Munro shifts stock bets from semiconductor winners to energy suppliers and AI application providers

After a blockbuster year of returns in 2024, Munro Investment Partners is shifting its bets from semiconductor winners to energy businesses expected to power a decades-long artificial intelligence boom. 

The group's founding partner and chief investment officer Nick Griffin says the firm has made energy suppliers some of its biggest positions, after two years of profiting from growing semiconductor demand. 

"We're going for a broadening out of the recovery," Griffin told a Sydney lunch this week. "Last year was very AI focused, we've reduced some of those ideas that are now sitting in a more balanced portfolio.

"Climate is now the number one area of interest, ultimately electricity has a big shortage in the world today and that favours a lot of our climate investments, particularly around things like energy efficiency and nuclear power."

The Munro Global Growth Fund returned 35.2 per cent to investors net of fees over the 12 months to January 31 and has bought into US nuclear energy provider Constellation Energy (NYSE: CEG) and New York Stock Exchange-listed renewable power supplier GE Vernova (NYSE: GEV) as part of its climate bets. 

Power as an AI bottleneck

Energy supply or climate related bets are the biggest sector for the fund at the start of 2025, versus high-performance computing or semiconductor positions being the largest this time last year. 

Griffin says the picks and shovel plays of the AI boom have worked brilliantly for investors over the past 12 months, but the next great profitable trend could be power demand. 

"A year ago I said AI is going to be huge," he said. "We still like it, but a lot of it has played out. AI is evolving, it will utilise thousands and thousands of applications being built and they all have to run on Large Language Models, and they have to run on the cloud, and the cloud providers have to spend heaps of money on semiconductors to gear up for this boom. 

"The big bottleneck now is power, we're seeing massive data centre construction, a power shortage means you need to find the companies supplying these data centres, from our point of view that's clean or carbon-free energy and that's mainly nuclear energy."

Expects bull market to extend into 2025

Griffin also backs Instagram-owner Meta Platforms (NASDAQ: META) as an AI winner and to make his point wore a pair of its fast-selling Ray-Ban AI glasses during the lunch to provide him real-time information. 

As an example he said the glasses could foreign language signs into his ear, or recognise somebody at a cocktail party and relay information back to him about that person. 

"Every time I ask the glasses a question it goes to the cloud and does what's called an inference query, an AI query," he said. "An inference query uses roughly 10 x as much electricity as a Google search, so the more people that use this, the more we'll end up short of power and this is what we're investing in with the climate era."

As to the market's risks, the chief investment officer cautions the biggest downside risk for investors in 2025 is an unknown-unknown type event tough to forecast.

While known-unknowns such as the impacts of the Trump presidency, tariff wars, an inflation rebound and US debt binge are navigable given corporate America is set to deliver more earnings growth.

"The market is expensive, it's a bull market and it will constantly get ahead of itself, but you're not out of bounds here," said Griffin. "A lot of the valuation premium of the S&P500 at 22 times is because of the Mag 7, if you do it equal weighted mean it's about 18 times earnings, so high, but not too high, and outside the US it's lower again. 

Beyond Munro's flagship Global Growth Fund, two of its other investment funds have performed well. Its Munro Global Growth Small & Mid Cap Fund run by portfolio manager Qiao Ma has returned 61.9% per annum to investors since its inception in October 2023. 

As at the end of January, its top holdings included private equity group Brookfield (NYSE: BN), Interactive Brokers (NASDAQ: IBKR), Wix.com (NASDAQ: WIX) and Comfort Systems (NASDAQ: FIX). It also unearthed a "10-bagger" or investment in a business that multiplies 10-fold with its ownership of internet connectivity group AppLovin (NASDAQ: APP). 

The Munro Climate Leaders Fund specifically targets businesses linked to clean energy and the need to power data centres. Under portfolio manager James Tsinidis, it returned 64.9% net of fees for the 12 months to January 31. 

Griffin acknowledges these incredible returns are unlikely sustainable, but says his investment group's focus on structural and earnings growth is what helps it identify share market winners.