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The year has started with volatility for stock markets. Initially, volatility was driven by varying expectations about how Trump would implement his planned tariffs, i.e. which markets would be affected and what this would mean for inflation and interest rates.
At the end of the month, volatility increased further, especially in the technology sector, when Chinese DeepSeek released a new AI model. According to them, the model was cheap to build and does not require large, complicated semiconductors to work. However, we do not believe that this new model will significantly change anything, and we have also seen this when the major companies even increased their investment commitments for this year.
4Q results have been generally strong for our portfolio companies such as TSMC. TSMC beat expectations for the quarter and gave strong guidance for 2025. The company expects to grow 25% this year and then around 20% in the coming years. TSMC growth is driven by AI and demand for more complex chips that Nvidia and AMD sell.
The best performing sector for the fund in January was semiconductor equipment, with companies such as ASML, KLA and Lam Research all beating their estimates and indicating continued strong growth in 2025. The growth comes from packaging memory chips for AI and the next node from TSMC 2nm.
Outside of AI, we see continued weakness in the semiconductor sector against autos and industrials, as well as a cautious consumer side. We are also cautious with companies with large exposure to China.