Weekly Update – October in Perspective

It is too early to call this a lasting reversal. Equity market leadership has changed direction several times this year, and a single month alone is not a reason to overhaul portfolios.

However, AI developer Anthropic’s S-1 filing ahead of its proposed stock-market listing added to the financing questions we raised last week. Rapid revenue growth sits alongside substantial expenses and sizeable computing commitments. Demand for AI is growing, but so is the capital required to deliver it.

While we have not abandoned the theme our exposure to it has steadily shifted towards businesses using AI to improve their operations, alongside selected Asian chip and memory suppliers benefiting from the infrastructure build-out. We see more attractive valuations in these suppliers, reflecting less demanding expectations than in some better-known AI names.

But lower valuations do not insulate them from financing pressures elsewhere in the industry. If AI developers struggle to raise capital, infrastructure spending could slow and demand for chips and memory would consequently suffer. Whilst lower valuations improve the starting point for generating returns, these remain cyclical businesses.

Furthermore, October showed that returns are available beyond the market leaders of recent years. Holdings such as Havelock Global Select, Polar Capital Healthcare Opportunities, Polar Capital Global Insurance and Regnan Sustainable Water and Waste give us exposure to businesses with different earnings drivers. We remain invested in AI’s development, without relying on it as the only source of growth in our investment portfolios.