The Point

This innovator has an answer to a big AI problem

Nvidia’s stock price is soaring – and so are the carbon emissions caused by all the processors the chipmaker is churning out for power-hungry AI developers.

German-listed Aixtron, which supplies technology that helps the manufacture of computer chips, is at the forefront of trying to solve this problem.

“Artificial intelligence doesn’t exist in the ether – its computing power requires a vast infrastructure of data centres,” says Maxime Le Floch, an analyst with Regnan Global Equity Impact Solutions fund .

“One of the technologies that can help solve this issue is the use of compound semiconductors like gallium nitride, where Aixtron is a market leader.”

Gallium nitride can reduce the energy consumption of a data centre by 20 per cent, leading to a 10 per cent reduction in data centre operating expenditure, says Le Floch.

“Companies that can provide compelling solutions for these kinds of problems typically experience very strong growth and long term, compounding earnings.”

New weight-loss drugs offer solution to the obesity crisis

Demand for a new generation of weight-loss drugs such as Novo Nordisk’s WeGovy is soaring — particularly in the US where demand is outstripping supply.

Bloomberg estimates global sales of branded anti-obesity drugs could hit $US44 billion by 2030.

While medications are not the only solution, “they are one revolutionary step forward in countering the [obesity] epidemic” noted Scientific American recently.

Some doctors say drugs like Wegovy “could help stem a tide of weight-related conditions such as heart disease or joint pain”.

Sustainable investing leader Regnan, which is part of the Pendal (and now Perpetual) family, is a long-term investor in Novo Nordisk.

“We like companies that have a relentless pursuit of continuous innovation,” says Regnan’s Maxime Le Floch says. “We want companies that innovate, have brand awareness and can build a market from scratch.”

“The main issue Novo Nordisk has had recently is keeping up with demand.”

Impact Investing: where to look for innovative companies now

Regnan’s Tim Crockford spends most of his time searching for smaller companies with an innovative edge in solving the world’s biggest problems.

So where should investors be looking for innovative companies right now?

Probably not among Wall Street’s big tech stocks, which Tim still sees as relatively over-valued.

“I still think they are at levels that aren’t reflecting the post-Covid norm,” says Tim, who leads Regnan’s four-person Global Equities Impact Solutions team.

In contrast, European markets offer better value, he says.

“European equities are almost the mirror image of US equities. You had a lot of bearishness priced in last year because of the conflict in Eastern Europe.

“But the market went too far, particularly in terms of profitability.

“What we are seeing coming through in the first earnings season is that more companies are surprising positively. And this isn’t just in sales, but particularly on the margin line.”

Impact investing: time for small and mid-cap stocks to shine

We can debate whether the era of easy money is over.

But there is less doubt that the era of large-cap, beta-driven, passive investing is over, says Regnan’s head of impact investing Tim Crockford.

Investors should now be considering small-and-medium companies where valuations are more appealing than large caps, says Tim, who manages Regnan Global Equity Impact Solutions fund.

“Over the long-term, small caps have been a powerful driver of returns because they typically grow their earnings much faster than large caps,” he says.

Tim’s team looks for innovation in the small and mid-cap space – particularly those with potential to address pressing environmental and social challenges.

“While valuations have come down, for the right companies fundamentals remain intact.

“Long-term growth expectations for some companies exposed to these transformational themes are too conservative.”

The new US law driving sustainable investment opportunities

The macro-economy – inflation, growth, employment – drives top-line sentiment among investors, observes our head of global equities Ashley Pittard.

But earnings in sectors and companies drive the valuation of specific stocks, he says.

Take Facebook owner Meta, which gained 25 per cent last week after a better-than-expected result. Then the stock fell back sharply, albeit briefly, when strong US labour force hinted at further rate rises.

Overall, the latest quarterly US reporting season is looking better than expected at the halfway point, says Ashley.

Earnings growth is down about 3 per cent “which is marginally better than what was forecast”.

Ash believes it’s time to “take a little bit of money off the table” when it comes to energy stocks.