serving industrial and commercial end markets, with its highest growth expected to come from products going into data centres. In this subcluster, we reduced ABB, Keyence and Cognex, all companies with strong exposure to industrial automation subsegments.
In the ‘Energy efficiency of buildings’ subcluster, we initiated a new position in Nemetschek, a provider of design, engineering and simulation software that digitises the building and construction sector to improve efficiency and costs. Its solid expected growth is underpinned by low digital solution penetration rates and increased cross-selling opportunities. We also increased holdings in Autodesk and Carrier Global, while reducing our position in Legrand.
The Strategy initiated a new position in Tesla, with the company’s massive investments into autonomous driving/robotaxis expected to add significant corporate value over the medium to long term. We also reinitiated a position in the Chinese EV manufacturer XPeng. The company is expected to launch very competitive models in 2025, helping the company become free cashflow positive.
We sold the position in the Japanese electric motor manufacturer Nidec.
In the ‘Energy storage’ subcluster, we trimmed exposure to the battery producers Samsung SDI, LG Energy Solution and Contemporary Amperex Technology (CATL) and reinitiated a small position in the lithium miner Albemarle.
Inside the ‘Power conversion’ subcluster, we trimmed positions in Renesas Electronics, STMicroelectronics and Silergy due to continued sluggishness in the automotive and industrial end markets. We strongly reduced Monolithic Power Systems due to worries about competitive threats. On the other hand, positions in Infineon Technologies and Analog Devices were slightly increased.
In the ‘Energy transmission and distribution’ cluster, we took a new position with Siemens Energy. The company is a leader in electrification with its grid technologies and transformation of industry segments as well as its sales and servicing of power turbines.
We also increased the position in the electric cable supply Nexans.
We maintained the low weight in the ‘Clean power generation’ cluster.
Market outlook
Market participants will monitor very closely any impact of the announced import tariff hikes by the new US administration on inflation and overall growth. At the same time, the Fed will maintain its wait-and-see stance given the uncertainties of an expansionary fiscal policy given the higher upside risks to inflation.
We remain constructive on the underlying themes reflected in this investment strategy. The transition towards clean energy solutions and electrification is gaining momentum, driven by big growth drivers: AI data centres and EV charging stations. Significant investments in the buildout of grid infrastructure are necessary, supplying enough electricity to the high level of local power demand. Smart clean energy solutions will ensure a reliable and carbon-free supply of power.
The Strategy continues to seek to invest in diversifying investments across the clean energy value chain, focusing on segments with strong structural growth drivers such as clean power production, smart grid and storage solutions, green hydrogen infrastructure, power electronics, EVs, building efficiencies and the energy efficiency of Big Data.
