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In November, the third quarter earnings season continued with continued positive fundamentals: among our largest holdings, AMD and Nvidia reported strong results that both beat expectations and significantly outperformed the market forecast. Both are benefiting significantly from AI demand – AMD benefits from the fact that AI computing also requires much more CPU computing in addition to GPUs; and Nvidia remains the clear de facto standard for AI computing with its GPUs, with barriers to entry stemming from their chip-level advantages; networking advantages; and their CUDA software ecosystem.
In November, Google's Gemini 3 model was launched, which performed well in standard AI benchmarking tests. This created a market debate around Google TPU as a credible competitor to Nvidia, with Nvidia shares falling during the month, which was our biggest negative factor for the fund's performance. We own Alphabet/Google in the portfolio as well as Broadcom (which designs Google's TPU chip) and TSMC (which manufactures both Nvidia and Broadcom chips).
While we believe Google's TPU could be sold and leased out externally - and in that case we would benefit from both Broadcom (which was our strongest contributor to performance during the month) and Alphabet (the second strongest contributor) in the portfolio, we would first like to remind investors that we are still severely constrained in supply across the industry - in the logic and memory that both chips require - which is one of the reasons we believe Nvidia's pricing power remains intact.
Comments from across the supply chain continue to note that we are dealing with supply shortages – Nvidia CEO Jensen Huang was reportedly in Taiwan asking for more capacity at TSMC, and Elon Musk also noted that there was not enough chip production to meet demand.
Elsewhere, Taiwanese supply chain figures for October still showed strong momentum in demand for AI infrastructure. On the short side, we still see no significant signs of a recovery in the analog semiconductor segment and remain short several companies in this sector.
The fund was down 1.1% in November and up 9.4% so far this year.