Mary Manning, Nick Griffin, and Jacob Mitchell answered a handful of crucial investor questions at Livewire Live on Tuesday 12 September

Portfolio managers from three of Australia's leading global equity funds explored the dominant investor themes during a panel session at Livewire Live on Tuesday. The funds, Munro Global Growth Fund, Alphinity Global Equity Fund and Antipodes Global Fund, have delivered 12-month returns of between 9.5% and 20%.

Addressing some of the leading questions on investors’ minds currently, they discussed a range of themes and some opportunities to invest in:

• Artificial intelligence
• Cloud computing, and
• The energy transition.

They’re all positive on companies leveraged to the AI revolution – spearheaded by several stocks of the "Magnificent 7" including Microsoft Corp. (NASDAQ: MSFT), Nvidia Corp. (NASDAQ: NVDA), and Amazon (NASDAQ: AMZN).

"Is this AI stuff real?"

On the first of these, Munro Partners' founding Partner and CIO Nick Griffin reflected on a recent research trip to Seattle, US where he was asking companies: “Is this AI stuff real?”

For him, a key question was around whether companies are truly committed to investing in the technology “or are you just trying to distract us from the macro picture, which is pretty bad.”

But most companies indicated they are, with Griffin pointing to mega-cap software firm Microsoft (NASDAQ: MSFT) as a prominent example.

“This company missed the mobile revolution, after coming number one in the PC revolution – but they’re not going to miss the AI revolution. So, they’ve increased their capex by $15 billion in their Microsoft Copilot platform.”

This has flowed through to competitors in the space, with Amazon, Google and then the semiconductor companies – especially Nvidia – following suit. Griffin described it as an equivalent to Apple’s iPhone moment for the current generation.

“The big thing that’s shifted this year is the secular story in AI that is getting people to look past the macro,” he said.

“When the iPhone came along it put the internet in your telephone. Which was great, but it really was the millions of apps that created the ecosystem.”

Cloud computing

Griffin described a “technology super cycle” that’s powered by cloud computing – which is another of the major themes explored during the session.

“The cloud is owned by four companies: Microsoft (NASDAQ: MSFT), Google (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), and Oracle (NASDAQ: ORCL)."

“Usage of the cloud is accelerating much faster than we thought it would and that’s because of this AI boom.”

The massive investment in these technologies by companies is feeding through to semiconductor companies, predominantly to the leading chipmaker Nvidia – which has upgraded its earnings by 300% so far in 2023.

“People thought they’d earn $5 this year; they’re now earning nearly $20. This is really happening – these companies are at the epicentre of this acceleration and that’s why they’re running. From our point of view, you should definitely hold them,” Griffin said.

Sticking with this theme, Alphinity Portfolio Manager Mary Manning emphasised that each of the “Mag7” technology firms has upgraded earnings this year.

“So, there are some fundamental drivers behind that, and they all have AI as a tailwind,” she said.

“I think the problem going forward, though, is that there’s both an opportunity and a concentration risk for fund managers.”

On the opportunity side, those who select the right companies from within the Magnificent Seven can generate high above-benchmark returns (alpha).

An overhyped tech stock

Manning called out Apple (NASDAQ: AAPL) as one company her team has avoided ­– and for the last few weeks, this positioning has been very alpha-generative, she said.

“Nasdaq has looked at that chart and become worried – so we’ve been looking at reducing those positions,” Manning said, referring to the regulatory risk that hangs some in the sector.

“And there’s also an anti-trust suit coming up for both Google and Amazon, so whether these seven can continue to dominate the business structure in the US is a question mark.”

The energy transition

Manning believes there is a disconnect between the timeframe of the energy transition and the timeframe within which investors expect investment returns.

“For many European countries, it’s somewhere between now and 2030, and for developing countries, it’s 2050 or 2060, and for others, they’re net-zero targets are 2050."

“I think that’s why it’s been disappointing to investors because you’re not seeing it in the earnings right now,” she says.

Manning also emphasises this theme is about far more than renewables but also extends to the greater efficiency within existing power sources. She notes that companies Trane Technologies (NYSE: TT) and Schneider Electric (EPA: SU) have been strong performers, which for her, emphasises the importance of differentiating between renewables and energy efficiency stocks.

Wind-farm challenges

Antipodes Founder and CIO Jacob Mitchell discussed some of the challenges of this investment theme, particularly on the staffing front. He emphasised the challenge of finding staff, including engineers and linesmen, which feeds into the extended waiting periods for creating renewable energy infrastructure.

“Offshore wind is the closest solution to base load power in renewables to achieve just the currently announced policies by 2030, you’d need to scale up production of wind turbines by a factor of 7. And that isn’t going to happen,” Mitchell said.

He also notes the market needs a massive price signal, which in the US is coming from the Inflation Reduction Act.

"It’s rolling out renewables in a market where, I think, you will get a response because many of the utilities…don’t take a price risk on projects but get a regulated return," he said.

“This is going to happen, but the key is to find a way to play it so, as those supply chains scale, so you don’t get caught out by execution risk,” he added.

The most attractive way to play these themes

Griffin regards the “boring” companies in the renewables space as among the most attractive, including those that make insulation or air conditioning.

Some names include:

• Kingspan (ISE: KRX) is an Irish company that creates high-end insulation panels for building exteriors.
• Constellation Energy (NASDAQ: CEG) – which owns the largest fleet of wholesale nuclear energy in the US

Some other underrated stock ideas named by Antipodes’ Jacob Mitchell include:

UK-based National Westminster Bank (or NatWest, LSE: NWG), which is investing in many renewables projects.

Total Energy (EPA: TTE) - Mitchell believes the French energy firm’s stock is well-priced for a company getting dual benefits from the transition and the onset of energy scarcity. “There is value in some of that conventional energy space,” Mitchell said.

Alphinity's Mary Manning names Ferrari (NYSE: RACE) - "It’s got some of the best margins in the world, 50% growth, 20% net margin, 40% ROE – and it’s grown at 25% this year," says Manning

“To find stocks with that profitability and that level of growth is very rare,” Manning says, also emphasising Ferrari is a technological leader via its automotive racing development.

“It’s a beautiful stock, from bottom-left to top-right [on the balance sheet] and is a stock for all seasons – because people are going to want to buy Ferraris almost no matter what happens.”

Capping off the session with his final stock tip, Griffin also named a far slower automotive/technology stock in Uber (NASDAQ: UBER).

Watch the full session here