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In July, the second-quarter reporting period for our portfolio companies got underway. In summary, the figures along the entire supply chain show that demand for AI still far exceeds supply. Most importantly, the figures from the major cloud players – so-called hyperscalers (Microsoft, Google, Meta and Amazon, all of which we own) – were very strong; we saw accelerating growth, improved profitability and a sharp increase in future order backlogs. We believe that the question of return on AI investments is increasingly being answered by the actual figures. This strengthens our conviction that the market still underestimates both the scale and duration of this investment cycle (capex cycle) – which is why we maintain large holdings in the AI semiconductor sector (ranging from chipmakers and memory producers to semiconductor manufacturing equipment suppliers). We also continue to see strong indicators along the supply chain, with monthly figures at high levels and many of our companies raising their forecasts as a result of strong demand.
However, we note that this fundamental picture stands in clear contrast to the share price performance during July, when many AI-exposed stocks fell sharply. This was partly due to fundamental concerns regarding Chinese open-source models and the impact these might have on the economics of the leading AI development companies. Nevertheless, we assess that the primary cause was high leverage and the forced liquidation of very large positions by certain hedge funds. As for the portfolio, we continue to focus on fundamental factors and the long-term perspective, whilst remaining aware of factors outside the companies' core operations – such as market positioning and high leverage – that can create short-term volatility.