Trojan Global Equity Fund

The outcome of the landmark anti-trust case brought against Google Search by the US Department of Justice (‘DoJ’) surpassed even our optimistic expectations. Far from the breakup and draconian data sharing advocated by the DoJ, the presiding judge’s verdict was narrowly focussed and in its current form would largely preserve the status quo. However, one of the reasons for this more benign ruling is the court’s recognition that Google Search faces greater competition from chatbots powered by Large Language Models (‘LLMs’). It is therefore highly encouraging that quarterly growth accelerated across Alphabet’s core properties, including Search, and the company’s latest models have taken Gemini, Google’s own LLM, to the top of the app download charts. We wrote at length about the Strategy’s investment in Alphabet in the summer (see here).

Alphabet’s +14.7% return in the month was insufficient to offset the Fund’s broad collection of underperformers. The indiscriminate nature of these declines says much about the current market environment. During the month, Oracle surprised investors with the enormous scale of its contracted backlog, primarily to serve OpenAI. OpenAI in turn announced that it will partly fund these commitments with money from NVIDIA, from whom Oracle will buy advanced computer chips to meet OpenAI’s demand. These convoluted financial arrangements and the large sums involved suggests that the AI capital cycle has entered a more speculative phase. Investors’ permissive attitude finds its parallel in the momentum for other riskier parts of the stock market, such as quantum computing, crypto companies, unprofitable tech, and recent IPOs. Its mirror image is the underperformance of companies not exposed to these themes, or worse, deemed to be at risk from their disruptive influence.

The disconnect between the steady and highly financially productive growth of the Fund’s companies and their current valuation when compared to more ordinary assets has rarely been so wide. When this has happened in the past it has, on average, led to a period of substantial outperformance for the Fund.