Investing in artificial intelligence has proven to be a game-changer for T. Rowe Price’s Global Technology Fund (PRGTX). The fund’s portfolio manager, Dominic Rizzo, attributes their success to an early bet on AI and a simple investment framework. This strategic move has allowed the fund to outperform the market for the second consecutive year.
The Four-Step Investing Framework
Rizzo credits a four-step investing framework for the success of PRGTX. The first pillar of this framework is identifying “linchpin technologies” critical to a company’s success, such as artificial intelligence for semiconductor companies like Nvidia. Additionally, the fund looks for innovation in companies that are gaining market share in fast-growing markets faster than their competitors. Improving fundamentals, measured through metrics like free cash flow and operating margin expansion, as well as reasonable valuation, are also crucial aspects of their investment strategy.
Winning Bets on AI and Semiconductor Stocks
One of the keys to the fund’s recent success has been its early positions in AI stocks and semiconductor companies. Nvidia, a chipmaking darling, has been a standout investment for PRGTX, with shares up 166% since the beginning of 2024. Nvidia’s comprehensive range of technologies, including central processing units, graphics processing units, networking technology, and software ecosystem, has solidified its position as the linchpin of AI.
Diversified Portfolio Holdings
In addition to Nvidia, the fund has significant investments in other semiconductor companies like Taiwan Semiconductor Manufacturing and Advanced Micro Devices. Chip equipment maker ASML Holding and semiconductor maker Analog Devices are also among the fund’s top 10 holdings. Beyond chipmakers, PRGTX has made substantial bets on tech giants like Apple and Microsoft, both of which offer stability to the portfolio and trade at reasonable valuations with strong earnings growth potential.
Rizzo highlighted Apple’s AI vision as a potential catalyst for growth, particularly in the company’s services business and smartphone sales in emerging markets. Apple’s unveiling of its “Apple Intelligence” plan at the Worldwide Developers Conference showcases the company’s commitment to integrating AI technologies, such as upgrades to the Siri digital assistant with ChatGPT. Rizzo expects Apple’s AI initiatives to drive a smartphone upgrade cycle.
Microsoft’s partnership with OpenAI and its Azure cloud computing business have positioned the company as a strong player in the AI space. Rizzo sees Microsoft’s software holdings, like SAP and ServiceNow, as well-positioned to benefit from AI tailwinds and the data needed for AI applications. The unique strengths of Microsoft’s enterprise software leadership and Azure cloud services further strengthen the company’s AI prospects.
T. Rowe Price’s Global Technology Fund’s success in outperforming the market can be attributed to its early bets on artificial intelligence and semiconductor stocks, guided by a four-step investing framework. By identifying key technologies, focusing on innovation in growth markets, improving fundamentals, and maintaining reasonable valuations, PRGTX has positioned itself for continued success in the rapidly evolving tech landscape.