SpaceX has joined the Nasdaq 100, meaning passive funds that track the index will now automatically hold positions in the company, which listed on 12 June.

SpaceX (NASDAQ:SPCX) joined the index today (7 July), a week after it was added to the Russell 1000 Index (29 June).

Bloomberg reported SpaceX could look forward to an estimated $5.4 billion of inflows as a result of ‘forced’ buying by index funds that track these two indices.

Elon Musk’s space exploration company was fast-tracked for inclusion following rule changes by the index providers, put in place to reflect the unprecedented size of some initial public offerings (IPOs) coming to market.

Nasdaq’s new rules now allow freshly listed companies to be included in as few as 15 trading days, rather than its previous minimum period of three months after an IPO.

What will SpaceX index inclusion mean for flows?

Nasdaq says globally, there is around $1.4 trillion in assets tracking its component companies’ combined market capitalisation (market cap) of $31.5 trillion, around half of which do so through exchange-traded funds (ETFs). The other half is in derivative products, such as futures and options.

The Nasdaq 100 index represents the largest 100 companies, excluding financials, listed on the Nasdaq Stock Market. Often described as a tech-focused index, it contains all ‘Magnificent 7’ names – Alphabet, Amazon, Apple, Tesla, Meta, Microsoft and Nvidia. But it also contains many other companies with a value of $100 billion or more from healthcare, industrials and materials, for example, with representation across 10 of the 11 standard industry classification sectors.

When a stock joins an index like the Nasdaq 100, funds tracking that index are effectively forced to buy its shares so that they still reflect the index. This creates additional demand for a stock and could push up its share price.

The UCITS version of Invesco’s Nasdaq-100 ETF (LON:EQQQ) is the largest Nasdaq-tracking ETF available to UK investors. Barclays Smart Investor platform lists it as the seventh most popular purchase during the week of 26 June to 2 July.

Alongside the uplift from index fund inclusion, several investment banks have issued positive analyst statements on SpaceX, marking the end of the ‘quiet period’ that typically follows an IPO. Morgan Stanley, Goldman Sachs, UBS and Bernstein Research are among the names backing the stock with ‘buy’ recommendations or equivalent, based on asset strength and long-term growth prospects.

Baltimore-based Constellation Energy, a $90 billion company, generates electricity on a vast scale. And AI's voracious appetite means that electricity is now becoming a very valuable commodity, and the companies that can generate it reliably, cleanly and at scale will see a lot more attention than they're currently getting.

Investors have re-priced entire industries, assuming AI will transform the global economy. Electricity gets less attention, yet the chips, AI models and data centres are all useless without power. Vast data centres consume enormous quantities of power to train and run increasingly powerful models. Electric vehicles, battery factories, semiconductor plants, air-conditioning systems, industrial re-shoring and electrification more generally are all pulling in the same direction.

Tap into the great electrification with Constellation Energy

Constellation Energy (Nasdaq: CEG) owns the largest fleet of nuclear reactors in the US and has more nuclear power stations than anyone else at a time when hyperscalers are searching for reliable and cost-efficient power. Investors increasingly view Constellation less as a utility and more as the owner of scarce infrastructure – an essential asset – which explains its appeal as a long-term growth stock.

Constellation Energy currently generates about 10% of US clean energy. It produces enough electricity to power about 27 million US homes. It is the largest nuclear-energy company in the country and its power stations sit alongside a fleet of gas, hydro, wind, solar, geothermal and oil-fired assets. These produce 55 gigawatts (GW) of capacity.

To put that into perspective, the UK's recent winter peak demand for electricity was typically around 60GW, according to the National Energy System Operator. Constellation has 2.5 million customer accounts across the US and counts 80 of the country's 100 biggest firms by revenue among them.

Results in May showed first-quarter sales up 64% from $6.8 billion to $11.1 billion year-on-year. While impressive, roughly $2 billion-$3 billion of that reflected the acquisition of Calpine, a largely gas and geothermal power generator. Constellation Energy generated roughly $25 billion of revenue over 2025 as a whole. Earnings per share were $2.74 in the quarter, up 28% over the year and beating analysts' estimates by 14 cents.

The firm's nuclear fleet achieved an excellent 92.3% capacity factor, meaning its reactors were producing electricity at close to their maximum potential for almost the entire period. Management isn't seeing any slowdown in demand from the hyperscalers, with projected spending levels continuing to rise to reflect the growing need for computer processing.

Management has reaffirmed its expectation of 2026 earnings per share of around $11, up from $9.39 and $8.67 in 2025 and 2024 respectively. It's targeting 20%-plus annual earnings per share through to 2029 led by higher prices and rising demand, including improved long-term contracts.

Analysts have $13.50 pencilled in for 2027. Their 12-month share-price target is $362, about a third higher than now. Of course, in a world hungry for electricity, existing generation capacity may prove considerably more valuable than investors currently assume.

Don't chase the chips

The curious thing is that investors can currently buy a company expected to grow earnings by more than 20% annually at a valuation broadly in line with the wider market. Usually, investors are asked to pay a substantial premium for that combination of growth and strategic importance. The market's comfortable paying premium valuations for businesses that consume computing power. But it's a lot less interested in businesses that sell the vast amounts of electricity that makes such computing possible now and in the future. Look beyond that “utility” label and there is an opportunity to be had.

The immediate objection is that electricity is hardly scarce. If demand goes up, the power generators can build more capacity. But new power stations need planning permission, endless environmental reviews, financing, engineering expertise, political support and years of construction. And then transmission networks need upgrading.

This is where Constellation Energy's nuclear fleet becomes particularly interesting. Investors spend a great deal of time discussing technological moats. Yet there may be few barriers to entry that are more formidable than a collection of fully operating nuclear reactors. The market's growing interest in Constellation Energy reflects a simple reality: it already owns large-scale electricity infrastructure that is built, connected and delivering cleanly at scale. Building more is possible, but doing so quickly is another matter.

Nobody can yet say with certainty which company will dominate AI. What already seems clear, however, is that the modern economy wants far more electricity. Investors have spent the first phase of the AI boom chasing the chips. The second phase may belong to those pumping the power. Investors may find it easier to back the latter than gamble on the eventual winners of the AI race.

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Dr Douglas Williams is a veteran senior executive and board member for several biotech companies. During his time at Biogen, ZymoGenetics, Amgen Immunex and Seattle Genetics, he was involved in the development of several multibillion-dollar treatments, including Enbrel, Tecfidera and Spinraza.

Matthew Partridge: The time and cost of clinical trials has been seen as one of the big stumbling blocks to the emergence of new drugs. Do you see any developments that could help speed up the process?

Douglas Williams: Anything you can do to speed up the process is beneficial – after all, time is money. I think the real benefits will come as we become more efficient at targeting better-defined populations of patients [those who meet highly specific and uniform criteria, thus making it easier to gauge the exact effect of drugs]. In a field with a high rate of failure, improving the chances of success by even a small percentage can have a huge impact on the bottom line.

Matthew Partridge: Have the recent changes at the US Food and Drug Administration (FDA), the regulator of federal health, helped or hindered the clinical-trial process?

Douglas Williams: It's all a bit chaotic at present. You're seeing reversals of long-standing policy with political interference in what should be scientifically driven decisions. The “willy-nilly” nature of the Department of Government Efficiency's (DOGE) cuts has also led to a brain drain at the FDA itself, with some of the most experienced staff leaving.

Matthew Partridge: The FDA is seen as a gold standard when it comes to getting drugs approved first. Could there come a day when drug companies start looking to regulators in Europe or elsewhere?

Douglas Williams: This is already happening at the front end of the clinical-trial process, where Australia has become a key destination for early phase-one studies [the first of three stages of clinical trials, when scientists test the safety of the drug]. The regulatory process there is relatively quick and streamlined, making it a cost-effective place to run studies. And Australia's consolidated healthcare system makes the process of finding patients and enrolling them in studies more efficient.

Similarly, I've been working with Chinese companies and the system's low cost of capital, overall efficiency and rapid trial process are remarkable.

Matthew Partridge: The Trump administration has been threatening tariffs on drugs. Do you see geopolitical issues as a major risk for the drug and biotechnology sectors?

Douglas Williams: I do think there is logic in wanting to onshore some of the manufacturing for crucial drugs. There has been this enormous migration offshore from the US on the manufacturing side. So to try to bring some of that back, certainly for vital components of key drugs, makes a lot of sense. But there are surely better ways to achieve this than tariffs, which are a blunt instrument.

Matthew Partridge: Do you think America's dominance of the biotech and drug sectors is at risk?

Douglas Williams: I think that it's very much at risk for a variety of reasons. There definitely need to be some major changes to the FDA to bring the regulatory regime closer to what's happening in China and Australia. Firms are moving to the latter for early-stage studies, although people will still want to enrol patients in later-stage trials in the US and Europe.

The other thing that's happening in the US that I worry about from a longer-term perspective is that the reduction in the National Institutes of Health's funding for basic science grants is chasing away a whole generation of PhD students and postdoctoral candidates. This is already starting to create a hole in the pipeline for talent, and the longer this goes on, even if it's just for the four years of the current administration, the longer it will take to rebuild.

The engine driving the innovation that creates new companies in the sector and allows for new intellectual property to be created and new breakthroughs to take place is being eroded.

Matthew Partridge: What should the UK do to make itself more friendly to biotech and pharma companies?

Douglas Williams: The UK can streamline the process of starting studies and enrolling patients quickly and easily through the NHS, and raising patients' awareness of the trials on offer. More specifically, it could learn a lot from what the Chinese have done around streamlining the rules governing which particular regulatory bodies you need to secure approval from to begin a trial.

Matthew Partridge: Turning to the wider sector, GLP-1 drugs are changing the way we deal with weight-loss, diabetes and perhaps other conditions as well. Do you think the firms that pioneered GLP-1s are going to be able to stay ahead of the competition, or will it be like the computer industry, where firms such as IBM were unable to maintain their control of the industry?

Douglas Williams: The biotech industry is based on the expectation that there will be a rotation of dominance, as patents only last a certain amount of time before rivals are allowed to produce generic versions of a drug, causing prices and profits to collapse. But until that happens, the first-movers in this area, such as Novo Nordisk and Eli Lily, will dominate it. They've also pursued new approaches for delivering the drug – shifting from injectables to oral tablets, for instance. So they're creating scope for multiple waves of innovation, which could extend their dominance.

However, biotech is ultimately all about building a better mousetrap: there are other young companies coming in that are attempting new methods that don't come with the side effects, such as muscle loss, that are associated with the GLP-1s, for instance.

Matthew Partridge: Are there any other big leaps forward that could take place in the next five years or so?

Douglas Williams: I find the work around the role of sleep in dementia and brain conditions very interesting, and the idea that deep sleep can help combat those conditions is certainly an elegant theory. Neurology, in general, has become much hotter from an investment perspective. I'm involved with several companies in the neuropsychiatry sector, including being chair of Draig Therapeutics, a Cardiff-based company developing treatments for major depressive disorder.

The analogy people have used is that neurology is going to become the next oncology, where the precision approach to well-defined populations of patients is going to dominate drug development. So, you'll essentially be treating slices of the populations that have a particular broad definition of a disease.

Matthew Partridge: What about advances in medical imaging, such as MRIs and CT scans?

Douglas Williams: During my career, I was involved in the early development of some of the first approved drugs in the amyloid reduction arena and what really turned the tide was being able to understand what these drugs were doing inside the brain; it's hard to do without some way of looking at the target. I think faster and more effective scanning technology has already fed back into neurology-drug development.

Matthew Partridge: Do you think in five years' time the range of treatments for neurological conditions, things like dementia, could be radically different?

Douglas Williams: Yes, there's so much activity in this area, a reflection of the problems posed by ageing populations.

Matthew Partridge: How is AI going to change drug development?

Douglas Williams: It depends on your definition of drug development. Taking the all-encompassing view, where a fully integrated company does the discovery, drug development, manufacturing and sales and marketing, it will change the whole process. One example is in manufacturing. Already, we can take real-time data from the bioreactors that are used to manufacture proteins, and AI can use this to tweak the process to make sure that you maximise productivity. There's an increasing amount of work now on using AI in the clinical-trial process, both in terms of designing the trials and dealing with back-office operations.

I've been in this field for 40 years, and it's remarkable what some of the young companies I'm involved in are doing with AI. I'm optimistic that in the next ten years, we'll start to see the impact of AI on designing new molecules and finding new drugs too.

Matthew Partridge: Do you think that there will still be a need for actual scientists, rather than AI alone, to be involved?

Douglas Williams: Without question. If you ask ChatGPT or Claude a question, how the question is worded matters a lot, and that's where the role of the scientist really shows itself – the better the question, the better the answer. So, there will always be a place for the human element in terms of driving science.

Matthew Partridge: Have investors in the sector learnt to tune out political noise and focus on the long-term growth story?

Douglas Williams: I think so. Stock market valuations have risen while mergers and acquisitions have proliferated, which is always healthy because it gives investors capital to put back to work. So a virtuous circle has developed. There's never been a more amazing time in terms of the tools that we now have for drug development, while our understanding of biology continues to expand.

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UK small and mid-cap stocks have been in the shadow of their larger peers, but are beginning to reassert themselves. Since the start of April, the FTSE 250 has outperformed the FTSE 100 by around 6% – a notable development given ongoing macroeconomic and political uncertainty. Investors are increasingly recognising the opportunity, particularly as valuations for UK small and mid-cap stocks remain well below historical levels. At the end of the first quarter, the FTSE 250 was around 21% below its long-term average compared with a more modest 4% discount for the FTSE 100.

The FTSE 100 is often favoured for its global diversification and income profile, but small and mid-cap stocks offer many of the same characteristics. More than half of revenues are generated overseas and dividend yields of around 3% are broadly competitive with large caps. Some domestically focused UK businesses face headwinds from softer demand, cost inflation and the wider economic backdrop, but others continue to deliver strong growth and resilient earnings. The breadth of international exposure is also important, spanning sectors from mining to US infrastructure, defence and global industrial production – providing access to a wide range of end markets.

Three UK small and mid-cap stocks to invest in

AJ Bell (LSE: AJB) is well positioned within UK asset management, benefiting from long-term structural growth, supported by favourable demographics and a gradual decline in state provision for retirement. The platform market has expanded at an annual rate of around 11% since 2018 and AJ Bell continues to gain market share, with roughly two-thirds of the addressable market still yet to move onto platforms. Its diversified model spans both adviser and direct-to-consumer channels, supported by strong client retention. Around 81% of revenues are recurring, complemented by excellent Trustpilot ratings.

Ongoing investment in the brand, technology and pricing is driving growth in customer numbers and earnings, underpinned by a strong record of execution from the management team.

Helios Towers (LSE: HTWS), an Africa-focused telecoms tower operator, is supported by sustained investment from mobile-network operators looking to expand coverage and improve the quality of service. Key growth drivers include increasing mobile penetration, rising data usage and the rollout of 4G and 5G networks. Mobile connectivity plays a central role in everyday life across the region, reflecting its importance not just for communication but also as critical payments infrastructure. Helios benefits from a scalable, largely contracted revenue model that provides good earnings visibility. The company is also building long-duration infrastructure assets, designed to generate cash flow and returns while supporting the continued rollout of its tower network.

Paragon Banking (LSE: PAG) focuses on specialist lending across the buy-to-let and commercial sectors. Sentiment remains cautious, but the stock trades on seven times earnings and a yield of 6% and there is an ongoing £100 million share buyback programme. It continues to deliver attractive returns of around 17% while maintaining strong credit quality, having successfully lent through multiple cycles. Its focus on professional landlords – typically less affected by government intervention – alongside a well-structured funding base, supports the case to buy for long-term investors.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Healthcare is particularly well placed to benefit from artificial intelligence (AI), which is revolutionising data-heavy industries. If there's one thing AI can do better than anything else, it is to sort, analyse and draw patterns from data. And if there is one sector with more data than anywhere else, it's healthcare.

AI tools and increased computing power give us the ability to interpret CT scans in milliseconds; comb through drug-trial data in minutes rather than months; and discover new treatments by analysing hundreds of historical studies. This is unlocking results that researchers could only have dreamed of five years ago.

Moreover, demand for healthcare is unlikely to be hurt by AI. Humans won't stop getting ill as tech gets better. They may even require more healthcare as AI unveils more solutions to previously incurable diseases and extends lifespans.

Yet the market does not seem to care about this healthcare revolution. Investors are going all-in on the market's leading AI companies, but they are ignoring this thematic play.

AI can help healthcare profit margins recover

The valuation of the global healthcare sector is trading broadly in line with its own long-term history, according to broker Panmure Liberum. However, when adjusted for normalised profit margins, it's trading at levels not seen since the 2009-2012 period. That is because margins have fallen from 10% to 6%-7% over the past five years as costs have risen – a trend that AI should help to reverse.

Healthcare sector is trading at a discount

The overall healthcare sector is trading at a discount of roughly 50% to the MSCI All Countries World Index (ACWI) on a normalised earnings basis. That said, in the pharma sub-sector, the opposite is true. It looks cheap on a price-to-earnings basis, but verges on the expensive when margins are adjusted back to historical levels (14% vs 18% today).

Still, both sectors deserve a premium valuation. Over the past ten years, the MSCI ACWI Healthcare and MSCI ACWI Pharmaceuticals sectors have booked revenue growth of 7.6% and 5.9% per annum, respectively, compared with 2.5% for the wider MSCI ACWI. Earnings have grown at 5.9% and 7.1% respectively, against 4.5% for the ACWI.

The best ways to invest in healthcare

One way to play this theme is Worldwide Healthcare Trust (LSE: WWH), managed by specialist investment advisor OrbiMed (over $20 billion in assets under management with a focus on healthcare). The trust has been hurt by its overweight exposure to China and biotech over the past five years, but this paid off in 2025 when it outperformed its peer group by seven percentage points. Over the long term, it has beaten the MSCI World Health Care by 2.3% per year since 2010. The shares are at a 7% discount to net asset value (NAV).

Polar Capital Global Healthcare (LSE: PCGH) is more exposed to the undervalued healthcare sector than to biotech. The trust traded at a discount of about 12% four years ago, but is now trading at a premium and has been issuing shares this year. It has outperformed its benchmark by 39.2% over the past five years. After a restructuring last year, it has leaned into low valuations by adding gearing of £40 million (9.7% of NAV).

RTW Biotech Opportunities (LSE: RTW), the Biotech Growth Trust (LSE: BIOG) and International Biotechnology (LSE: IBT) all sit at the more speculative side of biotech. While they are trading at near double-digit discounts, their positioning means investors should be more cautious.

BioPharma Credit (LSE: BPCR), managed by specialist investor Pharmakon, takes a different approach by making loans secured against companies' drugs and products. It has a great record – just one loan since 2009 hasn't performed as expected. The trust is trading at a 5% discount to NAV and yields 10.9%.

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Some analysts have proclaimed that AI is more important and will be more transformative for human development than the creation of the railways. With the world's largest technology companies now spending more than $1 trillion a year expanding their presence in the market, there's no doubt this theme will dominate for the foreseeable future.

However, as investors focus on the so-called hyperscalers – Alphabet, Microsoft and Amazon – which are building their AI infrastructure at an alarming rate, as well as chip manufacturers such as Nvidia and Micron, which are supplying the industry, not much attention is being directed to the infrastructure that will power this revolution. This is where bottlenecks are now starting to throttle growth.

The energy grid needs an upgrade to power AI

The critical one is the power grid. In the US, for example, the grid is around 50 years old and was not designed to handle the current level of rapid growth in demand. The graphics processing units, or GPUs, that underpin AI data centres today are vastly more energy-intensive than their previous counterparts.

Research compiled by Goldman Sachs and JPMorgan estimates that by 2027, AI server racks will require 50 times more power than the equivalents that formed the backbone of cloud infrastructure five years ago.

The computing power of any facility consumes only around 60% of the total energy requirement. The rest is taken up by cooling systems and other infrastructure.

As the hyperscalers expand, they are learning that Silicon Valley moves much faster than the rest of the world. GPUs have become 50 times more energy-intensive over the past five years, but global energy output has risen by just 1%-3% per year. In the real world, it can take five to seven years just to secure permits and sign initial contracts to build the power infrastructure. This has started to change in the past two years, but there's still a long way to go. According to the International Energy Agency (IEA), global electricity consumption by data centres will double to 945 terawatt-hours (TWh) by 2030, representing roughly 3% of global demand for electricity. That's roughly the same as adding 34 Hinkley Point C-scale nuclear-power plants to the global grid. Between 2025 and 2030, data-centre electricity consumption is expected to grow by 15% per year, four times the growth rate of total electricity consumption across all other sectors.

Electricity consumption from accelerated AI data centres, the most intensive units that train AI models, will rise by 30% annually. In the worst-case scenario, the IEA estimates that global data-centre demand for electricity could exceed 1,700 TWh by 2035, nearly 5% of global demand for electricity. If the industry becomes more efficient at utilising power, that figure could fall to 970 TWh. If the electricity industry fails to rise to the challenge, demand could be limited to 700 TWh by 2030, nearly 25% below the base-case scenario.

This bottleneck is most apparent in the US and China, where the most time and energy are being spent on AI development. China and the US will account for nearly 80% of global data-centre electricity consumption growth to 2030, according to the IEA. The US, in particular, is facing a projected power access shortfall ranging from 10.4 gigawatts (GW) up to 49GW by 2028, even though projections from the US Energy Information Administration (EIA) show the grid adding 86GW of new utility-scale electricity-generation capacity in 2026, the largest single-year rise since 2002.

Rise of the ‘Bring Your Own Power’ model for data centres

To get around some of these issues, data-centre providers are increasingly seeking to innovate. The “Bring Your Own Power” (B-Y-O-P) movement, for example, is bypassing grid-connection bottlenecks by building on-site microgrids, utilising utility-scale batteries, solar panels, fuel cells and wind and gas turbines. Elsewhere, data-centre operators and hyperscalers are working with utility providers to purchase and install natural-gas power stations.

Data-centre providers are also shifting their attention to gas-rich zones such as the Permian Basin in Texas and New Mexico, where natural-gas pipeline capacity is severely constrained (gas prices recently dropped below zero despite the war in the Middle East). Companies are building off-grid data centres directly at these extraction sites, monetising otherwise stranded gas that would have zero economic value.

For example, Microsoft (Nasdaq: MSFT) and Chevron (NYSE: CVX) are partnering to build a $7bn, 2.5GW off-grid natural-gas power complex in Pecos, Texas, specifically to supply Microsoft's AI data centres under a 20-year agreement. Williams (NYSE: WMB), a pipeline company transporting a third of the natural gas moving across the US, is developing “Neo”, a $2.3 billion project utilising gas turbines paired with battery energy storage systems (BESS) for a major hyperscaler. This is the company's fifth BYOP agreement.

Some providers are also turning to AI to help mitigate AI's impact on power grids. A recent report from the World Economic Forum notes that “power-flexible” AI factories can dynamically modulate their electricity use, throttling energy-intensive tasks such as model training during periods of stress for the grid and routing more mundane tasks (such as answering simple questions on ChatGPT) to other locations. This flexibility enables data centres to capitalise on the volatile nature of renewable-energy generation.

Energy prices take the strain

As the utility market has struggled to adapt to the surge in demand for electricity, prices have responded. Wholesale electricity prices have jumped across all global markets, and the impact is particularly acute in the US. In some eastern US states, prices have risen 76%. According to the Bureau of Labour Statistics, across the country, electricity prices are rising nearly 61% faster than general inflation. The entire supply chain is feeling the pain. Lead times for the production and delivery of grid equipment have skyrocketed. Standard electricity transformers now take 128 weeks to deliver, compared with just 16 weeks in 2019. In some cases, specialist transformers are being delayed for nearly three years.

The production of highly efficient combined-cycle gas turbines can take up to four years, more than double the length recorded in 2022, and across the entire supply chain analysts put the average price rise at 30% across all grid equipment. There's also been a dramatic shortfall in the number of construction engineers and electricians, with the figure put at nearly 300,000 construction engineers and electricians in the US over the next decade. There are no quick solutions to any of these problems. While producers try to scale up output to meet rising demand, it looks as if they will continue to hold all the cards for the next five years at least.

There are three ways for investors to play this trend. There are the companies that generate power, those that make equipment for power stations, such as gas turbines, and those that manufacture cables and equipment to transmit electricity from A to B.

Tap into the AI energy boom with power players

One of the hottest plays is GE Vernova (NYSE: GEV). Created as part of General Electric's break-up, GE Vernova specialises in designing, manufacturing and maintaining equipment for the power-generation industry. Its technology provides roughly 25% of the world's electricity and the group has an order backlog of $163 billion, or 3.5 times sales. Its order backlog for gas turbines sits at around 100GW – around 2.5 times the UK's total daily electricity consumption. UBS has modelled 14% annual organic sales growth for the group through 2028 based on its current order backlog, with a 22.7% Ebitda margin by 2028, up from 8.4% in 2025.

Unlike the GPUs that power data centres, which have an estimated average life of around five to eight years, gas turbines can last up to three decades, locking in a multi-decade service contract for Vernova. The firms also offers kit for firms running older units (20 years and upwards) to help improve reliability and efficiency. Despite this growth and its key market position, there's a lot priced into the stock at a mid-30s price-earnings (p/e) ratio, but UBS argues that the valuation is worth it given the revenues and potential for margin growth.

Rolls-Royce (LSE: RR), which came close to a government bailout in the pandemic, is now one of the world's most sought-after power engineers. For the year to the end of 2025, the company reported a 12% jump in underlying revenue to £20 billion and underlying operating profit rose by 41% to £3,462 million, equating to a margin of 17.3%. Profit growth was driven primarily by the power-systems arm (25% of revenue), where the divisional margin expanded by 430 basis points to 17.4%. The firm put this down to “growth driven by data centres” and it's hoping its “power-dense” next-generation diesel and gas engines will continue to drive growth. Its technology is in demand as data-centre providers seek alternatives to bypass ever increasing queues for power-grid connections. The FTSE 100 company recently noted that orders across gas and diesel engines in the first quarter was around 50% higher than last year and March was a record month. Power Systems' order backlog was £7.3 billion at 31 March.

But Power Systems isn't just about data centres. The business also produces battery energy-storage systems and engines for Leopard tanks. What's more, last year Rolls-Royce conducted the world's first successful test of a high-speed marine engine running on pure methanol. There's also the company's nuclear business. A long-time supplier of nuclear reactors to the Royal Navy, Rolls-Royce has begun moving into the civil market with its small modular reactors (SMRs). In June last year, Rolls-Royce's SMR was chosen as the sole provider in the Great British Energy – Nuclear competition to build three SMR units in the UK.

Rolls-Royce SMR also received a strategic investment from CEZ Group, alongside a commitment for up to six units in the Czech Republic. In mid-June, the division was selected to deliver three SMRs on Sweden's west coast in partnership with Videberg Kraft. Based on current estimates, Rolls-Royce is trading at a forward p/e of 38.2, falling to 32.7 in 2027, according to average analysts' estimates. Those have ticked higher after the company's latest upbeat trading update and Berenberg has pencilled in a forecast of £8 billion of share buybacks over 2026-2028, split by £2.5 billion in 2026, £2.7 billion in 2027 and £2.8 billion in 2028, with scope for more cash returns if cash flow beats projections over the coming months.

A US peer of Rolls-Royce is BWX Technologies (NYSE: BWXT). Like its UK counterpart, BWX has the backstop of a US Navy contract in its back pocket to support its general operations – it has been the sole nuclear-fuel provider to the US Navy for more than 70 years. It's now seeking to grow in the civil market, where it provides specialised, complex, high-precision equipment used in nuclear reactors, including steam generators, reactor-pressure vessels and piping. It has an order backlog of $8.7 billion (around 2.2 years of revenue) bolstered by the recent $1.4 billion set of contracts through the US Naval Nuclear Propulsion Programme. However, at nearly 50 times forward earnings, there's a lot baked into the current share price.

How to invest in the undersea cable kings

The energy-transfer market is more concentrated than the other two potential investment segments. The renewable-energy transition has triggered an unprecedented global demand for ultra-high-voltage subsea cables to transport power from offshore wind and solar sites to urban centres, a market that did not exist 15 years ago. It's currently dominated by a European oligopoly consisting of Prysmian (Milan: PRY), Nexans (Paris: NEX), and NKT (Copenhagen: NKT). These companies emerged as the winners in what was an incredibly competitive market, with lots of smaller players that couldn't keep up with the capital-spending commitments required to manufacture vast undersea sea cables.

High-voltage direct-current (HVDC) cables can be thick, and they must be kept completely straight during manufacturing, which often requires companies to hang them inside skyscraper-high warehouses. The capital required to build this infrastructure runs into the billions. For example, the 500-kilometre Eastern Green Link 2 (EGL2) project in the UK, the single largest ever investment in electricity-transmission infrastructure in the country, has a price tag of £4.3 billion, with £2.7 billion of that for the cable itself.

The global high-voltage submarine cable market is expected to grow at a compound annual growth rate of 17.3% over the next decade. Production hit 7,000 kilometres in 2025, an all-time high, and the major players are rapidly ramping up production. Prysmian is drawing on its experience in this market to expand in the DC inside-building segment – essentially wiring up the power inside data centres. The company believes it will become a one-stop shop for data-centre construction contracts, building long-haul subsea connections and shore-based transmission infrastructure, and then for infrastructure throughout the building to power GPUs and air-conditioning units.

Management has estimated that overall global demand for DC power will expand at a compound annual growth rate of 33% over the next five years, with the bulk of this coming from AI-related data-centre growth. Analysts have pencilled in earnings growth of 25% for 2026, followed by 23% for 2027, with a net profit of €1.7 billion projected for 2027, up nearly ten times from 2020. Based on these projections, the shares are trading at a 2027 p/e of 24.9, which doesn't seem too demanding for a high-growth business operating in an oligopoly.

Prysmian is around three times the size of its smaller peers, both of which are using their growing profitability and cash flow to expand into newmarkets. Of the two, Paris-listed Nexans is the cheapest, trading at a 2028 p/e of around 13 based on management's growth targets. The group has laid out a road map to achieve an adjusted Ebitda of €1.2 billion by 2028 (up from about €750m) through growth in its three main businesses: PWR-Transmission, PWR-Grid and PWR-Connect. Sales are already locked in with a backlog of €7.9 billion by early 2026, enough to cover sales through to 2028.

Deals will also be a major part of the future growth plan. It recently added US-based Republic Wire to the stable to bulk out its US arm (about 15% of revenue). Republic reported sales of €52millionmn in its latest fiscal year and will be a key conduit for Nexans to enter the US data-centre market. Nexans plans to use Republic Wire's established channels to sell its own comprehensive offering of medium-voltage and grid technology into premium US end markets. The acquired business is currently finalising a significant expansion programme, which will increase its production capacity by about 30% by the end of 2026.

How to play coal

Another FTSE 100 company that's strategically well placed is National Grid (LSE: NG). Although still small compared with the US and Chinese markets, the UK data-centre market is the largest in Europe. National Grid believes demand for electricity in the UK will increase by 30% by 2035 to 290GW with a 90% increase in installed generation capacity to 370 TWh. To meet this demand, the company is investing £41 billion by 2031 to expand its regulated asset value by 60% to £60 billion. It is also going to invest £29 billion to expand its US business to a regulated asset value of £45 billion, with a focus on its key markets of New York and Massachusetts. The shares currently look cheap, selling at a forward p/e of 13.9.

One sector investors could also consider is coal. According to Global Energy Monitor, more than 2,200GW of coal-powered generation still operates worldwide, with another 710GW under development. China is scaling up its coal-output market to meet increased demand for energy and a total of 32 countries are proposing, or building, new coal plants to meet the growing need for power. At the beginning of June, Donald Trump announced plans to build two new coal plants in Alaska and West Virginia under the Defence Production Act, adding to the US coal fleet, which supplies 15% of the country's demand for power. Alliance Resource Partners (Nasdaq: ARLP), Peabody Energy Corp (NYSE: BTU) and Warrior Met Coal Inc (NYSE: HCC) are three left-of-field plays worth considering here.

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What exactly is an emerging market? You can debate all sorts of measures of economic development and levels of income as the cut-off point, but as far as the financial world is concerned, what matters most is whether the stock market is part of the MSCI Emerging Markets (EM) index or not.

The AI boom is starting to stretch this line of reasoning, as we have noted a few times in recent weeks. The performance of a handful of stocks that are integral to the semiconductor sector means the index is increasingly heavy in tech (now 43% of the total). It has almost 50% in two economies – Korea and Taiwan – that are clearly advanced, wealthy countries. Yet while AI has made this very obvious because of its impact on the index, the underlying point has been true for much longer. Korea and Taiwan are “emerging” under MSCI's market-access criteria, but they fully emerged in an economic sense a while ago.

Is China an emerging market?

You can go further. The third largest weight is China, at about 20%. China's GDP per capita in purchasing power parity (PPP) terms is still firmly in emerging market territory – it's about half of the UK's, for example – but this disguises enormous variation between the wealthier coastal provinces and those further inland. It is also by far the world's second-largest economy in nominal terms. To what extent can we view it as a traditional emerging market?

Note, too, that all these three countries – almost 70% of the index – are in East Asia. At this point, is the MSCI EM vastly different to the little-quoted MSCI AC Asia, which adds nearby Japan into the mix? The chart above suggests not.

A “true” emerging market ETF

The practical investor may be happy enough. After all, if returns are good, why split hairs about definitions? Yet it's important to understand where returns are coming from, how an end to the AI boom might change this, and what the options are if you want more traditional emerging market exposure.

I have previously mentioned Barings EMEA Opportunities (LSE: BEMO) and BlackRock Frontiers (LSE: BRFI). Both are interesting, but neither is broad (BEMO is Eastern Europe, Middle East and Africa, while BRFI excludes the eight largest emerging markets).

Instead, we could look at a relatively new exchange traded fund (ETF): WisdomTree True Emerging Markets (LSE: WEMP). This drops China, Korea and Taiwan, with India and Brazil as the largest positions. There is very little tech; you get a classic emerging-markets portfolio with more than 35% in financials.

To my mind, this goes too far for most investors as a standalone holding. It might be preferable to just cap exposure to the big three. Still, owning this alongside a conventional EM fund would be one way to get more balance in a portfolio.

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The Magnificent 7 stocks (Mag 7) are starting to look mediocre. The group, which is made up of Nvidia, Alphabet, Apple, Microsoft, Amazon, Tesla and Meta, has been in the vanguard of the AI boom. Between the beginning of 2023 and the start of this year, the seven US technology mega-caps added $15 trillion in value between them and grew to account for a third of the entire S&P 500 by market capitalisation, say Emily Herbert and Tim Bradshaw in the Financial Times. Yet over the past month, they have collectively lost $2.2 trillion in value. Many of these firms are “hyperscalers”, with plans to lavish about $1 trillion on AI data centres. Investors are increasingly sceptical about whether such huge sums will ever generate a meaningful return.

Microsoft's and Meta's shares are in a “bear market”, having fallen more than a fifth from their peak, says David Goldman on CNN. The others are down at least 10%. There are growing signs of nervousness about technology valuations. The Nasdaq index fell every day last week. Korea's Kospi, which plays host to some major AI plays, has been on a wild ride this year, including another 10% plunge on 23 June.

Magnificent 7 stocks decline, but semiconductors soar

Yet while the Magnificent 7 stocks are falling out of favour, a boom in the firms selling computer chips to them at eye-watering prices has “more than made up the difference”. Micron's shares have gained 265% this year, Samsung is up 144%, and Intel has surged 254%. The semiconductor industry alone now accounts for 19% of the S&P 500's market value. The iShares Semiconductor exchange-traded fund (ETF) rocketed a staggering 110% in the first half of the year, says Ines Ferre for Yahoo Finance.

That pushed the US technology sector to its best first-half performance in three years, the slump in the Magnificent 7 stocks notwithstanding. AI data centres require specialised computer kit, but there is now an acute shortage and “it takes years to build new production facilities” for chips, says James Mackintosh in The Wall Street Journal. The result has been soaring prices: Micron's have “quadrupled” in the past year. Consumers have been caught in the crossfire, with Apple hiking prices for its computers. The net effect is “an enormous transfer of cash” from the AI hyperscalers to memory-chip makers. The problem for the AI industry is that firms such as ChatGPT-maker OpenAI were already loss-making (venture capital has been subsidising an expensive grab for market share). Now the maths looks even more challenging for the businesses that started the AI boom.

In retrospect, the best thing to do over the past six months would have been to go long chip stocks while shorting software firms, says John Authers on Bloomberg. Korea's chip-dominated Kospi stock market index has almost doubled since 1 January, while the S&P 1500 software index is down 17.5%. US technology-related capital expenditure is now slightly above the 5% of GDP peak it reached in 2000 during the dotcom bubble. By attracting “more capital than they can productively use”, investment bubbles ultimately “sow the seeds of their own destruction”.

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Investing in the shipping industry may seem like the ultimate contrarian trade. After all, the ink on the deal between the US and Iran to reopen the Strait of Hormuz is barely dry, and volumes are sharply down in the Suez Canal. Throw in the disruption caused by the Russian invasion of Ukraine and the perceived threat to global trade from US president Donald Trump's tariffs, and it does seem like a sector under threat. But if you look beyond the headlines, far from diminishing, the amount of goods shipping around the world “is only going to increase”, says Daniel Cunningham, founder and CEO of logistics firm Shiplo. At the same time, digitalisation and sustainability are creating new opportunities.

The bull case for the shipping industry

Perhaps the best reason to be bullish about shipping is that for many goods and commodities, it has few competitors. “From the days of horse and cart to the present day, sea travel still provides the most direct and efficient mechanism for moving large quantities of freight,” says Nick Bartlett, co-founder and director of Wayfindr, a Hong Kong-based 4PL logistics provider. Air travel has chipped away at this a bit, especially for immediate deliveries of individual packages, but shipping remains – and will continue to be – the “most cost-effective mechanism for moving large amounts of freight”.

Indeed, it is “one of the most economically efficient mechanisms for moving large volumes of goods across borders”, says Nadiya Albishchenko, founder and managing director of international trading company Inas Exim. This economic advantage means that the industry's long-term future should remain “fundamentally strong”, enabling it to overcome any short-term disruptions caused by geopolitics and continue to be the “backbone of international trade and global supply chains”.

At the same time, despite Trump's protectionist rhetoric, global trade “has never had it so good”, says Simon MacAdam, deputy chief global economist at Capital Economics. His tariffs have “not damaged bilateral trade between the US and other countries to the extent that most people were predicting” and the US “only makes up around 15% of world trade”. Meanwhile, the rest of the world “remains committed to free trade and is resisting the temptation to get stuck in a beggar-thy-neighbour spiral”. The AI boom is also a tailwind “as it is not only very goods-intensive, but also import-intensive”.

Similarly, while the shutdown of the Strait of Hormuz created a lot of short-term disruption for specific markets, that will be less of an issue in the longer term, says MacAdam. Proposed alternatives, such as new oil pipelines, “will be expensive and subject to many of the same risks as shipping” and, with Iran and the US committed to reopening trade routes, the Strait of Hormuz should be able to return to normal levels of traffic volumes by 2028. In any case, although the Middle East clearly remains a big shipping hub for oil, it doesn't play as large a role in global trade as people tend to assume, accounting for around 10% of overall global shipping volumes.

Geopolitical turmoil could even provide a silver lining for the industry, as it is forcing firms to move away from the idea of “very lean supply chains” in favour of having locations in several countries, with “more duplication and regionalisation, leading to more trade, not less”, says MacAdam. Albishchenko has already found that her customers have moved away from choosing the cheapest shipping option towards arrangements “that emphasise continuity of supply, reliability and availability of alternatives”.

New shipping routes and ports are being built

One of the best indicators that transporting goods by sea has a rosy future is the amount of money that has been going into upgrading port infrastructure around the world. A case in point is the Middle East. Current tensions haven't dissuaded governments in the region from investing in some major projects, as Bartlett points out. These include Saudi Arabia's Neom city; the aggressive capital-spending programme of AD Ports, the developer and regulator of ports and related infrastructure in Abu Dhabi; and Iraq's Grand Faw port. Taken together, these projects represent the biggest concentration of new capital invested largely in ports anywhere in the world.

Governments and industry are also increasing their port capacity elsewhere around the world. There has also been a lot of investment in the Indian Ocean, for example. India is opening its first deep-water port at Vizhinjam and DP World is pouring billions into a programme stretching from India through Senegal and the DRC to London, says Bartlett. But the region that will see the most explosive growth over the next decade is Africa, especially on the western side.

When Bartlett co-founded Wayfindr around ten years ago there was virtually no trade between Asia and Africa. But the development of online marketplaces such as Jumia means that Africa is beginning to import huge volumes of Chinese products. At the same time there has been an increase in industrial production within Africa, “which means that it is now starting to become a significant exporter of goods in its own right”. The continent is therefore going to need big investments in transport over the next decade or two. Ports such as Senegal's Ndayane and Bakassi Deep Seaport in Nigeria are positioning themselves as the “next generation of Atlantic gateways”.

There has also been awakened interest in developing new trade routes. The need for additional capacity and developments in technology have led to an explosion of interest in the trans-Arctic shipping route (or “northeastern passage”) connecting the Atlantic and the Pacific via the Arctic coasts of Norway and Russia, says Jonathan Colehower, a managing director at infrastructure services company UST. “We don't yet have the infrastructure or ships to make that viable, but these will be in place within the next five years, which is why there's already a fight to lay out landmarks and claim territory.”

Shipping is going digital

All parts of the industry are also investing in digital technology, notably in technology to achieve “end-to-end visibility”. Track-and-trace tools have come a long way in the last few years, allowing vessels to be tracked almost in real time, but there are challenges whenever goods change hands. The next five years are going to see a shift to more comprehensive and secure tracking, says Colehower.

Digitalisation will also reduce the time and money spent getting goods to and from ships, says Ben Slupecki, an equity analyst for Morningstar. Many of the big freight-forwarding companies, who deal with transporting goods to and from ships, “are seeing more and more opportunities to use AI in their work”, he says. The technology is helping them boost efficiency by cutting the cost of dealing with routine paperwork, such as processing invoices and getting goods through customs.

Digital technology and AI will also improve efficiency by enhancing the ability of shipping companies and the firms that they serve to anticipate demand, says Albishchenko. Traditionally, companies have based their forecasts on historical sales and then periodically adjusted them. Digital forecasting approaches allow firms “to consider broader variables, including seasonality, customers' behaviour, market trends and changing commercial conditions”. Better forecasts “can reduce shortages, excess inventories and the need for emergency logistics decisions”.

Progress will come when the industry finds a way to break down the “data silos” held by different firms to allow better co-ordination of shipments, says Cunningham. Many decisions in all parts of the shipping industry will eventually be carried out by AI agents, autonomous programs that can carry out tasks on their own without any human supervision, he believes. These will reduce waste by making sure that every bit of spare capacity on vessels is used, as well as tweaking routes in real time to ensure that they are optimised for speed and cost.

The shift to greener transport

Opposition from the Trump administration may temporarily have put a dampener on the costs of complying with stricter environmental regulations, and so shipping companies don't for the time being have to worry too much about ambitious schemes such as the proposed global carbon tax. But the expectation that shipping companies will try and work in a more environmentally friendly way remains, says Bartlett. Younger generations in particular care about the planet and the shipping industry cannot ignore changing social attitudes. Indeed, despite opposition from Saudi Arabia and the US, the EU has already taken matters into its own hands by adding shipping to its carbon-taxation framework, as Nikos Petrakakos, managing director at Tufton Investment Management, points out.

This will naturally cost money. Decarbonisation of the global shipping fleet alone may cost as much as $1.4 trillion, reckons Petrakakos. At least $500 billion of this will be spent on retrofitting existing ships to take greener fuels, or building new, more sustainable ships from scratch. That is at least good news for the shipbuilding industry. Indeed, shipyards are so busy that “if you order a new ship now you will have to wait until at least 2030 to get it”. Most major shipbuilders have a backlog of at least three years.

The changing face of insurance

The growth of volumes and the digital revolution that is taking place within shipping is also good news for those firms that offer services to the shipping industry. Albishchenko sees a greater role for those companies that can provide communications services and data, especially as all parts of the supply chain “increasingly depend on faster information exchange across procurement, suppliers, freight partners and customers”. Indeed, “delayed information can sometimes create as much disruption as delayed cargo”.

One major support industry that will benefit from the continued growth of shipping is insurance. The market for insurance “is becoming more dynamic”, says Albishchenko, and insurance companies are moving away from basing their pricing on “historical routes, standard risk assumptions and established coverage models” to a more bespoke approach that considers such things as changing geopolitical conditions and operational resilience. This approach will mean that there will be “greater interaction between insurance providers” and logistics planners, “rather than treating insurance as a separate administrative function”.

Insurers are becoming much more selective about who they will insure and the prices that they are willing to offer, says Lale Akoner, eToro's global market strategist. The overall market is becoming “more data dependent”, with some insurers even requiring real-time updates about vessels' location, routes, history, cargo data and even exposure to sanctions. This is good news for the advisory firms, the data providers and the specialist brokers.

Compliance is also becoming a bigger issue, especially around sanctions, which is leading to increased demand for “sanction-screening tools, counterparty due diligence, legal advisory and general insurance compliance checks”. All this is good news for specialist insurers that will benefit from higher rates. But brokers and advisers may have the cleaner business model, “as they earn commissions from advising clients about the risk and providing data, without directly bearing any insurance risk themselves”.

We look at some of the best plays on all of these themes below.

The best shipping investments to buy now

One investment trust focused on shipping that's worth considering is Tufton Assets (LSE: SHIP), which invests in a diversified portfolio of second-hand commercial seagoing vessels. These range from dry bulk carriers that carry grains and cements to container ships and gas carriers that carry liquefied petroleum gas, with 21 ships in its portfolio as of April. Tufton has a strong record of increasing its dividend, which has more than doubled since 2020. The stock trades at around a 14% discount to its book value and has a yield of 7.75%.

One of the world's largest shipping companies is Matson (NYSE: MATX). It focuses on the Pacific Ocean, moving goods between Asia and Alaska, Hawaii and California. It also offers freight-forwarding, warehousing and supply-chain services and owns a stake in terminal-services company SSA Terminals. Matson has seen its revenue grow by around 40% between 2020 and 2025, and its stock trades at 12.6 times expected 2027 earnings.

Lale Akoner is keen on Clarkson (LSE: CKN), which operates a range of integrated shipping services, mainly broking and advisory services. Its asset-light business model is “supported by good market fundamentals” and will “experience rising demand” as the industry looks for the necessary expertise to navigate changing markets. The company has a very strong balance sheet and a long record of paying dividends. Clarkson's revenues nearly doubled between 2020 and 2025 and are expected to keep growing. The stock trades at a modest 16 times expected 2027 earnings.

A promising play on shipbuilding

One of the world's largest shipbuilding companies is Korean firm HD Hyundai (Seoul: 267250). HD Hyundai is a large conglomerate involved in everything from oil refining to robotics, but shipbuilding is currently its main segment, accounting for around 40% of sales and a similar share of operating profits. Recently, its shipbuilding arm has been performing strongly, boosted by both higher prices and improvements in productivity. HD Hyundai has seen its total revenue go up by around 275% between 2020 and 2025, but the stock only trades at 8.7 times expected 2027 earnings. The dividend yield is 2.2%.

A purer play on continued demand for new ships is Samsung Heavy Industries (Seoul: 010140), which makes the vast majority of its revenue from shipbuilding. The company is investing heavily in sustainability, with project ranging from producing more efficient designs to switching to alternative fuels, such as ammonia and even nuclear power. Other technologies in the pipeline include floating nuclear-power plants and autonomous ships. The company's revenue has grown by more than half between 2020 and 2025, and is forecast to grow strongly in the next few years. The stock is more expensive than HD Hyundai, but still trades at a modest 16.4 times expected 2027 earnings.

Morningstar's Ben Slupecki likes the Danish firm DSV (Copenhagen: DSV), which focuses on logistics and freight-forwarding services. It deals with road and rail transport as well, but much of its business involves transporting goods to and from ships. Slupecki considers DSV to be a strong business, and its integration of DB Schenker, which it bought in 2025 from German rail operator Deutsche Bahn, is also “going well” and has made it the largest freight-forwarder in the world. The stocks trade at 17.6 times expected 2027 earnings.

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The SVS Baker Steel Electrum Fund invests in mining stocks that produce the metals and materials needed to power the global economy. While technology and consumer stocks receive significant attention from investors, the mining sector is often overlooked yet offers exposure to commodities that are essential for everything from electricity generation to renewable-energy infrastructure.

Metals have become strategic again, with demand growth driven by electrification, rising energy consumption and increasing concerns about energy security. At the same time, years of underinvestment in mining and resource development have resulted in tight supply across many markets. This combination of rising demand and constrained supply is creating compelling opportunities for investors. Here are three stocks that currently stand out.

Three promising mining stocks for your portfolio

A play on geopolitics

Century Aluminium (Nasdaq: CENX) is a play on both geopolitics and industrial demand. It produces aluminium in the US, a metal that is vital for construction, transport and technology. Aluminium is also a beneficiary of structural tailwinds from electrification, being increasingly used in energy infrastructure. The investment case for aluminium producers has strengthened as governments place greater emphasis on domestic manufacturing and secure supply chains. Trade tariffs have highlighted the strategic importance of producing key industrial materials closer to home and reshoring supply chains. The war in the Middle East has also reminded investors how quickly global supply routes can be disrupted. Aluminium prices have risen during the crisis.

Strong demand boosts silver

Pan American Silver (NYSE: PAAS) is a mining stock that offers exposure to silver and gold at a time when interest from investors in precious metals is on the rise. The company operates a portfolio of high-quality mining assets across the Americas and is one of the world's leading silver producers. The importance of world-class silver assets is growing amid strong demand from investors and a tight supply side, with the silver market having faced a supply deficit for several years now.

A part of silver's appeal is that it is both a precious metal and has industrial uses. Investors often buy it as a store of value, much like gold, but it is also used extensively in certain fast-growing technologies, notably solar panels and more broadly across electronics. These dual sources of demand are supportive for silver prices and miners.

A mining stock with exposure to nuclear energy

Cameco (NYSE: CCJ) is one of the largest uranium producers globally, with exposure to the development of reactors, offering investors a way in to the growth of nuclear energy globally. As demand for electricity rises, governments and companies are increasingly seeking reliable sources of low-carbon energy. Nuclear power is becoming a more important element in the energy mix as a reliable source of baseload power, without the intermittency issues associated with wind and solar generation.

We consider that his trend could support demand for uranium or many years to come. Countries are extending the lives of existing reactors, while others are planning new nuclear projects as they seek to improve energy security and reduce carbon emissions.

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Tech shares have sold off over the past week with SpaceX stock seeing steep declines days after the company’s spectacular initial public offering (IPO).

The Nasdaq 100 – a US index mostly containing technology stocks – fell 2.1% in the week to 23 June and the S&P 500 fell 1.9% over the same period.

SpaceX (NASDAQ:SPCX) also saw steep declines, shedding 26.2% to bring its share price to below the level it closed its first day of trading following its IPO less than two weeks before.

SpaceX is not yet included in either index, but given the immediate success of its IPO its slide reflects a pessimistic shift in the market mood towards tech stocks.

“Investors remain super-cautious, nervous that high valuations could be chipped away at again,” said Susannah Streeter, chief investment strategist at wealth manager Wealth Club. “Even a fresh easing of the energy crunch, with oil prices dipping further, isn’t lifting sentiment much.”

What’s driving the latest sell-off, both for the tech sector and for SpaceX in particular?

Why did tech shares sell off?

Several factors are converging to create a cautious air around technology stocks.

One is the fragility of the peace agreement reached between the US and Iran last week.

“Despite threats over the weekend from Iran that it could re-close the Strait of Hormuz following continued fighting between Israel and the Hizbollah militia it supports in Lebanon, talks continue in Switzerland with the US to turn a memorandum of understanding and a ceasefire extension into something more like a permanent solution to the war that began nearly four months ago,” said Tom Stevenson, investment director at Fidelity International.

Markets are also spooked at the prospect of central banks hiking interest rates in response to rising inflation. While the Federal Reserve and the Bank of England both held rates when they met last week, international counterparts in the EU and Japan both raised their respective rates by a quarter of a percentage point.

Underpinning much of the negativity around tech specifically is a rising concern over whether the artificial intelligence boom can pay for itself.

“With doubts about the returns that can be achieved on investments worth hundreds of billions of dollars, together with a rising challenge to equity investors from rising bond yields, more equity issuance and fewer share buybacks, the boom feels fragile,” said Stevenson.

SpaceX shares fall on debt issuance

Debt issuance is a crucial top for tech investors at present, as SpaceX shareholders found out the hard way this week.

On 22 June, the company announced that it was seeking to raise $20 billion in debt, with the figure rising to $25 billion the following day.

Shares in SpaceX fell 16.4% on 22 June before recovering slightly on 23 June.

“Issuing debt at such a heady valuation raises questions about cash flow for this hugely capital-intensive venture,” said Wealth Club’s Streeter. “SpaceX has come down to earth with a bump, burning off most of its post-launch steam.”

Despite these declines, SpaceX shares closed 23 June 15.6% above their IPO price of $135 and 4.1% above the $150 at which they opened trading on 12 June.

Should you buy tech shares?

There is always a potential buying opportunity when sectors or markets sell off.

Whether you want to take advantage of the recent pull back in tech stocks depends largely on your circumstances and goals. It is worth bearing in mind, though, that the sector is still highly valued, and as recent days have shown it is prone to volatility.

If you are looking to buy tech shares, you could consider the following investment trusts and exchange-traded funds (ETFs) which offer exposure to the sector:

• Allianz Technology Trust (LON:ATT). Top holdings Nvidia, Alphabet, Micron Technology and Apple account for 30% of the portfolio as of 31 May, but the trust trades at a 7.3% discount to net asset value (NAV) as of 23 June, according to data from investment trust industry body the Association of Investment Companies.
• Polar Capital Technology (LON:PCT). Similarly, large tech companies account for most of the portfolio (over 96% of holdings have a market cap above $10 billion as of 29 May), but trades at a 9.2% discount to NAV.
• WisdomTree Space Economy ETF (LON:WSPG). From 29 June, SpaceX will enter the ETF’s portfolio with an initial 5.5% weighting. As of 23 June top holdings include space launch provider Rocket Lab and Japanese industrial firm Mitsubishi Heavy Industries.

A new world calls for new stocks. In the VT De Lisle America Fund, we use the paradoxical combination of value plus momentum to find winners for the next decade. For 40 years, declining interest rates and disinflation created a powerful tailwind for steady growth stocks such as McDonald's, Nike and Procter & Gamble. Their predictability was rewarded with rising price-to-earnings (p/e) multiples, thus they strongly outperformed the market. That all changed in 2021 with the return of higher interest rates and inflation, combined with the launch in 2022 of ChatGPT, which funnelled capital into AI infrastructure.

Higher rates and inflation tend to push down p/e multiples and put pressure on profits due to rising costs of materials and labour. At the same time, the urgency to spend on building out AI pushed capital into different, previously unloved, parts of the economy: construction, manufacturing and blue-collar jobs. Investors like to find a comparison with past cycles. We think the 1970s provides the best precedent, but with the addition of AI. So how will that play out today?

Companies that own scarce real-world assets and have growing order backlogs gain pricing power in this new capital-expenditure-driven cycle, positioning them to thrive in the new industrial economy. Within these big macro themes, minor ones are also emerging. One we like is the break-up of old industrial conglomerates via “spin-offs” – the packaging of overlooked industrial assets into attractive new listed companies.

Three stocks for your portfolio

In 2025, Honeywell spun off its speciality chemicals division, Solstice Advanced Materials (Nasdaq: SOLS). Solstice holds an oligopolistic position in refrigerants (its cash cow, increasingly necessary for data-centre cooling) while expanding capacity in its specialist chemicals business, supplying America's semiconductor supply chain. But the hidden crown jewel is its stake in the only US uranium conversion facility – one of only seven in the world – and a scarce asset during a nuclear renaissance. Although expensive-looking at a high 20s p/e, its earnings power is underappreciated as its chip exposure grows and higher-priced uranium contracts begin to roll in.

Forum Energy Technologies (NYSE: FET) makes high-tech parts for oil wells and subsea exploration. It is a picks-and-shovels play on rising global energy needs due to AI and on the increasing complexity of extraction. Forum operates in a high-value niche and is a leading player in all its product lines. The company prides itself on its patented technical know-how, which makes it hard to compete against. Low reinvestment requirements also provide high levels of cash generation. Even after a near tripling over a year, we think Forum's stock is a buy given its cheapness relative to cash flow.

Demographic trends offer another type of steady growth. Pennant Group (Nasdaq: PNTG) owns, leases and operates care facilities for the elderly and sees the ageing population in the US as a steady tailwind to increase sales for years. Its ability to renovate old buildings to add value in a market where supply is constrained by the cost of new-builds is impressive. Growing demand and scarcer assets, plus entrepreneurial local management teams, are giving it the chance to execute its vision. Pennant trades on a low 20s p/e and has a high double-digit growth rate, giving it an enviable p/e to growth ratio of not much above one.

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This year marks the tenth anniversary of an event that has proved to be of huge consequence for the UK stock market. No, not the Brexit referendum – 2016 was the year in which Japanese company SoftBank, led by founder and chief executive Masayoshi Son, acquired the UK's leading technology company, Arm, for £24 billion. Unlike American investors, professional UK fund managers became permanently disillusioned with the technology sector as a result of the collapse of the technology, media and telecoms bubble in 2000-2002, and so were delighted to be shot of its flagship domestic representative at a 40% premium to the prevailing share price.

With the yield on ten-year gilts at historic lows below 1.5%, pension funds were desperate to ditch equities and buy even more gilts, even leveraging up in their chase of the “liability-driven investment” delusion, which was to cost them hundreds of billions six years later. New solvency rules introduced after the 2008 financial crisis required insurance companies to invest in “safer, more liquid” securities, that is, short-dated gilts. Wealth managers could crow to their clients about short-term performance.

Only one major investor vehemently disagreed; James Anderson, the then manager of Scottish Mortgage Trust, bitterly criticised the sell-out on behalf of Baillie Gifford, with a holding of more than 10%. “We found it deeply depressing that Arm's management, and particularly its chairman, were so influenced by short-term shareholders.” Anderson said it was a premature sale of the UK's leading technology and intellectual property champions, “Britain's sole serious shot at building a global tech giant”.

In September 2023, Arm again went public when SoftBank floated the company on the New York Stock Exchange at a valuation of £40 billion, while retaining 90% of the shares. Unsurprisingly, pleas to list the shares in London were shunned, though Arm remains a Cambridge-based company. Since then, the shares have multiplied more than sixfold, although they are now down 17% from their early June peak.

Had Arm listed in the UK, it would be by far the biggest company on the London Stock Exchange. London is now only the world's eighth-largest stock market, accounting for just 3.1% of the MSCI All Countries World index. It has been steadily slipping down the rankings owing to its low exposure to the technology sector, which accounts for just 1% of the FTSE 100. This compares with 8%-9% in Europe, 27% in the US (not including Alphabet and Amazon) and 37% in Asia.

Britain's technology firms are condemned to stagnation

Also easily forgotten is the 2014 sale of Britain's DeepMind, a pioneer in AI, to Google for just £400 million. In 2006, US-based Illumina bought Solexa, the UK-based inventor of gene sequencing, for £315 million. It became the key building block in Illumina's climb to a market value of more than £50 billion (although the shares have fallen by two-thirds in the last five years). These and other examples show that Britain has a good record of creating and building technology champions, but that unambitious management, combined with uninterested and short-sighted institutional investors, means that they sell out rather than scale up in the way that American giants have shown is possible.

Without the “ecosystem” that results from successful technology firms, Britain's pool of talent will go elsewhere, there will be no pool of capital looking for the next potential breakthrough, a diminishing appetite for risk and no list of success stories to inspire future entrepreneurs. The London Stock Exchange has become a value trap – a shrinking pool of reasonably managed solid businesses with mediocre prospects. Such a market can have an occasional catch-up year of outperformance, but without a cadre of proper growth firms, is condemned to an ever-shrinking share of global capitalisation. Arm's sale to SoftBank, now Japan's largest company, didn't start this process, but it marked the point at which it became irreversible.

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Alphabet, Google's parent company, is listed in the US with a total value greater than that of the entire UK stock market. Billions of people use its search engine every day – indeed, the Google name has become so ubiquitous that it is now used as a verb around the globe. Yet there is more to Alphabet than Google.

Beyond search and advertising revenues lies an empire that includes everything from deep-sea cables to self-driving cars and energy storage. The business uses the billions harvested from search advertisements to fund massive bets on the future and is fast becoming one of the most influential companies in history.

The Alphabet name reflects a corporate mission to fund independent bets that produce “alpha” – the term in finance for an investment that outperforms the broader market. Alphabet wants to be the structure underpinning countless future innovations. The name signalled to the market that the firm was no longer just a search engine, but an incubator of new technology.

Alphabet's rise from Google search to global dominance

Search remains Alphabet's largest source of profits. Its enormous scale explains why the company can afford to fund so many broader ambitions. When the business launched from a garage in 1998, it was just one of many experimental search engines competing on the early World Wide Web. Its rapid rise to dominance was driven by a proprietary algorithm called PageRank. Unlike rival systems that mainly counted how often a keyword appeared on a page, Google ranked pages based on the quality and importance of links pointing towards them. A link from a respected university or major news site carried far more weight than one from an obscure blog. This breakthrough produced far more useful search results, triggering a wave of adoption that quickly led to dominance. Put simply, Google search worked much better than everything else.

Today, Google remains the search engine used by most. It controls more than 90% of the worldwide search market and processes billions of queries every day. Its closest rival, Microsoft's Bing, holds only a tiny share by comparison. Google's reach also extends far beyond its own homepage. The company provides the underlying search infrastructure for countless browsers and software applications around the world. Competitors struggle to replicate what Google has built because search engines improve through users' behaviour. The more people who use the platform, the more data it collects and the better the system becomes. By capturing most of the world's search data, Google continuously improves, creating a self-reinforcing cycle that keeps competitors behind.

This constant stream of searches is transformed into revenue through a system of paid results. When a user searches for a term with commercial value, the engine places sponsored links at the very top of the page, positioned directly above the information. Google avoids charging businesses a flat fee simply to display these links. Instead, it operates on a pay-per-click model, collecting a fee when a user selects a sponsored result. Because millions of consumers use the search box to find products, services and local businesses every second, these small fees accumulate into billions of dollars of highly predictable revenue.

This is so profitable because the underlying mechanics require little human involvement. Traditional advertising agencies only grow by hiring armies of account managers and media buyers to manage campaigns. Google removed much of this by building an automated, self-service advertising platform to run its pay-per-click business. Advertisers simply log into a dashboard, set their budgets and bid against one another for visibility tied to specific queries from users. Valuable searches, such as those related to legal or financial services, command extremely high advertising prices. This allows Google to generate enormous profits from everyday internet traffic without relying on large numbers of highly paid employees.

At the end of last year, Alphabet employed roughly 191,000 people worldwide. However, those workers are spread unevenly across the business. Most do not work directly on the core search or advertising operations. Instead, they are concentrated in labour-intensive divisions such as Google Cloud and areas such as compliance and other administration. The core systems and software that power Google's search engine require only a small group of engineers to maintain and monitor it. By the end of 2025, Alphabet was generating annual revenue equivalent to more than $2.1 million per employee, although the figure within search alone is probably far higher, perhaps as much as $10 million per employee. This ultra-low headcount relative to sales creates a self-operating engine that supports the rest of the organisation, funds Alphabet's broader ambitions and produces vast profits – thought to be $1 billion every two to three days.

Branching out into Google Cloud and beyond

The fastest-growing large-scale part of the business outside of search is Google Cloud. This division sells computing power and data storage to large corporations and public-sector organisations, providing a platform for businesses to build, host and run their own software applications. Unlike the search engine, the cloud business is inherently labour-intensive, requiring a global sales force. By the end of 2025, the unit had exceeded $70 billion in revenue, driven by demand for machine-learning applications. This segment spent years burning cash to build physical data centres, but has now matured into a highly profitable operation, generating billions in quarterly operating income. The third large division within Alphabet is subscriptions and devices. This includes premium, advertising-free access to YouTube, digital storage upgrades through Google One, which pools together personal consumer storage for Google Drive, Gmail and Google Photos. This is distinct from the corporate cloud, focusing instead on individual consumers' hardware, such as Pixel smartphones. Total consumers' subscriptions have climbed past 325 million globally. This division generates more than $50 billion annually.

What ultimately cements Alphabet's dominance is how seamlessly it intertwines these separate businesses. Google Video's early failure was solved by acquiring YouTube, for example, which was then deeply integrated into core search results. Google Maps was built to serve local search needs, but is now embedded directly into the Android operating system and Android Auto vehicles' dashboards. This interconnected web provides built-in, zero-cost marketing across the entire portfolio, making the user's experience smoother while locking consumers firmly inside Alphabet's systems.

The relentless flow of cash allows the parent company to invest on a scale few companies in history can match. Rather than returning profits to shareholders through dividends or share buybacks, Alphabet operates like a vast venture-capital fund. Its investment strategy is divided into three tiers. For near-term product improvements, it uses Google Labs, a fast-moving environment where software teams test early features, such as improved AI systems, directly with the public. For medium-term time horizons, the company focuses on strategic acquisitions, buying external platforms and scaling them over time. Finally, the long-term horizon is handled by X Development (formerly Google X), the “Moonshot Factory” created to back speculative technologies ranging from self-driving cars to grid-scale energy storage. In these ways, Alphabet channels its search, cloud and subscription revenues into tomorrow's cutting-edge technology.

Alphabet's formula for acquisitions

Alphabet has acquired more than 250 technology companies over the years. Each deal has followed a similar formula: acquire a promising but financially constrained technology and scale it using the company's engineering expertise and vast profits. Google Maps originated from Keyhole, a struggling start-up founded in 2001. Keyhole developed a 3D digital globe called EarthViewer 3D and even received early backing from America's Central Intelligence Agency. The technology was impressive, but the business model weak. Keyhole sold its software on physical CDs to real-estate firms and defence agencies. Google recognised that around a quarter of all web searches were location-related and acquired Keyhole in 2004 for roughly $35 million. It removed the expensive pricing, introduced a cleaner, more accessible interface, and relaunched the platform as Google Maps. In the process, it transformed a niche military-style tool into a free utility that has become almost as recognisable as the search engine itself.

The acquisition of YouTube in 2006 stemmed from Google's own failure in online video. Its in-house platform, Google Video, was losing ground to its rapidly growing rival. YouTube succeeded by offering a simple interface that allowed anyone to upload and stream videos easily. However, by the summer of 2006, the company was struggling under the weight of its own popularity. Hosting costs were soaring, while copyright lawsuits from traditional media companies threatened its survival. Realising Google Video had lost the battle, management stepped in with a $1.65 billion acquisition. The takeover rescued YouTube from likely insolvency and allowed Google to secure the leading destination for online video before legacy media companies could shut it down. By the end of 2025, YouTube was generating more than $40 billion in annual revenue.

The 2005 purchase of Android is probably the most successful acquisition. As a start-up, it had been developing an operating system for mobile handsets, but ran short of cash to fund engineering salaries. At the time of its purchase, it was a small company employing eight people and was bought for just $50 million. This was such a small sum at the time that it wasn't even disclosed to the stock market. The goal of the acquisition was to prevent competitors from blocking its search engine on mobile devices. By making Android free, Google rapidly came to dominate mobile software, eventually capturing more than 70% of the global smartphone market. This comparatively small investment helped ensure that the search business continued to grow even as smartphone usage overtook computer usage.

The 2014 acquisition of DeepMind secured Alphabet's lead in AI. The laboratory, which was founded in London by Demis Hassabis, Shane Legg, and Mustafa Suleyman, had assembled one of the world's strongest machine-learning research teams. DeepMind focused on neuroscience-inspired AI and deep reinforcement learning. Yet cutting-edge AI research is very expensive, requiring vast computing resources and highly paid engineers while producing little immediate revenue. Much of Hassabis's time was spent raising venture capital. Recognising that DeepMind needed the support of a company with deep pockets, the founders agreed to a £400 million sale to Google, with Hassabis taking on the role of CEO of the renamed Google DeepMind. The deal kept the research group based in London and provided the resources needed to pursue foundational scientific breakthroughs. That long-term backing ultimately paid off. Among other things, Hassabis's work on protein folding using DeepMind recently won the Nobel Prize in chemistry.

How Alphabet is shooting for the moon

Where Alphabet stands apart is its willingness to invest in technologies that may take decades to mature. The X Development division filters all ideas through a demanding three-part screening process to protect capital. Projects must address a global problem affecting millions, propose a radical breakthrough solution and rely completely on technology that does not yet exist. Incremental improvements are rejected outright. To encourage bold experimentation, X is also designed to reward failure. Teams are expected rigorously to test their ideas and can even receive bonuses for proving a project is technically or economically unworkable before significant resources are wasted.

This strategy has produced a trail of discarded technologies, including mysterious, giant floating barges intended to be high-end, floating marketing showrooms; a technology for storing renewable energy by pumping electricity into massive tanks of molten salt and chilled liquid; high-altitude, helium-filled balloons designed to float in the stratosphere, creating a shifting network to beam wireless internet down to remote rural communities. But the crown jewel of the moonshots to date is Waymo, the autonomous-vehicle division that began life in 2009. Waymo shows how a massive cash cushion allows a company to outlast an industry cycle. While some car makers promised self-driving fleets by 2018 only to scale back their ambitions when machine learning proved too difficult, Alphabet simply maintained its multi-billion-dollar funding trajectory. By refusing to rush out unproven systems to market, the division solved the major challenges.

Waymo has now achieved scale, with roughly 3,700 vehicles operating, servicing half a million paid rides per week. Its fleets of autonomous vehicles operate robotaxi networks across major American cities, including Phoenix, San Francisco and Los Angeles, completing passengers' trips without human drivers. In September of this year, it is due to launch in London. What began as a highly speculative experiment has matured into a genuine advancement in transportation.

Deep underwater, Alphabet is also building global subsea cable infrastructure. This is an ongoing project that has so far created a total of 60,000 miles of armoured cabling crisscrossing the oceans. To support the growth of its cloud services and advertising, Alphabet shifted from renting space on third-party telecommunications networks to owning its own. These subsea lines are the plumbing of the internet, moving vast amounts of data across the world at the speed of light. In owning this infrastructure itself, Alphabet ensures its consumer services operate with lower latency than that of competitors.

Is Alphabet worth owning?

Turning digital advertising revenue into real-world infrastructure requires enormous investment. For investors, the key question is whether these assets will create lasting value or simply become an expensive distraction. The shares of Alphabet rarely look cheap on any conventional valuation metric, but waiting for a deep-value entry point has been a fool's errand. Ever since the company listed on the stock market in 2004, there has never really been a bad time to buy its shares.

Not that the shares have risen consistently. Alphabet's shares have fallen quite significantly a few times over the years, dropping roughly 50% during the 2008 financial crisis and weathering several 20%-30% declines since. Every single decline has proved to be an exceptional buying opportunity, as the underlying earnings have moved relentlessly higher. This compounding has generated astonishing wealth, transforming its founders into centi-billionaires and ranking them among the wealthiest individuals on Earth. The model does not just reward senior executives. In 1999, when Google employed just 40 people, massage therapist Bonnie Brown joined the company part-time. Her pay was only $450 a week, but she also received stock options. Five years later, she retired a multi-millionaire and went on to create her own charitable foundation. Had she kept her shares, she would now be a billionaire.

Despite a massive market valuation of about $4.5 trillion, Alphabet is still growing remarkably quickly. A simple heuristic for evaluating growing companies is to ask whether the business can generate enough operating profit within five years to make its current enterprise value look cheap. Specifically, can its future operating profits reach a tenth of that valuation? For Alphabet, that means aiming for roughly $450 billion in annual operating profit. Last year it made about $190 billion and is forecast to grow at 20%-25% per annum for the next five years. At that level of growth, the company's current trajectory makes $450 billion perfectly feasible.

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Did you miss out on the SpaceX initial public offering (IPO)? Perhaps you missed the cutoff altogether or failed to get your desired allocation of shares, given its fourfold oversubscription? In either case, you can still look forward to subsequent opportunities to get involved in the investment story du jour.

While most IPOs trigger a period of volatility the expectation with this one is that it will be sharper and more protracted. Given the huge level of attention, limited allocation available to UK retail investors and the staggered timeline for expected trading (selling as lockups expire and buying as the underlying indices of various tracker funds bring the stock onto their benchmarks), investors can expect swings in SpaceX’s share price to continue through the second half of the year, at least.

Lynn Hutchinson, head of ETF and index solutions at Charles Stanley, said: “It’s [not only] one of the most talked about stocks of the last few months but retail investors quite like a new stock becoming available. Plus it’s got the ‘Elon Musk factor’ – who has a huge retail fanbase as well, albeit not across the board. Many investors have wanted access to this company for years.”

Multiple buying opportunities as shares are released

Funds tracking the Nasdaq-100 will be among the first index funds to include SpaceX, in line with newly amended rules.

These include fast-tracked entry, allowing inclusion to Nasdaq’s flagship index fund 15 days after an IPO instead of the previous window of three months, and removal of its minimum float requirements. A three times multiplier will be introduced; rather than the currently tradable market cap – or free-float – of $75 billion, the stock will be weighted based on a market cap of $225 billion, which could force passive investors to chase the stock, further fuelling volatility across the index as a whole.

Index providers MSCI and FTSE Russell will include SpaceX after 10 and five trading days, respectively.

S&P 500 index funds will include SpaceX later after S&P Dow Jones Indices confirmed it won’t fast-track the company’s inclusion in the index.

“There will be an initial dash for the shares because of the limited availability but after that, the next release will likely be after Q2 earnings, so more shares will likely come on between July and September, if indeed the holders (employees and early investors) decide to sell them,” said Hutchinson.

Early investors, staff and other insiders are subject to staged lockups to manage supply and demand, she added.

“It looks like it will be staged, with some released earlier, and the full lockup expiration after 180 days. We expect it will be staggered and therefore volatile for several months yet.”

She said clients had been in touch asking whether they should sell the Nasdaq in favour of something else. But she warned investors not to get carried away, reminding that the allocations within many of these funds would be tiny, given the 5% expected free-float stock being made available.

“Perhaps as it gets further along and if the stock’s still really volatile, it might make more of a difference. But at the moment we’re looking at, in some cases, 0.2% to 1% depending on which index it’s going into because there’s not enough free-float available.”

Hutchinson urged investors to think about the underlying inclusion criteria, whether they’re looking at a broader index fund or a specialist thematic exchange-traded fund (ETF).

“The VanEck Space Innovators ETF (LON: JEDG) is the largest space ETF by assets under management, which you’d expect [SpaceX] to go in, but it’s unlikely to go into that until September because it’s got a 10% requirement of free-float, and there won’t be 10%. It will go in at some stage, and I guess they’ll look at it around September again.”

Speaking to MoneyWeek, Moritz Henkel, product manager at VanEck EU, concurred; the company said it will wait until the September review before deciding if SpaceX will be added to the ETF, subject to it meeting the criteria at that time.

“There will be no pre-IPO or super fast-track inclusion, nor rule change,” he said.

From a governance perspective, his team believes any new company should be assessed against the full set of index rules, not on an ad hoc basis, especially because increased volatility makes it more difficult to find a fair price in the beginning.

“For us, it’s more important to stick to defined rules and have a consistent rules-based exposure than to chase this early onboarding of SpaceX.”

Elon Musk and his team have blazed the trail, bringing a government industry into the private sphere as a commercially viable ecosystem. Henkel said the reusable Falcon boosters were a turning point, dramatically lowering launch costs and enabling new space companies, seen in the proliferation of IPOs and special purpose acquisition companies (also known as SPACs) coming to market.

Yet much still depends on launch execution, R&D and mission reliability. As SpaceX transitions to public markets it will essentially rerate the whole sector, bringing greater transparency, investor scrutiny and pressure to meet deadlines, amplifying its successes and failures.

“We’ve seen much hype and the current growth estimates are obviously very ambitious. But we’re talking about decades, not months for their business strategies.”

He said the focus on risk is a real point of difference, which was highlighted in the IPO prospectus.

“A couple of failed missions may only have a small impact to the balance sheet – even though they are very costly – but they’re potentially having a much larger effect on the actual stock price. Failed missions lead to decreased investor confidence in the technical abilities, which can cause you to lose trust.

“When we’re looking at SpaceX in the coming months and years, and capabilities of meeting deadlines, and commitments they’ve communicated to the open market, these are now more pressured because they are in the public market.”

Where will the money come from for this massive IPO?

Several reports cite JPMorgan’s estimates that roughly $95 billion worth of holdings – likely in the big tech names – will be sold off to accommodate new positions in SpaceX.

In her blog last week, Boring Money’s Holly Mackay makes a similar point: “If large investors want to buy in, they will need to free up cash by selling other holdings. They might take some profits from high-performing shares like Nvidia, so I’d expect some knock-on volatility in other shares which have had strong gains so far this year.”

What other IPOs have shown parallels to SpaceX?

While the hype may be comparable to Google’s IPO back in 2014, the reality for those trying to participate in a hugely popular public listing may more closely mirror that seen when Royal Mail floated in October 2013, with a seven times oversubscription.

Jeremy Fawcett, head of Platforum – a retail investment consultancy – said Royal Mail was the last big one in the UK, comparable to the government sell-offs during the move to privatisation in the 1980s.

If the amount you actually buy is significantly lower than what you’d hoped for, by the time you come to sell, taking into account trading fees and foreign exchange, you have to really think about how much you end up with.

“There’s a huge amount of uncertainty… if you remember the 2012 Olympics, we all applied for hundreds of tickets. And most people got nothing. So you get excited because you think, ‘I put my money on the line’, and then you get very little out of it.”

Small-cap stocks have been abandoned by investors. That is bad news not only for the companies themselves, but for the wider UK economy. In the past, the smallest businesses listed on the London stock market have played an important role in Britain's economy. Ambitious young companies could raise money, expand their operations and, if successful, grow into much larger businesses. Investors who backed them early often enjoyed excellent returns along the way.

Today, that system is breaking down. A series of regulatory changes and industry shifts has steadily diverted money away from smaller companies and towards the largest firms in the market. The result is a funding drought for many promising businesses and fewer opportunities for savers seeking long-term growth. Because these changes are now deeply embedded, a reversal looks unlikely anytime soon.

That does not mean investors should ignore small caps. In fact, the current environment may offer some of the best opportunities seen for years. But investors need to adapt. Simply buying cheap shares and waiting for the market to recognise their value is no longer enough. Many small-cap stocks remain overlooked for years. The most attractive opportunities are often companies that can grow rapidly, recover from temporary setbacks, or unlock value through corporate activity. In other words, investors should be looking for tomorrow's mid-caps rather than today's statistically cheap shares.

Finding bargains in small-cap stocks isn't enough

The UK stock market is shrinking as listed companies disappear through takeovers, private-equity bids and delistings. At the same time, fewer investors are directing money towards small caps. As a result, prices at the lower end of the market often fail to reflect the underlying performance of a business. In theory, that should make stockpicking easier. If markets become less efficient, bargains should become more common. The problem is that cheap shares can now remain cheap for a long time. Buying undervalued stocks only works if someone eventually notices that they are undervalued.

To understand why this is happening, it helps to look at how the wealth-management industry has changed. Not long ago, stockbrokers and fund managers devoted considerable resources to researching smaller companies and allocating clients' capital across the market. That process helped ensure that money flowed to promising businesses and that share prices broadly reflected reality. Things have changed. Building bespoke portfolios has become increasingly expensive and administratively burdensome. Faced with rising compliance requirements and growing scrutiny over fees, many advisers have stopped making investment decisions themselves. Clumsy rules from the regulator triggered this shift. To eliminate compliance risks and operational costs, advisers stopped managing money altogether. Instead, they outsourced the process entirely to mass-market model-portfolio services (MPS).

That trend has concentrated massive wealth into a handful of firms. Four dominant discretionary managers now control the bulk of the UK MPS market. Quilter WealthSelect, Tatton Investment Management, Timeline Portfolios and AJ Bell Investments manage more than £70 billion combined and are growing rapidly. Today, the MPS marketplace relies almost entirely on passive tracking funds. Driven by regulatory pressure to keep fees low, providers invest in cheap index funds that replicate the wider market. Human judgment has been replaced by algorithms. Instead of analysing whether a business is worth buying, a passive fund allocates cash based purely on how large a company it already is.

The big four allocate a combined £9 billion to the UK stock market. Yet tracing the money down to the underlying holdings reveals that almost none of it reaches smaller companies. When investment committees use passive UK equity trackers, index rules determine where the money goes. These index rules explain why the largest wealth managers hold next to nothing in smaller companies. In the past, a balanced portfolio routinely allocated several percent to small caps. Today, that support has vanished. Quilter WealthSelect and Tatton Investment

Management control around £50 billion between them, yet their reliance on broad market benchmarks dilutes actual small-cap exposure to around 0.3% of total assets. AJ Bell relies on trackers that systematically lop off the bottom 3% of the investable market, so its allocation to pure small caps sits at virtually nothing.

This starvation of capital has triggered a destructive feedback loop, worsened by past regulatory mistakes. New rules permanently damaged the stock market by forcing brokers to charge separately for research and trading. When active funds dominated the market, brokers employed armies of researchers to write detailed reports, helping fund managers choose where to invest. In the past, brokers spent time analysing small companies to drum up interest among investors and find buyers for their shares, funding the work through trading in large companies. This research gave smaller firms visibility and kept their share prices accurate. Once the regulator banned this so-called bundling, the commercial model for small-cap broking collapsed because passive tracking funds do not buy research.

Analysts' coverage for companies valued under £250 million has all but vanished. Today, hundreds of listed British businesses are completely ignored by the market. With no regular broker reports, private investors have to work much harder, using specialised resources to find out how well these businesses are performing. Institutional investors will not buy shares in a company that nobody covers and brokers will not spend money writing about companies that the big wealth platforms are blocked from buying. Investing is becoming a purely automated exercise driven by index size, leaving high-quality small companies completely cut off.

How to find the right small-cap stocks

Yet all is not lost. For savvy investors who understand this breakdown, the dysfunction creates a lucrative hunting ground. To succeed, investors must leave behind old-style value investing. Buying a stock simply because it looks cheap on paper is a mistake, as passive investing means that value stocks may remain cheap forever. Instead, investors must look through these three specific lenses to find the stocks that can entice money from investors.

The first lens focuses attention on structural growth – that is, high-quality businesses expanding their operations and becoming more valuable in the process, generating high levels of real growth by deploying a proven commercial formula. This could make them the mid-caps of the future. When a company grows its earnings consistently, the compounding effect eventually overwhelms the lack of market interest. Even if the valuation multiple stays depressed, the sheer scale of the underlying profit expansion forces the share price higher, dragging the business out of the small-cap index to where there are far more investors.

The second lens reveals recovery plays that have hit cyclical lows. The turbulent economy of the last few years has battered corporate earnings, causing share prices to collapse and pushing formerly substantial businesses down into the small-cap sector. But this is often a temporary condition driven by external cyclical factors rather than permanent structural decline. The goal is to identify businesses that have survived the worst of the downturn and have the strength to capitalise on the inevitable rebound. When the cycle turns, these companies will enjoy a dramatic recovery, delivering an explosive bounce in earnings.

The third lens focuses on corporate activity – revealing under-the-radar businesses where an activist investor has built a stake to force operational change, unlock shareholder value or streamline the group. The activity can take many forms – from cost-cutting programmes to selling off non-core assets, or shrinking the share count using excess cash – and create prime targets for full takeovers by external corporate buyers. Private-equity firms and larger international corporations routinely scan the UK small-cap market for high-quality assets trading at steep discounts to their private market value. When a corporate buyer launches a full cash takeover bid, the market reaction can deliver value for shareholders. The following companies are examples that meet some of these three criteria.

Nine of the best UK small-cap stocks

Fintel (LSE: FNTL) is a structurally growing business that is priced as if it is not. It provides critical compliance data and fintech software to thousands of British financial advisers through its dominant SimplyBiz and Defaqto brands. The result is a highly predictable stream of recurring subscription income, with demand likely to increase as regulation across the retail wealth sector becomes more stringent. Yet the market prices the combined entity at a steep discount to the price that other similar businesses have been acquired for. This allows investors to buy a highly scalable fintech at a bargain valuation, long before the compounding earnings force a market rerating.

Software Circle (LSE: SFT) aims to generate structural growth via a disciplined consolidation strategy. It is actively buying up niche software businesses within highly fragmented sectors across the UK. Operations are at an early stage, but management is progressing sensibly, securing acquisitions at very attractive multiples while maintaining a lean head office and a decentralised operational structure. This playbook closely mirrors the model of other firms that have generated immense long-term wealth. Though tiny today, this firm has all the traits necessary to deliver exceptional multi-year shareholder returns.

Amcomri Group (LSE: AMCO) operates a strict buy, improve, build strategy across the fragmented UK engineering and manufacturing sectors. The business targets high-quality industrial firms facing the owner's retirement, acquiring them at low single-digit multiples before driving organic margin improvements. This roll-up model generates highly predictable structural growth completely independent of the wider macroeconomic backdrop. Recent final results confirm this operational formula is working, with pre-tax profits significantly ahead of market expectations.

Vanquis Banking Group (LSE: VANQ) is a cyclical recovery play. Formerly a FTSE 100 stock called Provident Financial, the lender shrank into a micro-cap minnow after major operational disasters. Management has finished cleaning up the wreckage, yet the market still prices the shares as if collapse is certain. Vanquis provides credit cards and vehicle finance to millions of sub-prime borrowers that mainstream banks ignore. Management targets mid-teens returns on tangible equity by 2027. If they deliver, the shares will be unbelievably cheap and a sharp market rerating should drive the share price up to reward investors who timed the recovery correctly. The bank operates as a far better business than its depressed price reflects.

Focusrite (LSE: TUNE) is a clear case of a former stockmarket darling caught at a cyclical low. The audio-products group enjoyed an unprecedented sales boom during the pandemic. However, as global demand normalised, the business wrestled with severe inventory overstocking and costly distribution headaches that clouded performance for several years. Recent trading updates indicate that these operational problems are finally clearing. Trading on a low multiple of its current depressed earnings, Focusrite offers massive upside. As underlying profits recover toward historic levels, this corporate recovery could trigger a rise to a much higher share price.

Marshalls (LSE: MSLH) serves as another example of a business hitting a cyclical low, operating as a highly respected supplier to the struggling UK building industry. High interest rates, inflation and uncertainty about policy have brought domestic construction to its knees, dragging the business down with it. This company once commanded a premium valuation as a well-known mid-cap, but it has now fallen into obscurity. The shares historically traded at a multiple to book value, yet they currently languish at a clear discount. When building activity inevitably recovers, Marshalls will benefit immensely, potentially driving a sharp recovery in its share price.

Capita (LSE: CPI) is another cyclical recovery play, a fallen angel offering massive potential for recovery. The outsourcing giant once sat in the FTSE 100 before a collapse dragged it down to micro-cap levels. New management has aggressively cleaned up the balance sheet, selling non-core software assets to eliminate debt. The business still generates more than £2.4 billion in annual revenues, yet trades at a deeply depressed valuation. This turnaround relies entirely on internal cost-cutting rather than macroeconomic growth. As administrative cost-cutting leaves more free cash in the bank, the shares could enjoy a substantial and justified market rerating.

Funding Circle (LSE: FCH) is an underappreciated growth story driven by massive operational gearing. The digital platform matches small business borrowers with institutional lenders. This matching model requires very few incremental cost rises to service new volume. This structural efficiency allows expanding revenues to drop straight to the bottom line. Pre-tax profits recently surged from £3.4 billion to £20.3 billion and are on track almost to double again to £35 million this year. The wider market remains blind to this compounding scaleability, mispricing a high-margin financial matchmaker as just another lender.

SDI Group (LSE: SDI) offers a double whammy by combining structural growth with a cyclical margin recovery. The company runs a highly disciplined buy-and-build strategy, acquiring niche scientific-instrument businesses that specialise in optics and photonics for laboratories. This consolidation model delivered excellent long-term returns until a recent downturn in its core scientific end markets depressed the group's earnings. This temporary pain leaves the shares trading at a very cheap valuation. As laboratory budgets normalise and operating margins recover, investors could capture the combination of compounding growth and an explosive rebound.

The best specialist funds in the sector

Picking individual micro-cap stocks requires patience and knowledge, and is certainly not for everyone. For investors who prefer to delegate the task, backing a specialist fund manager with a proven record is sensible. Two specific investment trusts have proved their ability to navigate these markets with skill. The lead manager of Rockwood Strategic (LSE: RKW), Richard Staveley, has more than 25 years of experience and runs a concentrated portfolio of undervalued businesses. He engages directly with boards to unlock value, a strategy that has delivered a stellar record. Staveley targets unloved, mispriced assets and drags them through a turnaround process until the wider market is forced to pay attention.

For those looking even further down the market scale, Onward Opportunities (LSE: ONWD) provides exposure to some of the smallest companies listed in the UK. Lead manager Laurence Hulse launched the trust in March 2023 on the Aim junior market and took it to the main market in April 2026. He deliberately operates in the smallest, most illiquid territory and his execution has been outstanding, delivering a very good performance since the trust's inception.

For those selecting individual stocks today, three of the stocks mentioned above look particularly interesting. Focusrite is a cyclical recovery play that has finally cleared some post-pandemic hurdles and positioned its manufacturing operations for a strong earnings recovery. Vanquis Banking Group remains absurdly mispriced, trading at a steep discount to its underlying net asset value while the market completely ignores its mid-teens profitability targets. And Software Circle provides an underappreciated growth story with a disciplined, decentralised model for integrating niche acquisitions efficiently. Investors who back these stocks will gain direct exposure to tangibly improving businesses.

For investors who prefer to delegate the stockpicking, Rockwood Strategic is the ideal vehicle. It has a long record of active engagement by the board and offers instant diversification across a concentrated basket of deeply undervalued turnaround plays.

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RentGuarantor Holdings (Aim: RGG) has been given a boost by the Renters' Rights Act, one of the most significant pieces of legislation to hit the UK rental market in decades. It's only been in force since the beginning of May, but the Act is already driving a complete rewriting of the market.

Under the new law, fixed-term tenancies have been abolished, “no fault” evictions are no longer allowed, rents can only be raised once a year, and during the first 12 months of the tenancy, the landlord cannot serve notice to move back into the property or sell it. These changes, far from protecting tenants, have forced landlords to become more defensive.

The changes have made it much harder for landlords to evict tenants who can't or won't pay their rent, piling pressure on a system that's already on the verge of collapse. According to professional body Propertymark, due to lengthy court backlogs, the average time from claim to repossession has risen to more than 68 weeks, compared with just over 20 weeks in 2019. At the point of eviction, average unpaid rent stands at £12,708 across England and Wales and £19,223 in London.

Landlords have responded by demanding that tenants provide a guarantor before they agree deals. According to multiple reports, around 40% of landlords now require guarantors for both new and existing tenants. This is where RentGuarantor comes into play.

How RentGuarantor works

The firm is a rare example of how effective London's capital markets can be for early-stage growth businesses. Founded in 2016 by Paul Foy, a property investor since the mid-1980s, RentGuarantor does what it says on the tin – guarantees rents. Tenants pay a fee (£20) for an initial background check and the firm uses tools such as Open Banking and AI to calculate how much the tenant can afford and if they're able to maintain payments. If the tenant passes the check, which should be completed the same day, RentGuarantor can offer the guarantee.

This incurs a further fee, usually around three to five weeks' rent, depending on the underlying risk profile. When the tenant has paid and signed, RentGuarantor provides a legally binding guarantee of rental payments to the landlord or letting agent. Unlike traditional guarantors, such as parents or grandparents, this provides an extra layer of protection for the landlord. RentGuarantor passes the risk to a panel of insurers while collecting the origination fee and remaining the key point of contact for customers.

Five years of RentGuarantor Holdings on the London market

After spending five years building the foundations, Foy and his team took the company public in 2021. It listed on the Aquis exchange in 2021 with hardly any revenue and moved to the Aim junior market in the second half of 2025. The new listing raised £4 million in 2025 to support its growth efforts and it ended the year with revenue of £2.4 million, up 87% year-on-year. The founder has remained a key shareholder with a 30% stake.

RentGuarantor hasn't charged into the market seeking break-neck growth and drawing down shareholders' goodwill to fund spending. There's a very tight grip on marketing spending, which totalled just £200,000 in 2024 and £500,000 in 2025 against revenue of £2.4 million, or around £165 per contract (based on the year-end figure of 3,123 contracts). The focus over the past five years has been on getting the offering right and putting in place the right technology and team to scale up effectively.

The firm has now reached the point where this hard work is beginning to pay off. In May, the month the Renters' Rights Act came into force, RentGuarantor recorded a 115% increase in unaudited revenue compared with the average for the first four months of the year. Moreover, revenue per contract was up 24%. The group also recorded its first positive monthly Ebitda earnings since its admission to trading – well ahead of the board's expectations.

The challenges facing RentGuarantor Holdings

The key risk for the group here will be scaling up without falling flat on its face, as so many firms do when they encounter a sudden surge in demand. The Act is driving demand for guarantees, but it'll also lead to a surge in disputes.

To help, RentGuarantor is looking to AI and has an expert on the matter in its orbit. The AI strategy is being led by Dave Cliff, a non-executive director and professor of computer science at the University of Bristol. He previously worked at MIT's artificial intelligence laboratory, so unlike many other businesses, which seem to be turning to AI with little actual understanding of the benefits, drawbacks and costs, RentGuarantor looks well-placed to exploit the benefits of the technology fully. Management estimates the group can process 20,000 contracts per year, but that will rise to 100,000 with AI's help.

According to house broker Shore Capital, RentGuarantor could agree 7,000 contracts this year, 13,000 in 2027 and 62,000 by 2030. Revenue could hit £6 million in 2026, rising to £19 million by 2028 and £54 million by 2030. Even if it achieves this lofty growth, it would still leave the group at only 3.4% of the potential total market.

Now that the firm is essentially self-funding, there's scope for marketing spending to rise. Shore Capital expects a ten times rise by 2030, easily covered by the firm's 79% gross margin. The broker has pencilled in adjusted earnings per share of 3.6p by 2028. As with all early-stage firms, these forecasts are likely to be wrong, but they illustrate the growth potential if the firm manages to scale up over the next 12 months. This is a high-risk play, but one with a huge and growing market to support it.

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The emerging market (EM) universe is very diverse in terms of what drives individual economies. What does China have in common with India (other than being populous and in Asia) or either of them with Brazil? Yet they are treated as a block, and recent trends are stretching these contradictions further than ever.

A top-down investing strategy often involves assigning things to groups, then buying the most compelling groups or choosing the most attractive within a group. These groups can seem arbitrary – the difference between members can be as big as the similarities. Yet in the investment business, classifications that seem easy to understand can stick around well past the point where they make sense.

Standard rules of thumb for emerging markets would tell you that the last few months have been difficult. Many emerging markets are energy importers, so will suffer from higher oil prices. Markets also tend to be affected by inflows and outflows from foreign investors. If global investors get more nervous, they would be expected to cut emerging-market exposure first and take their money home. Yet the MSCI Emerging Markets index is up by 20% in sterling so far this year. How?

AI stocks are over-represented in emerging markets indices

The explanation hinges on two points. The first is that two of the biggest markets in the index are emerging markets only in one very specific sense. South Korea and Taiwan retain certain restrictions, mostly around their currencies, that MSCI deems incompatible with being in the developed markets group. Yet in many respects, they are both wealthier and more advanced than many developed economies.

The second is that a few huge companies – Taiwan Semiconductor (TSMC), Samsung Electronics, SK Hynix – are huge beneficiaries of the AI boom and are driving their markets even more than the Magnificent Seven drives the US market. Those three stocks account for almost 30% of the MSCI Emerging Markets index. Taiwan and Korea together make up 50% of the index. In turn, TSMC is 55% of the MSCI Taiwan, while Samsung Electronics and SK Hynix account for 60% of the MSCI Korea.

These are eyebrow-raising numbers. They have worked out very well for any broad emerging-market investor. Still, we must remember that if the AI boom ends and the US market slumps, the emerging market index will do the same – it's been a play on the same theme.

If you want diversification, you will only find it in funds whose mandate does not bring in these stocks – BlackRock Frontiers (LSE: BRFI) or Barings Emerging EMEA Opportunities (LSE: BEMO), for example. Of course, these funds have lagged in recent months, held back by the lack of tech exposure or battered by the Middle East crisis. I would not say it is yet time to rotate out of broader emerging market funds. But it is something to keep in mind if the crisis passes and the AI boom falters.

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As Elon Musk’s SpaceX gets ready to list on the Nasdaq, investors are poised for what is expected to be the biggest initial public offering (IPO) ever.

SpaceX has targeted an IPO price of $135 per share to raise around $75 billion, with a target valuation of roughly $1.75 trillion. Shares will start trading on 12 June.

High-profile events like an IPO can serve as a ‘rising tide’ for a sector and others that are closely related; adjacent companies that might have otherwise been overlooked can benefit from a halo effect. This might include satellite technology, launch services and defence infrastructure stocks.

“A SpaceX listing could do exactly that for space,” said Darius McDermott, managing director at Chelsea Financial Services.

It’s important to remember that an IPO isn’t always a ‘one and done’ event. While there’s often (but not always) a ‘pop’ the day after a company floats, the period immediately after a listing can be volatile – and SpaceX is expected to bring more share price movement than usual, and for longer. So while these ideas present opportunities that may benefit by proxy to the main headline act, investors across the broader sector could be in for an equally bumpy ride.

Investors flocked towards space stocks and funds in the run-up to SpaceX’s initial public offering (IPO), according to data released by investing platform AJ Bell.

Analysis of the platform’s most popular stocks and funds in the three months leading up to the IPO show that investors have been eager to invest in the space economy, with funds and investment trusts like Scottish Mortgage (LON:SMT) and exchange-traded funds (ETFs) like VanEck Space Innovators ETF (LON:JEDG) rocketing in popularity.

“Investors keen to join the race to space haven’t sat on their hands waiting for the SpaceX IPO,” said Dan Coatsworth, head of markets at AJ Bell. “Space-related investments feature heavily in the most popular purchases on the AJ Bell DIY investor platform over the past three months, as excitement builds ahead of SpaceX’s stock market debut on Friday 12 June.”

How SpaceX’s IPO could lift the space sector

AJ Bell’s analysis ranked the most popular stocks and funds that tie into the space theme ahead of SpaceX’s IPO, based on net buys on its DIY investor platform.

^{Source: AJ Bell. Based on highest number of net buys 8 March to 8 June 2026 on AJ Bell DIY platform.}

It is noteworthy that many of these investments have had greater demand than otherwise staple investments.

“More people bought shares in Scottish Mortgage, Seraphim or the VanEck Space ETF during the past three months than blue chip stocks Shell, BP, AstraZeneca and National Grid, all of which regularly feature in the most popular names with UK investors,” said Coatsworth.

“That’s remarkable as these names are stalwarts of ISAs and pensions across the country, with investors often buying shares in them every month for their attractive dividends and long history of generating solid earnings.”

Not all the investments gained in value in the months running up to SpaceX’s IPO: aerospace contractor BAE Systems (LON:BA.) fell 12% over the past three months.

Some, however, have soared. SpaceX supplier Filtronic (LON:FTC) and spacecraft builder Redwire (NYSE:RDW) both more than doubled in value in the three months leading up to SpaceX’s IPO.

How can you access other upcoming IPOs?

Anthropic and OpenAI, both private AI developers, have announced plans to IPO since the start of June, and should these be a success then it could usher in a new wave of tech IPOs.

“SpaceX may be the IPO of the moment but there are plenty of other exciting private companies in the pipeline for a potential public offering,” said Chelsea Financial’s McDermott.

“Without specialist knowledge, it can be hard to know which ones to back, but investment trusts offer retail investors a ready-made route to some of the best pre-IPO opportunities”.

For a ‘pure-play’ private company focus, Chelsea favours Baillie Gifford’s Schiehallion (LON:MNTN).

“It holds eight of the 10 largest private companies in the world, with the majority of its portfolio in unlisted names, including Bending Spoons, ByteDance, Databricks, Revolut, Stripe and Anthropic.

“These managers have deep private equity networks and the expertise to value private businesses that most ordinary investors simply cannot replicate, and by getting in before a listing, investors can capture far more of the growth,” he said.

Chelsea’s Managed Funds range also holds Chrysalis (LON: CHRY) and Seraphim Space (LON: SSIC), which offers exposure to the space sector specifically with both ordinary and C-shares available.

Should you buy private or public shares?

Once a company lists, its shares become available on the secondary (or open market) and are far easier to buy.

Many of these companies are remaining private for longer (before moving into public ownership when they IPO), generating huge amounts of revenue while doing so, meaning once they list they’ve already enjoyed rapid growth.

For investors keen on space investing broadly but put off by the perceived risk or administrative burden that can be associated with an IPO, it might be worth looking for similar companies already listed; sometimes the more attractive entry points may not be the headline names but companies further along the supply chain.

McDermott said Schroder US Mid Cap Fund is one such option for indirect, diversified exposure.

“[Its] holdings include Hexcel (NYSE:HXL), which makes composite materials used in spacecraft for clients such as SpaceX, Blue Origin and Lockheed Martin; MACOM Technology Solutions (NASDAQ:MTSI), whose semiconductors are critical to satellite communications; and BWX Technologies (NYSE:BWXT), which provides nuclear propulsion and power components for NASA space programmes,” he said.

Investing in a specialist fund

You might prefer to invest in the theme with a more targeted approach. ETFs are common routes to investing in a specific theme, such as the space economy. Some broad portfolios available to UK investors include the ARK Private Innovation ELTIF (only available via a financial adviser), VanEck Space Innovators UCITS ETF, or a new vehicle from WisdomTree, whose Space Economy UCITS ETF (LON:WSPG) launched on the London Stock Exchange on 5 June.

Pierre Debru, head of research, Europe at WisdomTree, said while the SpaceX IPO could be a “defining milestone” in driving the sector’s broader appeal, the fundamentals behind the investment case look robust and durable.

As the sector matures, he believes launch systems will become more efficient, easier to access and cheaper, expanding the opportunity set across the value chain.

Earth observation and geospatial intelligence are increasingly feeding into the real economy, supporting industries from agriculture to critical infrastructure.

“Emerging applications, including in-orbit manufacturing, servicing and space-based data infrastructure, are also opening new markets and reinforcing the long-term growth potential of the theme,” added Debru.

If actively managed funds are your preference, one dedicated option is Neuberger Berman’s Next Generation Space Economy Fund. When the fund launched four years ago, the group said the space economy was so much “more than rockets and satellites”, influencing sectors as diverse as banking and precision agriculture to air traffic control and ride sharing.

SpaceX is about to hit the public markets for the first time, and when it does so it is likely to instantly transform from the world’s most valuable private company to one of the ten most valuable of any type.

The question that will always raise its head at any initial public offering (IPO) is the price at which it sells.

IPOs are often an opportunity for founders and long-term investors to cash in on the efforts they have put into its growth, and the risks they have taken along the way. Because of this, value-focused investors, including Warren Buffett, the chairman and former CEO of Berkshire Hathaway, have tended to eschew them – the logic being that these company insiders will time their exit to coincide with the moment when they will receive the highest value for their shares.

It’s overly cynical to apply this logic wholesale. The same reasoning could be applied to any purchase or sale of any asset; if you buy a stock or fund on the open market, the person you are buying it from probably knew about it before you did, and probably thinks that now is as good a time as ever to sell.

In SpaceX’s case, existing shareholders (including founder and CEO Elon Musk) will also have to hold their shares for 366 days after the listing before selling. The funds raised will go back into SpaceX, enabling it to accelerate its growth plans.

But given that SpaceX looks set to IPO with a valuation of over $1.75 trillion – likely making it the seventh or eighth most valuable company in the world – much scrutiny has been applied to whether or not the $135 per share price tag it is targeting makes sense for investors.

You shouldn’t invest in any asset without carefully considering the risks involved and deciding whether or not it matches your current position. Below, though, we explore the bull and bear cases behind the valuation of one of the most talked-about companies of the year.

SpaceX’s valuation: the bull case

In its IPO prospectus, SpaceX claimed to have identified “the largest actionable total addressable market (TAM) in human history”.

The TAM – effectively the entire economic opportunity the company believes it could eventually address – totals $28.5 trillion, which is a little below the GDP of the US in 2024 (28.8 trillion). This breaks down into three categories:

• Space, including space-enabled solutions (in other words, SpaceX’s rocket launch services): $0.37 trillion.
• Connectivity, including Starlink Broadband and Starlink Mobile: $1.6 trillion.
• Artificial intelligence (AI), which includes AI infrastructure, consumer subscriptions, digital advertising and enterprise applications: $22.7 trillion.

Last year, SpaceX generated revenue of $18.7 billion. The TAM that it has laid out implies that it has the potential to increase this number more than a thousand times over – though there is no specific timescale over which this could happen. The prospectus outlines various risks that could restrict its ability to reach this market, including the fact that many of the required initiatives “involve significant technical complexity, unproven technologies or technologies that do not exist, and such initiatives may not achieve commercial viability”.

Regardless, bulls argue, there is a huge growth opportunity at play here – perhaps even a better opportunity than that posed by any other company on the planet, given that SpaceX operates at the intersection between space and AI, two of the most groundbreaking, forward-looking themes of our age.

Dan Coatsworth, head of markets at AJ Bell, said: “There is no other company doing what SpaceX does on the same scale, which could be a key appeal to existing and potential investors.

“Space excites people because it is the great unknown and SpaceX has a blueprint to turn dreams into dollars.

“SpaceX boss Elon Musk is a visionary and despite polarised views towards him, the CEO does seem to get things done. The Starlink satellite services arm makes SpaceX interesting because it provides recurring revenue, meaning there is a constant flow of money coming into the business to keep the lights on while it works on big picture ideas like colonising Mars.”

According to people familiar with the matter cited by the Wall Street Journal, Morgan Stanley and Goldman Sachs analysts both project that SpaceX’s revenue will near $160 billion in 2028 – almost ten times its level in 2025.

“Bulls might argue SpaceX’s earnings growth potential is so great that valuing it using 2027 or 2028 forecast earnings could make the equity rating look less rich,” said Coatsworth.

SpaceX’s valuation: the bear case

Hard-nosed investors might view the arguments above with a degree of scepticism.

While SpaceX has outlined an opportunity thousands of times larger than its current revenue, there are a lot of uncertainties involved in reaching it. In the meantime, its shares are going on sale at close to 100 times the revenue it made last year. That limits the potential for upside growth, and increases the potential for the shares to fall in value, should SpaceX’s future growth not go according to plan.

Analysis from investment research firm Morningstar estimated the fair value for SpaceX shares at $63 – less than half the price tag that SpaceX is targeting at its IPO.

“Investors are naturally excited about the SpaceX IPO, but with investment bankers suggesting a $1.75 trillion valuation, we believe it's overvalued,” said Michael Field, chief equity strategist at Morningstar. “We believe the business has real strengths, particularly in Starlink, but with so many unknown and untested technologies underpinning much of the valuation price, particularly within the AI business, we think the valuation is extremely speculative.”

Morningstar was also bearish on the opportunity for Starlink. While SpaceX estimated the service’s TAM at $1.6 trillion, Morningstar estimated that $129 billion is a more reasonable figure given technical constraints and the fact that Starlink will find it harder to compete in dense urban telecom markets.

In one scenario, though, Morningstar suggested that SpaceX might be undervalued at its IPO. Its most optimistic ‘moonshot’ scenario valued SpaceX at $1.97 trillion, or $154 per share – but the company only assigns a 7% probability of this scenario playing out.

AJ Bell’s Coatsworth noted other risks that could apply to SpaceX over time, including share price dilution if its ambitious plans require further rounds of fundraising, as well as unanticipated setbacks such as launch failures or regulatory changes.

OpenAI, the company behind ChatGPT, has joined the race between the three tech giants set to list in 2026, each tipped for a landmark initial public offering (IPO).

One week after Anthropic filed its own paperwork to the US regulator, the Securities and Exchange Commission (SEC), and in the same week as SpaceX is expected to float, OpenAI kicked off its own IPO process.

In a brief post on its website on Monday 8 June, OpenAI said: “We recently submitted a confidential S-1. We expect it to leak so we’re just announcing it. We have not decided on timing yet; it may be a while because there are things we want to do that are likely easier as a private company. But it’s a complicated set of tradeoffs and this gives us the option to go public sooner if that ends up being best.”

Filing a ‘confidential’ S-1 form means the SEC can review a company’s financials before having to make them publicly available, which can mitigate the level of market speculation ahead of an IPO.

How much is OpenAI worth?

At the end of March, OpenAI closed its latest funding round, with $122 billion of committed capital co-led by SoftBank, which – post-money – values the AI company at around $852 billion. Dwarfed by the $1.75 trillion SpaceX is said to be valued at, OpenAI ranks behind Anthropic’s latest valuation of $965 billion.

It said it was generating $2 billion in monthly revenue, a growth rate it claims is four times faster than “the companies who defined the internet and mobile eras, including Alphabet and Meta”.

At the time, the company also extended its availability to bank channels in a bid to attract investment from individual investors, which include via several exchange-traded funds (ETFs) from ARK Invest, which own the stock.

OpenAI’s democratic third phase

Alongside confirmation of its S-1 filing, OpenAI said it was entering its third phase.

Having spearheaded the consumer-facing AI boom when it launched ChatGPT in 2022, as of February it had around 900 million weekly active users and more than 50 million paying subscribers.

OpenAI has set out its three main goals: to build an automated AI researcher; accelerate the economy; and give everyone on earth an artificial general intelligence (AGI).

A blog by CEO Sam Altman and chief scientist Jakub Pachocki dated 8 June said its first phase had been about doing research toward AGI, its second began "when our research became relevant to the real world and we became a product company."

"Now we are entering the third phase. The economy is beginning to reshape around AI. The central question now is how to make advanced AI abundant, affordable, safe, useful and easy enough for every person and organisation to benefit from it."

In the article, they said rather than concentrating AI’s power in too few hands, which history shows creates fragility, the future needs a broad distribution of that power, which makes societies more "resilient, adaptable and free".

"That is why access matters. It is also why safety, privacy, affordability, open ecosystems, and public oversight matter," they said.

Stock markets sold off late last week as strong economic data combined with underwhelming results from one semiconductor giant pushed investors towards the exits.

The S&P 500 fell 2.6% on Friday 5 June, with Broadcom (NASDAQ:AVGO) – the index’s seventh-largest constituent – shedding 7.9%. It marked three consecutive sessions of losses for the company, which is viewed as one of Nvidia’s key competitors in the lucrative artificial intelligence (AI) semiconductor market, during which Broadcom’s shares fell 19.9%.

As can be the way with crowded trades, Broadcom’s woes soon spread to other stocks and funds.

The Nasdaq Composite – which contains all shares on the tech-dominated index – fell 4.3% in the two sessions to 5 June. The iShares Semiconductor ETF, which tracks the NYSE Semiconductor Index, fell 12.3% over the same period.

Which factors have contributed to the stock market selloff?

While the selloff was sparked by Broadcom, more macro factors came into play later in the week.

US labour data was released on Friday 5 June. It showed an unexpectedly strong job market, with 70,000 new jobs added in May (compared to a monthly average of 14,000).

This labour market strength reduces the likelihood of a cut to US interest rates, and in fact increases the chances that the Federal Reserve (Fed) could raise rates amid fears of higher inflation as a result of the war in Iran.

High interest rates are negative for equities, particularly tech stocks, because they tend to restrict the amount of future growth in an economy.

“Friday's US jobs report sparked a firestorm of selling, with big tech bearing the brunt of the wobble in confidence,” said Susannah Streeter, chief investment strategist at wealth manager Wealth Club. “Indices in Asia have been hit by the contagion of pessimism, with semiconductor stocks falling sharply.”

On 8 June, the US tech selloff combined with fears that the fragile ceasefire in Iran might be shattering led to the Korean stock market pausing trading for 20 minutes following a decline of more than 8% – having already had to trigger a circuit breaker in March following the start of the conflict.

Korea’s stock market is dominated by semiconductor stocks SK Hynix and Samsung, both of which fell late last week.

Why did Broadcom’s shares sell off?

On 3 June, Broadcom announced its results for the second quarter (Q2) of the 2026 fiscal year.

Revenue increased 48% year-on-year to $22.19 billion. This was a slight miss on analysts’ expectations; those polled by the London Stock Exchange Group yielded a consensus revenue estimate of $22.27 billion.

This miss was compounded by the fact that Broadcom reiterated its guidance of $100 billion in AI chip sales for 2027.

These might not sound like significant problems, but the market has got used to AI companies exceeding analyst targets and frequently raising their outlooks.

“Although the huge earnings it's raking in are highly impressive, a very high bar has been set,” said Streeter.

Because Broadcom is a supplier to the broader AI industry, the appearance that its growth trajectory might be decelerating led to fears that demand for other AI-related stocks might slow.

Is there an AI bubble, and is it bursting?

Since the explosive growth of AI stocks from 2023, many investors have been wary of the prospect of an AI bubble.

Valuations of big tech stocks, particularly the Magnificent 7 and close competitors like Broadcom, rose rapidly on expectations that the future growth of AI would drive rapid increases in revenue and profits for many years to come.

These heightened expectations leave these stocks susceptible to any slight counter to the narrative of continued, rapid growth. Expectations are very high, and moments like Broadcom’s underwhelming guidance undermine the exuberance that the market has become accustomed to.

“Given how heady tech valuations have become, it's not surprising that investors are reassessing allocations and opting for companies with more reliable income streams and dividends,” said Streeter. “There had already been undercurrents of worry about the surge in tech stock prices and fears that today's insatiable demand for the apparatus needed to support AI products and services would eventually wane.”

Should you join the stock market selloff?

Whether or not you sell stocks following the recent market pessimism is going to be a factor of your current portfolio and risk preferences.

As a general rule, though, it is often best to avoid knee-jerk reactions to short-term market moves.

Making regular investments can help to take the emotion and decision-making out of investing, and can mean you buy stocks at lower prices during short-term downturns.

You could also see the current pessimism around tech stocks as an opportunity to look to other sectors.

“Tech is starting to fall out of fashion, while companies operating in the 'real economy' may be more sought after – those selling consumer staples, providing healthcare, or keeping the lights on through utility services,” said Streeter.

With a focus on British small-cap stocks, the Henderson Smaller Companies investment trust seeks to deliver long-term capital and income growth by investing in UK-listed companies at their most exciting stage of development. Our stock-picking approach is designed to identify this growth before others do, capturing the small-cap premium through disciplined valuation, ensuring we invest only where prices do not yet fully reflect a company's strong fundamentals in terms of growth and cash generation.

A tumultuous decade for British small-cap stocks, beginning with nerves around the EU referendum and culminating in an energy crisis and a sharp rise in interest rates, has left this part of the market unloved, overlooked and, most importantly, awash with value. We highlight three British small-cap stocks that are cheap compared with international peers, with precedent transactions (the price that peers have recently been purchased for in merger and acquisition deals) and with their own history.

Promising British small-cap stocks for your portfolio

Oxford Biomedica (LSE: OXB) is a contract development and manufacturing organisation (CDMO) specialising in manufacturing viral vectors for cell and gene therapy, treatments used to combat cancer and rare genetic diseases and used in a growing range of new applications. It is one of only a handful of players globally capable of developing these technologies at a commercial scale. The market is growing at more than 20% a year, and the firm has set ambitious targets to more than double revenues by 2028, underpinned by increased capacity coming online at its Oxford (UK) and Durham (US) facilities. The shares trade at about a 30% discount to internationally listed peers despite faster forecast sales and earnings growth. Meaningful consolidation across the CDMO sector in recent years and interest from private-equity firm EQT make the stock look even more attractive.

In a world where financial-services firms are fighting to get closer to their clients, Rathbones (LSE: RAT), which provides financial planning and investment advice, is well-positioned. Ageing populations and rising personal and wealth taxes are driving demand. The shares trade on a steep discount to multiples recently paid by NatWest for smaller competitor Evelyn Partners and offer an attractive dividend yield.

Everplay (LSE: EVPL) is an independent video-game developer and publisher with a resilient business model, operating in a structurally growing part of an already large market. In the premium “AA” and “AAA” segment of the market, firms sink large sums into individual titles and need big hits to drive returns. The smaller, independent players are different. Everplay spends on average £1 million-£1.5 million per game, releasing about ten new titles a year, meaning risk is diversified and earnings are not dependent on any single release. About 75% of earnings are underpinned by a strong back catalogue of well-known titles that continue to generate revenue – Worms, for example, is more than 20 years old and still makes money.

It also owns simulation-gaming business Astragon, with its niche customer base, and StoryToys, a mobile “edutainment” division targeting younger players and recurring revenues. Everplay is a leading scaled player in its sector and, despite resilient growth and strong cash generation, a robust pipeline for this year and significant firepower to pursue mergers and acquisitions to drive incremental growth, the shares trade at just over seven times EV/Ebitda – a significant discount to peers, precedent transactions and its own history.

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Software Circle (Aim: SFT) is a particularly interesting company at the out-of-favour smaller end of the UK stock market, where years of outflows from small-cap funds have left hundreds of the smallest companies largely ignored – thus creating opportunities for investors. It is listed on the junior market and is attempting to build long-term shareholder value by acquiring a collection of niche software businesses. It's early days, but the firm has many attractions.

Software Circle buys mature software businesses operating in niche corners of the economy, such as care homes. These are typically firms with loyal customers, recurring revenues and founders nearing retirement. The software itself is often dull – and that is precisely the attraction.

Software Circle started out as a printing business that struggled with costs and operational headaches. Buried inside the group, however, was a profitable software platform called Nettl Systems. The management decided to abandon the old printing model and sold manufacturing operations. The balance sheet was cleaned up and the remaining cash redirected into a new strategy focused entirely on software acquisitions.

Software firms generally require far less investment than manufacturers. Once developed, software can often be sold repeatedly at very high margins. Better still, customers tend to stick around for years. Software Circle now focuses on the vertical market software – specialist products designed for narrow industries or professions. These markets are rarely exciting, but they can be extremely profitable.

Many small businesses rely on highly specialised software to run everyday operations. Replacing them can be disruptive and expensive. As a result, customers rarely switch providers. The software they use represents only a tiny proportion of overall costs, which gives providers pricing power. Even steady annual price increases are unlikely to cause many complaints.

This combination of recurring revenue, low customer turnover and pricing power has created some exceptionally successful software businesses. Software Circle is buying lots of these businesses across the fragmented UK and Irish market for software companies.

Software Circle's acquisition strategy

The company's acquisition strategy is refreshingly conservative and management maintains an internal database of potential acquisition targets across the UK and Ireland that numbers more than 4,000. Importantly, management is disciplined on price and generally refuses to pay more than seven times adjusted earnings for acquisitions. Across the software businesses acquired so far, the average purchase multiple has been closer to six times. That matters because buy-and-build strategies often fail when acquirers become too aggressive.

The latest interim results suggest the strategy is beginning to gain traction. Revenue rose 15% to £10.2 million, while subscription income now accounts for roughly three-quarters of group sales. That recurring revenue mix is important because subscription software businesses tend to be more predictable and resilient than project-based technology firms. Underlying profitability also improved while central overheads remained tightly controlled. The education-software segment performed particularly well, delivering organic growth of 17%.

The statutory accounts still show an operating loss, but this largely reflects accounting charges linked to acquisitions rather than weak underlying trading. Cash generation gives a clearer picture of the business. Operating cash flow continued to improve and management says its portfolio of software assets is generating returns on invested capital of roughly 25%. For a serial acquirer, that is a highly encouraging figure.

Software Circle is also now large enough to access bank financing. This will give the firm greater flexibility to continue acquiring businesses without returning to shareholders. Management ultimately hopes the business will become self-funding, with recurring cash flows supporting future acquisitions. If achieved, that could create a powerful long-term compounding effect.

Another encouraging feature is strong alignment with shareholders. The executive team is unusually lean, with only a handful of senior staff operating from a modest office in Manchester. Long-term incentives are tied to shareholder returns and management options encourage a longer-term mindset.

The shareholder register is similarly supportive. German investors connected to Chapters Group (another European software acquirer) hold a large stake in the business. Around 10% is owned by Sun Mountain, the investment vehicle associated with Will Thorndike, an investor with a famously long-time horizon.

None of this removes the risks. Software Circle remains a very small firm operating in an illiquid part of the market. Acquisition strategies can go wrong if management overpays, struggles with integration, or takes on too much debt. The shares are also unlikely to suit investors seeking quick returns or dependable income.

Even so, the ingredients for an attractive long-term compounder are there. The firm operates in a fragmented market, focuses on sticky recurring revenues, appears disciplined on valuation and is building access to cheaper acquisition financing. Software Circle is attempting to build a UK-listed version of the niche software compounders that have worked extraordinarily well in North America.

The business is still small and far from proven. However, in a neglected corner of the UK market, it may be one of the more interesting stories developing.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Small defence stocks can often be overlooked. Back in January 2024, few, if any, investors had heard of the micro-cap Filtronic. The company, which designs and produces components for communication systems, had muddled along for the best part of 15 years, barely breaking even and relying on shareholders' cash infusions to keep the lights on. That all changed in April 2024 when Filtronic signed a strategic partnership with SpaceX. Over the following two years it secured a series of game-changing contracts with Elon Musk's space group, transforming its fortunes. Revenue nearly quadrupled and the share price is up nearly 1,800% since the beginning of 2024. Filtronic is just one of a host of small, publicly traded companies that have been transformed by the influx of cash into the global defence market over the past two years. Most of these small businesses fly under the radar of large institutional investors, who are unable or unwilling to invest in small or mid-caps. That means there's a fantastic opportunity out there for investors who are willing to put in the extra legwork.

Small defence stocks: looking beyond the global giants

The global defence industry is dominated by the so-called “primes”, the giants of the industry that manage multi-billion-pound or multi-billion-dollar contracts awarded by government bodies. These major players, such as BAE Systems, Lockheed Martin and Northrop Grumman, coordinate complex supply chains, manage hundreds of subcontractors and are ultimately held responsible when things go wrong. In some respects, these primes also act as banks and lenders to the subcontractors that make up the vital supply chains for the industry. The majority of defence contracts are multi-year projects that take years to design and deploy, with tens or hundreds of suppliers for each long-term project. It falls to the primes to manage the project cash flows and individual payments to suppliers – something government bodies would struggle to oversee.

For most institutional investors, primes are the only way into the defence industry. Despite its blistering rally over the past two years, Filtronic's market capitalisation still sits below £1 billion; that's far too small for a large fund manager to take a meaningful position without affecting the share price. By comparison, Lockheed Martin, Boeing, and Northrop Grumman's market capitalisations range from $70 billion-$180 billion. But the primes don't have as much control as they might think.

A recent study by the Bruegel think tank found that in Europe the ten largest military contractors capture between 67% and 90% of total public military-procurement spending across key countries such as Germany, Poland and the UK. In the UK, 39% of procurement expenditure in the 2024-2025 financial year went to just ten strategic suppliers, with BAE Systems alone representing 16.3% of all core Ministry of Defence expenditure for the year. This is the highest recorded share going to a single supplier since records began in 2008. But this figure is a bit misleading. Take the company's current contract to produce eight Type 26 Global Combat Ships for the Royal Navy, which, when agreed in 2017, cost £3.6 billion. The firm estimates around 40% of the total cost of manufacturing the vessels will flow through to some of the 3,000 small and medium-sized enterprises (SMEs) in its supply chain.

It's the same for the other Type 26 agreements signed with Canada and Norway. According to BAE's own estimates, it has a total of 5,800 suppliers across the UK and it spent £5.8bn with these SMEs in 2024, supporting 61,000 jobs – almost 20% more than the group's direct employee base. A similar structural dependence is visible in Germany, where the defence Mittelstand (the SMEs that form the backbone of the German economy) supports the giant global primes, such as Rheinmetall.

Boosting small defence stocks

When it comes to supporting small defence stocks, the US is undoubtedly the world leader. It has for many years been making a concerted effort to increase contract awards to small businesses. The Department of War regularly publishes statistics on its efforts to award contracts to small businesses and breaks down the targets set for primes and subcontractors. In the federal fiscal year 2024, the department raised prime contract awards to small businesses by $4.9 billion.

The US also has a world-leading network for scaling businesses and integrating them into supply chains. In recent years, its Accelerate the Procurement and Fielding of Innovative Technologies (APFIT) programme has helped SMEs move from the venture capital to growth stage, offering as much as $50 million directly to SMEs or non-traditional defence contractors to broaden the US military's supply chain and increase resilience. In one example, towards the end of last year, Gremlin Low-Cost Munition received $35 million in funding to provide affordable, precision-strike capabilities for the US Marine Corps, part of an overall push to design and mass-produce cheap missiles.

The UK and its European allies are working to develop similar programmes, although due to funding constraints and the existing concentration of the sector progress is slow. The UK's Ministry of Defence (MoD) spending directly with SMEs last year accounted for just 4% of the department's total budget, which was flat year-on-year. However, there are plans to raise the current £2.5 billion of annual spending to £7.5 billion by May 2028, assuming all of the MoD's funding plans are signed off by the government. The government has pledged to raise defence spending to 2.7% of GDP from next year, rising to 5% by 2035, but reports suggest a funding gap of around £28 billion in the existing plans and the Treasury is yet to sign off on the ten-year Defence Investment Plan. Still, in January 2026 the government established the Defence Office for Small Business Growth to act as a “single front door” for engagement with SMEs. It's also put together a £140 million drone and counter-drone technology programme that directly involves 20 British SMEs and 11 smaller so-called micro-enterprises.

Hunting for diamonds in the rough

As capital flows into global defence primes, it is becoming increasingly hard to find the diamonds in the rough. However, there's a growing opportunity with these small defence stocks, companies on the edge of the industry, in the early stages of growth. The problem is, there are only a handful of actively managed investment funds on the market that specialise in defence. The market is largely dominated by exchange-traded funds (ETFs), which must track the largest, most liquid companies in the sector. What's more, most of the active funds don't have the deep technical and industry-specific knowledge required to understand how the future of warfare is developing and where governments are prioritising spending.

The Finserve Global Security Fund is different. This Swedish, actively managed equity fund focuses on defence, cybersecurity and the space industry, with an experienced advisory board. The fund is not available to UK investors, but it's full of interesting ideas, built on the manager's strategy of “capturing structural, long-term mega-trends” with the potential for “above-market growth”. One such idea is Nordrest (Stockholm: NREST), which is capitalising on increased defence spending through its meals-ready-to-eat (MRE) division. As the saying goes, an army marches on its stomach and Nordrest is one of the five members of the MRE programme for Nato. These five firms provide the meal kits issued to soldiers on patrol or exercise, which can quickly be heated up to provide a nutritious meal. Shares in the company have risen by around 180% since the beginning of 2025, driven by its involvement in Nato contracts.

Although the company has a large catering division attached, around 60% of its bottom line comes from the key MRE contracts (even though this division accounts for just 24% of revenue). With a market capitalisation of $410 million, Nordrest is still a minnow in the defence world, but it's a key player in a market that's not going away anytime soon. The management has outlined plans to double Nordrest's MRE capacity over the coming years to deal with increased demand from Nato members. The stock trades at roughly 11 times EV/Ebita on 2026 estimates, adjusted for minority interest: modest for a company growing organically at around 15% annually and compounding further through bolt-on acquisitions bought at cheaper multiples.

Finserve's team also likes Hanwha Ocean (Seoul: 042660), formerly known as Daewoo Shipbuilding & Marine Engineering and one of the “big three” shipbuilders of South Korea, along with Hyundai and Samsung. Shares in the company have jumped more than 230% since the end of 2024, when it made an audacious bet to take on the US primes in their home market. In December 2024, Hanwha Ocean (40%) and Hanwha Systems (60%) jointly acquired Philadelphia Shipyard, catapulting the company into the near-$1 trillion-a-year US Navy procurement system. The shipyard is currently incurring losses, but the firm has earmarked $5 billion to turn it around.

The investment will help Hanwha capitalise on a Korea-US pact as part of the US government's Make American Shipbuilding Great Again initiative. In May 2026, Korea's trade minister and the US commerce secretary formally agreed on a $350 billion investment framework, with $150 billion earmarked for cooperation in shipbuilding. Hanwha's investment will go some way towards improving the efficiency of the American shipyard. In its home market, the group turns out one ship a week from each yard, while the US manages just one a year. This will add to what is an already robust order book for the group, with an overall backlog equivalent to three and a half years of revenue.

A play on the rise of drones

Also featured in Finserve's portfolio is Exail Technologies (Paris: EXA). One of the most interesting trends over the past five years has been the solidification of drone warfare in defence systems. The war in Ukraine has illustrated how a relatively small player on the international scene can fight back against a large superpower by investing heavily in unmanned warfare – this company is a play on that trend. Exail is a French defence-technology company that has carved out a position as the global leader in unmanned mine countermeasures, with a 95% win rate on naval and mine-hunting tenders since 2019. As the impact of drone and unmanned-weapons platforms has become apparent, the company's shares have risen by more than 700% since the beginning of 2025 and its market capitalisation has jumped to around €3 billion. Its flagship product is the UMIS drone system. It is the only product of its kind in a market where competitors usually rely on multiple suppliers to build systems.

The Royal Navy has a huge lead here. As part of the UK's efforts to lead a global mission to reopen and defend the Strait of Hormuz, the Royal Navy is deploying a ship with technologies designed to spot and destroy sea mines remotely without exposing people to danger. It will be one of the first of its kind operating in a war zone. The publicity surrounding this mission could be a boon for Exail. It's already formed a collaborative partnership to support the Royal Navy's next-generation autonomous mine countermeasures, and this could open up other markets. Navies worldwide are retiring Cold War-era minesweepers and replacing them with autonomous drone systems (a €3 billion opportunity by 2030), a shift accelerated by the historic jump in defence spending. Exail is well-positioned to capitalise on this trend. Last year, the company recorded an 87% increase in revenue and has an order backlog equivalent to around a year and a half of sales. It is targeting further double-digit revenue growth in 2026.

Providing the nuts and bolts

When you start to trace the supply chains that support the world's armies, it's clear just how deep their roots spread into the economy and how many options there are for investors. Scanfil (Helsinki: SCANFL), for example, manufactures printed circuit boards, electromechanical assemblies and complete defence electronics units for European defence primes under long-term production agreements. Invisio (Stockholm: IVSO), a Swedish company, makes tactical communication headsets designed to protect the hearing of infantry and integrate with standard military radios. The kit is sold to Nato armed forces across about 50 countries. A similar play is Bittium (Helsinki: BITTI), which develops and manufactures encrypted tactical radios for several Nato militaries.

In the UK, it's worth taking a look at Chemring Grorup (LSE: CHG). This company produces kit such as infrared flares and decoy systems that protect military aircraft and naval vessels from missile attack, as well as energetic materials for munitions. Chemring has only one major competitor in advanced plastic explosives in Europe: France's Eurenco Group, which is owned by the French state.

Last year, overall revenue at Chemring expanded by just 2%, marred by delays to UK government spending commitments at the group's sensors and information arm. However, on the countermeasures and energetics side (explosives), revenue rose by a reported 17% and underlying profit by 37%. The firm's order book jumped 35% and is now equivalent to three to four years of revenue in this division.

Chemring is targeting £1 billion in revenue by 2030, up from a reported £500 million today. If the company can hit this target (and analysts believe it can), group earnings before interest and tax could rise to £170 million, according to Panmure Liberum, up from £74 million today, at a 17.2% margin, up from 14.2%. That's if private equity doesn't snap up the business first. There have been rumours circulating for some time about the company's future, with analysts speculating it could only be a matter of time before the group is acquired.

Porvair (LSE: PRV), worth £391 million, supplies specialist filtration systems for military aerospace applications, including hydraulic filtration for fast jets (such as the F-35) and helicopter gearboxes, and fuel filtration for forward operating bases. The company doesn't provide too much detailed information on its contracts with defence customers, but it has said that aerospace-related demand is stronger than expected. It is also seeing a slight uptick in demand for its equipment from the nuclear industry.

Boots on the ground

Avon Technologies (LSE: AVON) is one of the best ways in the world to invest in the niche business of protective equipment. The company manufactures head protection and respiratory units, such as gas masks, for military and first responders globally. Like all of its peers, it is benefiting from increased demand from Nato as countries upgrade their equipment, much of which dates from the Cold War. Revenue in the first half of Avon Technologies' financial year was hurt by its exposure to US government agencies. The government shutdown exposed contract awards and led to double-digit declines in demand for head-protection gear. But there should only be a temporary headwind. Interest in respiratory products drove a 19% increase in the company's order book in this division, adding two additional countries to its customer base and bringing the total to 16 Nato countries now buying from Avon.

As a marker of demand, Avon agreed a 50% increase in the revenue ceiling on a major contract with Nato to supply chemical, biological, radiological and nuclear defence boots and gloves. This kit has a fixed lifespan after which it is no longer effective, giving the company a recurring revenue stream. Around 50% of group revenue is exposed to US spending, which is a headache, but management is making strong efforts to diversify the base. As this continues and growth flows through, Avon's stock is poised for a rerating. Over the next four years, analysts at Zeus have pencilled in 60% profit growth, with revenue expanding by around a third. A cash-rich, debt-free balance sheet also provides scope for mergers and acquisitions to expand the portfolio and capitalise on rising defence spending globally.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Anthropic submitted a draft registration statement to the US regulator on 1 June for its imminent initial public offering (IPO), the second US technology company to do so in recent weeks.

Slipstreaming SpaceX (whose own IPO is expected later this month), the San Francisco-based artificial intelligence (AI) company behind the Claude series of large language models (LLMs) said the amount it was targeting – determined by the number of shares to be issued and their price – had not yet been set.

An unattributed statement on its website said: “Today, Anthropic, PBC confidentially submitted a draft registration statement on Form S-1 to the U.S. Securities and Exchange Commission for a proposed initial public offering of our common stock. This gives us the option to go public after the SEC completes its review. The proposed initial public offering will depend on market conditions and other factors.”

The company has appointed Morgan Stanley and Goldman Sachs to lead its listing process, according to Bloomberg, which said J.P. Morgan was also involved.

The flotation is expected to take place as soon as October, although many details are still speculative.

Which fund managers have invested in Anthropic?

Just days before it confirmed submitting its paperwork to the SEC, Anthropic announced it raised $65 billion in a series H round, led by Altimeter Capital, Dragoneer, Greenoaks and Sequoia Capital, bringing the company’s estimated valuation to $965 billion.

Brad Gerstner, founder and chief executive of Altimeter Capital said: “Claude’s latest advancements have driven large-scale adoption among the world’s most demanding organisations. This momentum positions Anthropic to lead the next phase of AI innovation and capture the enormous opportunity ahead.”

Co-leading the round were Capital Group, Coatue, D1 Capital Partners, GIC, ICONIQ and XN. Other “significant investors” named included Baillie Gifford, Blackstone and T. Rowe Price.

The raise also includes $15 billion of previously committed investments from hyperscalers, including $5 billion from Amazon.

What is the easiest way for UK retail investors to hold Anthropic?

Several investment trusts hold Anthropic, allowing investors exposure to the stock without them having to get involved in the often onerous and volatile IPO process.

Annabel Brodie-Smith, communications director of the Association of Investment Companies (AIC), said as it’s easier for investment trusts to hold privately held companies, these are a sensible option for DIY investors.

Five investment trusts have exposure to Anthropic, which she said “provide retail investors with a way of getting exposure before the crowds pile in when the company is listed on the stock market”.

Source: AIC / Morningstar and investment trust managers (as at 02/06/2026 based on latest available published portfolio weights).

What are Anthropic’s growth plans?

The fundraising announcement also detailed recent expansion of its compute capacity, including signed agreements with Amazon, Google, Broadcom and SpaceX. It said Claude was the first frontier model available on the three largest cloud platforms, Amazon Web Services (AWS), Google Cloud and Microsoft Azure, with AWS its main cloud provider and training partner.

Alfred Lin, partner at Sequoia Capital said: “Startups and Global 5000 companies alike are deploying Claude to handle complex workflows, and in doing so, Claude is learning how businesses actually operate: the context, the processes, the judgement. Anthropic is building the bridge between where enterprise AI stands today and where it’s headed.”

Since its series G round in February, the company said adoption has grown across global enterprise customers and its run-rate revenue (a company’s estimated annual revenue based on a multiplier of a short-term, indicative period) crossed $47 billion.

As a public benefit corporation (PBC) Anthropic is a for-profit company that prioritises its purpose of “the responsible development and maintenance of advanced AI for the long-term benefit of humanity”.

While not yet confirmed, as a high-profile tech company, the stock is expected to list on the Nasdaq exchange. These recent announcements suggest it has now overtaken its rival OpenAI in the race to go public, allowing it to exploit surging investor demand for all things AI.

Anthropic, OpenAI and SpaceX are being touted as the three landmark listings set to take place in 2026 that are changing the playbook for IPOs, including how index providers are facilitating their inclusion in benchmark indices.

Alphabet’s shares fell by 3.9% on 2 June following news that the company was raising $80 billion in fresh capital to fund increased spending on artificial intelligence (AI).

According to a 1 June statement from Alphabet (NASDAQ:GOOGL), a Magnificent 7 stalwart and parent company of Google, the new capital will be used to fund “general corporate purposes, including capital expenditures to scale AI infrastructure and global compute”.

The funds are being raised largely by issuing new shares. That means that each share now gives its holder a smaller portion of the overall ownership of Alphabet’s equity – this effect is known as ‘dilution’.

“Alphabet is reversing its long-held capital allocation policy of buying back shares and issuing $80 billion in equity,” said Michael Field, chief equity analyst at investment research company Morningstar.

Despite this, $80 billion doesn’t represent a substantial dilution – it is less than 2% of Alphabet’s total market capitalisation (market cap) of $4.4 trillion.

The structure of the fundraise will also lessen the impact on Alphabet’s shareholders. Only $30 billion worth of new shares are being issued on public markets initially, with a further $10 billion being sold to Berkshire Hathaway (the conglomerate run by legendary investor Warren Buffett until last year) through a private placement.

The remaining $40 billion of shares will be drip-fed into the market through an ‘at-the-market’ (ATM) offering, beginning in Q3 2026.

Why is Alphabet raising more capital?

AI is pushing Alphabet as well as other big tech companies away from their capital-light roots, into a more intensively competitive spending environment.

Alphabet and its competitors “are now burning through cash to win the AI race”, said Morningstar’s Field. “Public equity is the cheapest source [of cash] available, particularly in a rising interest rate environment.”

Gaining leadership in this emerging field is a priority for Alphabet. Its statement in relation to the capital raise highlighted strong demand for its AI solutions and services, and referenced the $180-190 billion in expected capital expenditure for 2026 that it forecast in its Q1 earnings call.

There is an argument that Alphabet is one of the best-positioned companies to capitalise on AI.

“They benefit from owning the full technology stack – from the Tensor Processing Units (TPUs) that perform the AI calculations, through leading-edge AI software models including Gemini, as well as having strong consumer reach through Google search, Android devices, and Chrome,” James Ashworth, co-portfolio manager of Brunner Trust told MoneyWeek.

“Like many of the other hyperscalers, Alphabet is seeing unprecedented customer demand for AI compute,” Ashworth continued. “It is clear that Alphabet sees this as a time to increase its investments to support what it sees as a significant growth opportunity ahead.”

Alphabet stated that it will also use the proceeds to pay the costs of certain ‘capped call’ contracts it expects to enter into in order to reduce the potential dilution to its shares, while the ATM mechanism is expected to facilitate a change in how Alphabet meets its tax obligations associated with employee equity grants.

Should you invest in Alphabet shares?

Whether or not Alphabet shares make a good investment for you depends on your personal circumstances and investment goals.

As of 1 June, Alphabet’s Class A shares trade at a forward price/earnings (P/E) ratio of just under 27. That puts Alphabet right in the middle of the Mag 7 in terms of value.

^{Source: Yahoo Finance}

This suggests that Alphabet is reasonably priced in the context of the wider Mag 7 group. However, this group has a reputation for being highly valued, with those valuations based largely on optimism over future AI growth. Buying shares that are valued like this comes with risks, should (for example) AI adoption rates slow or macroeconomic factors hinder these companies’ growth.

Why do Alphabet shares have two symbols?

Alphabet is an unusual company in that its stock trades under two different symbols: GOOG and GOOGL.

These represent two different share classes. GOOG corresponds to Alphabet’s Class C shares; these don’t have voting rights. GOOGL corresponds to Alphabet’s Class A shares, also known as common stock, which confer one vote per share for holders.

The voting rights that GOOGL stock permits mean that these sometimes trade at a slight premium to GOOG shares, but their values are usually very close as both give shareholders equal access to Alphabet’s profits.

Alphabet has a third share class (Class B) which isn’t traded publicly. It is held by the company’s founders and insiders. These shareholders can exercise 10 votes for each share they hold.

How to invest in Alphabet shares

If you want to invest in Alphabet, the most direct way to do so is to buy its shares directly. Most investment platforms or brokers will enable you to buy its stock.

If you haven’t bought US-listed stocks through your broker or investment platform before, you may need to complete a W-8BEN form – a simple form that entitles you to a reduced tax rate in the US on your investments. Your broker will prompt you for this if and when it is needed.

You may prefer to invest in funds rather than individual stocks, and some investment platforms only support fund investments. In that case, if you want to buy Alphabet shares, you’ll want to look for funds that have a high weighting towards the company.

Any exchange-traded fund (ETF) that tracks the MSCI World Communication Services Index will have a very high weighting in Alphabet, since the index is strongly weighted towards Alphabet shares. As of 30 April, Alphabet’s two share classes made up the index’s top two constituents and accounted for approximately 52% of the index between them.

The iShares MSCI World Communication Services Sector Advanced UCITS ETF (LON:IUCM) tracks the S&P 500 Capped 35/20 Communication Services Index, which limits its weighting to 35% for the largest stock and 25% to the second-largest. It holds both Alphabet share classes, with their combined weighting accounting for just over 30% of the fund’s holdings as of 29 May.

Some investment trusts can also offer exposure to Alphabet’s shares. It is the largest holding in Allianz Technology Trust (LON:ATT) with 10.0% of assets as of 30 April, as well as the Brunner Trust (LON:BUT) where it makes up 5.5% of the portfolio as of the same date.

Alphabet shares account for a combined 8.5% of Polar Capital Technology’s (LON:PCT) portfolio as of 30 April, though that makes it the second-largest holding behind Nvidia, which makes up 8.9% of the portfolio.

After weeks of anticipation, SpaceX’s initial public offering (IPO) took off on 12 June, with shares in Elon Musk’s space and artificial intelligence (AI) company gaining 20% to close at $160.95 on their first day of trading.

SpaceX (NASDAQ:SPCX) has pioneered the modern space economy. Its Starlink network consists of over 9,000 satellites that provide internet connectivity all over Earth, while its rockets facilitated more than 80% of the US’s licensed space launches in 2025.

“SpaceX shares blasted higher on their stock market debut, shooting past the $135 IPO price as investors rushed to buy into Elon Musk’s vision for space, satellite and AI domination,” said Susannah Streeter, chief investment strategist at wealth manager Wealth Club. “The IPO had reportedly been at least four times oversubscribed, leaving many investors without an allocation and forcing them into the secondary market once trading began.”

This was the first IPO that allowed UK-based investors to buy shares ahead of the event.

Having raised $75 billion for SpaceX, the IPO became the largest in history. It raised more than twice as much as the previous leader, Saudi Arabian state oil company Saudi Aramco, raised in its 2019 IPO.

It means SpaceX’s founder and CEO, Elon Musk, became the world’s first trillionaire – though it will be some time before he can sell SpaceX shares and realise the increase in his nominal wealth.

How much was SpaceX worth at its IPO?

While the $1.77 trillion valuation at which SpaceX shares initially sold had raised some eyebrows, the gains over the course of its first session saw the company close with a market capitalisation of $2.11 trillion.

That puts SpaceX at number seven in the list of the world’s most valuable companies – in between semiconductor giants Taiwan Semiconductor and Broadcom.

Shares opened at $150 – already 11% above the $135 IPO price – and never fell below $149.3 on the day. SpaceX stock reached a high of $176.5 during their first session trading on public markets.

SpaceX’s IPO filing envisages a $28.5 trillion total addressable market (TAM), the vast majority of which ($26.5 trillion) is ascribed to AI. Within AI, even eye-catching segments like AI infrastructure are a relatively small portion of the total (expected to be worth $2.4 trillion); enterprise applications – in other words, AI products sold to businesses – are expected to account for $22.7 trillion, around 80% of SpaceX’s entire TAM.

Space-enabled solutions, by contrast, are expected to account for just $370 billion, or 1.3% of SpaceX’s TAM, while connectivity (Starlink Broadband and Starlink Mobile) are expected to make up another $1.6 trillion, or 5.6% of the TAM.

What could SpaceX’s IPO mean for the markets?

Many experts believe that the success of SpaceX’s IPO could pave the way for yet more mega-cap tech IPOs.

AI developers OpenAI and Anthropic have both filed for IPOs since the start of June, and other private tech giants like Databricks, Stripe and Anduril could follow. This could potentially create “a wave of new market capitalisation large enough to reprice growth equities more broadly” according to Stephen Dover, chief market strategist at investment manager Franklin Templeton.

However, there are risks posed by the prospect of so many huge private companies entering public markets at the same time.

“If several mega-cap IPOs come in the same window of time, they will compete for capital not only with each other, but also with existing publicly traded growth stocks,” said Dover. “That could create rotation pressure across software, semiconductors, fintech, defence tech and AI beneficiaries.”

Dover also cautioned that the increased scrutiny of public markets could test the valuations of these private companies, most of which have raised large amounts of money at very high valuations over the latest business cycle.

Others, however, viewed the success of SpaceX’s IPO as a positive.

“The positive SpaceX debut and investor reception is a good sign for OpenAI and Anthropic as both companies likely head down the IPO path before year-end,” said Dan Ives, head of global technology research at investment bank Wedbush Securities. “As tech stalwarts like SpaceX, OpenAI, and Anthropic get more capital and go public this will… further drive more investments and [capital expenditure] into the AI revolution flywheel.”

How can you invest in SpaceX?

Before investing in SpaceX, it is important to consider the risks involved. The company listed at a very high valuation – around 100 times sales, rising to around 109 times sales by the close of its first day trading – and lost nearly $5 billion last year. Nvidia, by comparison, trades at around 20 times sales.

Now that SpaceX has listed publicly, most brokers that enable trading in US-listed shares should enable you to buy its stock, like that of any other listed company.

If you haven’t bought US-listed stocks through your broker or investment platform already, you may need to complete a W-8BEN form – a simple form that entitles you to a reduced tax rate in the US on your investments. Your broker will prompt you for this if and when it is needed.

There are various ways to gain exposure to SpaceX besides buying its shares directly. You could, for example, buy an investment trust that holds the stock, such as Scottish Mortgage (LON:SMT). Shares in Scottish Mortgage gained 1.7% on 12 June, the day of SpaceX’s IPO.

Investors on both sides of the Atlantic are likely to have come across the term ‘Magnificent 7’ – a moniker used to describe a group of ‘big tech’ companies that have dominated industry headlines and stock market returns in recent years.

These seven technology giants – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla – enjoyed a collective surge in share prices that began in 2023. Their impressive returns were powered by a massive appetite for all things artificial intelligence (AI), a concentrated US stock market and each demonstrating strong financial performance.

The Mag 7 represents around a third of the S&P 500 by market capitalisation. According to investment manager Mellon, in 2023 the group returned 76% against the wider S&P 500’s 24%. As of May 2026, their year-to-date performance is 8.8% compared with the overall S&P’s return of 8.1%.

This suggests their relative success may be slowing, with several market commentators wondering if the collective party may be splintering.

Is the ‘Mag 7’ story over?

Neuberger Berman co-chief investment officer, multi-asset strategies Jeff Blazek said while Alphabet, Amazon and Meta all delivered Q1 results that surpassed analyst expectations, the cohesive performance of the wider group may have run its course.

“The ‘Magnificent 7’ moniker has had a good run. But the basket is beginning to break at the same time more granular AI-related equity stories are gathering momentum,” he said.

While several continue to impress, “the story of seven stocks moving in unison to dominate large cap indices may be reaching its end,” Blazek added.

All seven remain heavily exposed to AI, appetite for which shows no signs of easing. Quite the opposite, in fact.

Helen Jewell, international chief investment officer of fundamental equities at BlackRock, said AI looks set to continue to attract huge levels of investment.

“AI capital expenditure is now $725 billion for 2026 and we expect that to reach $6 trillion by 2030 – an extraordinary amount of money is being spent on AI.”

But she also points out that the expected divergence between the seven companies will be determined by their breadth of offering.

She said: “A company like Alphabet has more elements across that whole AI stack – computing, cloud, models, applications. Others are more exposed to the parts of the stack seen to be less strong. Software, for example, is seen as a weaker part of the AI story because there’s a feeling that AI will be able to replicate a lot of what software does.”

While the term was useful in describing their shared characteristics, Jewell said it will become outdated as the divergence that’s already started to emerge continues.

Where are the Mag 7 differences showing up?

While these acronyms can help investors looking for an interesting, memorable narrative, it’s important to look beneath the marketing story.

Neuberger Berman’s Blazek explained: “The Mag 7 story no longer reflects how these companies are actually behaving and it no longer serves investors trying to make sense of where markets are headed.”

He said their average pairwise correlations – the rate at which two stocks move together – have fallen significantly since their heyday.

In 2023, this was 75%, whereas it’s now 25% – the lowest level since 2019.

As at mid-May, Neuberger Berman said year-to-date returns ranged from Alphabet’s 23% to Tesla’s loss of 15% – a “striking” divergence in such a short timeframe.

“Consider Alphabet and Microsoft specifically: a year ago, the former was written off as lagging badly on AI, while the latter was deemed a consensus winner. That read has inverted – starkly,” Blazek said.

Beyond the Mag 7, where should investors look next?

Trying to second-guess markets or time share price movements is challenging – even for professional investors.

James Norton, head of retirement and investments at Vanguard Europe points out that people described Mag 7 valuations as being stretched for years. If anyone was spooked by that narrative they might have sold out and missed out on a lot of returns.

Clearly this year’s performance to date has been more mixed. As it’s hard to predict future share price trajectories, taking a diversified, long-term approach is more sensible than trying to time a specific theme.

Norton added: “For investors with a diversified portfolio, these companies are just one part of the picture. It is true that historically quite a small number of companies have driven a large share of overall market returns. But in a diversified portfolio, the Mag 7 are just a part of the returns of the US market, which are in turn part of the returns from the global market, which are again balanced by the returns you are also getting from bonds.”

Are the Mag 7 stocks overvalued?

Jewell doesn’t like calling stocks ‘expensive’.

“Ultimately the multiple reflects what people think the future earnings growth is going to be. The reason Alphabet is demanding a higher price is because there’s a feeling that its earnings growth is going to be strong because they've got so many different parts of the AI story,” she said.

The other point to note is that the divergence of performance starting to emerge is not a static story for these types of companies.

Their ambition, attitude and high levels of cash flow means their ability to continually reinvest themselves is part of their power.

Jewell added: “As the oldest of the Mag 7, Microsoft is a phenomenal company that has gone through many iterations. It reinvents itself continually – as does Apple – because they’ve got the cash to rethink and recreate what they do, which is what allows them to sustain for the long term.”

David Attenborough's 100th birthday highlighted our ageing population and the fact that we in the West are living longer and our populations are getting older.

While developments in medicine over the past 50 years have enabled us to live longer, we “haven't been as successful in finding ways to prolong healthy life”, says Harley Street wellness expert Aamer Khan.

It's now common for people to spend the last 15 years or more of their lives, around a fifth of their total lifespan, dealing with several chronic conditions at the same time.

Fortunately, we're beginning to get better at understanding and tackling at least some of the worst of these conditions. Breakthrough drugs and therapies are “addressing unmet medical needs in ways not previously possible”, says Daniel Lyons, portfolio manager on the healthcare and biotech team at Janus Henderson.

Our ageing population is at an inflection point

This gap between lifespan and what Khan calls “healthspan” – the number of years of healthy living not marred by chronic conditions – isn't just a problem for those directly affected. It also imposes costs on society. “If you look at a chart of average health spending by age, it basically goes crazy from around 75 onwards, rising almost vertically,” says Gareth Powell, head of healthcare at Polar Capital. With the number of 75- to 80-year-olds set to explode as the baby boomers enter their sunset years, this could prove to be very expensive for society.

Douglas Williams, a senior executive and board member for several biotechnology companies, argues that we're at an “inflection point” – if we don't find some effective treatments for age-related conditions such as Alzheimer's soon, then the conditions “could end up bankrupting the global healthcare system”.

The effort to find effective therapies is complicated by the fact that the conditions don't tend to be caused by a single factor, but rather have multiple triggers. Different conditions can also have a knock-on effect on each other. So even for a single family of diseases, “there's never going to be one treatment for everyone”, says Kiren Baines-Mortimore, the CEO and founder of Valaya Bio, a biotechnology firm tackling age-related degenerative neurological diseases. Instead, we are probably going to have to develop combinations of treatments that exploit multiple biological mechanisms. Any treatment of conditions such dementia will “need to be done in a very measured and multi-disciplinary way”, says Tony Banerjee, the founder and CEO of HarleyDoc.

All this will pose fiscal challenges for governments and healthcare systems, but there is a silver lining for investors. The rise in the ageing population, combined with the complexity of caring for their health, presents an “enormous opportunity” for drug and biotechnology firms, says George Viney, co-manager of the Trojan Global Equity fund. “The value of treatments that can ensure people live in a healthy and independent way for longer and reduce the need to spend huge sums of money to treat people in hospitals, will be huge.”

The challenges in treating cardiovascular disease

“Perhaps the key reason why healthcare costs balloon from 75 or 80 onwards is to do with the increasing amount of cardiovascular disease in that age group,” says Powell. This represents a huge “unmet need”, but the good news is that there's been progress in developing better medical devices, such as those that help with atrial fibrillation or repair heart valves.

Progress has been slower when it comes to drugs because “it's so incredibly expensive to develop drugs for heart disease, as you have to do massive trials”, as Powell points out. Heart disease is classified by regulators as a chronic ailment, rather than an immediate threat to life, such as cancer, which means that regulators are much less tolerant of any side effects. Healthcare systems may also be reluctant to pay for the drugs. Research in this area has been hindered by the fact that patents on blockbuster drugs expire, lowering prices for patients, but making drug companies less interested in investing.

Yet Powell is optimistic that, after “dropping off the radar a bit”, interest in treating heart disease has begun to pick up again, and progress is being made. He points to the recent buzz around Lp(a), a type of cholesterol that has been linked to clotting, inflammation and the build-up of plaque in arteries. There is “strong evidence that people with Lp(a) have a higher risk of heart attacks” and several companies have had promising results from drugs that lower the levels of Lp(a) in the bloodstream.

Huge promise from weight-loss drugs

Another big contributor to problems with an ageing population is obesity, which in turn feeds into a number of other conditions, perhaps most obviously diabetes. Diabetes is one of the biggest areas of healthcare spending for the elderly, with £1 billion a year spent by the NHS on treating diabetic foot ulcers alone, says Khan. Diabetes is also associated with a much higher risk of Alzheimer's disease, “to the extent that some people call Alzheimer's type-3 diabetes”, says John Todd, professor of precision medicine at the University of Oxford. Obesity is also seen as a risk factor for other conditions that disproportionately affect the elderly, including heart disease and cancer.

Until recently, progress in finding effective lasting treatments for diabetes and obesity was slow. Over the past five years, however, it has become clear that GLP-1 receptor agonists, such as Wegovy and Mounjaro, are “the breakthrough that we have been waiting decades for”, says Todd. The long-term effects of these drugs are still not clear, but at the moment the benefits seem to “outweigh any risks”.

There is also evidence that they bring “phenomenal broad-based health benefits that go far beyond just losing weight or tackling diabetes”, says Powell. Studies show that Wegovy can lower general inflammation throughout the body, boosting cardiovascular health “beyond that which you'd normally expect given the weight loss”. Evonne Sepsis of ESC Advisors notes that GLP-1s can even help reduce problems with the central nervous system.

Progress in treating Alzheimer's

The disease most often associated with an ageing population is dementia and the majority of cases are caused by Alzheimer's. There is an increasing amount of evidence that the disease is primarily caused by the toxic build-up of particular proteins, such as amyloids, says Neil Ward, the vice-president of Pacific Biosciences. If these proteins aren't cleared adequately, they can cause damage to cells in the brain, including those responsible for repair and regeneration.

Genetic therapies may one day slow this process significantly. But in the short run diagnostic blood tests using the rogue proteins as biomarkers could transform the treatment of the disease, says Giovanna Lalli, the director of strategy and operations at the self-funded UK medical research organisation LifeArc. LifeArc's own test is due to finish trials in around 2028. If all goes well, this will do away with the need for the scans and lumbar punctures currently used to spot the disease, enabling quicker diagnosis and earlier intervention.

Early diagnosis will help, especially if drugs currently in development come to fruition. These show promise in helping the body expel the proteins, and in recent years two have been approved by the US regulator, the Food and Drug Administration (FDA).

They have shown only a limited impact on the disease so far and come with side effects, a result of the fact that the drugs do not easily reach the brain. However, trontinemab, developed by Roche, is in the late stages of clinical trials. It has been shown to be much better at crossing the blood-brain barrier, producing an “almost complete wipe-out of the amyloid plaques in a couple of months without major side effects”. Sepsis predicts similar progress in other disorders, such as Parkinson's, over the next decade.

The importance of a good night's sleep

One contributing factor that has been associated with Alzheimer's and dementia in general is poor sleep. Studies show a strong link between sleep problems and neurological disease. People who suffer from a lack of deep sleep in middle age are three times more likely to develop Alzheimer's, says Jane Rhodes, chief executive officer of biotechnology company AstronauTx.

This may be down to the fact that deep sleep is when memories are formed and when a process called “glymphatic flow” occurs, which “drives out all the metabolic waste that builds up during the day”, including the toxins and neurotoxic proteins that can build up and drive the development of diseases such as Alzheimer's and Parkinson's.

The amount of deep sleep you get declines with age, with elderly people sleeping only a fraction of the time that younger people do, which may explain why dementia and other conditions are more common in later life. Rhodes has high hopes for her company's drug, which she says will help “make everyone sleep like a 20-year-old”. It is due to enter clinical trials early next year.

Poor sleep in the middle-aged and elderly “could be the next obesity”, says Sepsis. The potential ramifications of treatments that improve the quality as well as the quantity of sleep could then be comparable to those of the GLP-1 weight-loss drugs. Given the “vast opportunity” for the sector that that represents, it's not surprising that from her work advising early-stage biotechnology companies, Sepsis has found that “there are definitely quite a few companies that have started to look at this area”.

Indeed, pharmaceutical giant Eli Lilly paid nearly $8 billion to get a foothold in the sleep treatments area by buying Centessa Pharmaceuticals. Current treatments are intended to help people fall asleep, rather than promoting the really important deep sleep, so there are big opportunities here, and they are not just limited to drugs. The solution to the sleep problem will entail a multi-pronged approach that includes improvements in diagnosis and the development of wearable technologies that measure how much good-quality sleep we're getting.

Boosting the immune system

Another source of problems in an ageing population is the weakening of the immune system. As we get older the number of viruses that we have encountered accumulates. This isn't usually a problem. In fact, it's generally seen as a good thing and is one of the main reasons why adults get fewer colds than children do. Some of the viruses we encounter, however, such as the one that causes shingles, can “reside in our brains in latent form for the rest of our lives”, says Todd. Sometimes they can get reactivated by other viruses, such as the herpes simplex (cold sore) virus, creating “neuronal damage, which can then cause or accelerate many of the cases of dementia, including Alzheimer's”.

An increasing number of studies show a strong link between vaccination for particular diseases and a reduced risk of dementia, says Todd. He points to a 2024 study that found that the shingles vaccine Shingrix increased the length of dementia-free lifespan by around 17%. Another study from 2025 found that giving people over the age of 60 the Arexvy vaccine, which protects against respiratory syncytial virus (RSV), cut the number of dementia diagnoses that they received over the next 18 months by a third. There is still a lot we don't know about how the immune system is involved in diseases such as dementia, but these studies show enormous promise for the future.

The best investments to play the theme

One of the companies at the forefront of the race to slow Alzheimer's is Eli Lilly (NYSE: LLY), which owns the only two drugs that have been approved to treat the condition, donanemab and lecanemab. It also has Mounjaro (tirzepatide), one of the major GLP-1s that have been shown to help people lose weight as well as tackle type-2diabetes and reduce general inflammation (including in the heart). It has recently developed lower-dose versions, as well as one that can taken orally. As stated in the main story, Eli Lilly has also recently moved into medicine for poor-quality sleep. Its revenue has more than doubled since 2020 and is expected to keep growing by around 15% a year, more than justifying the fact that it trades at 23 times 2027 earnings.

The other company that dominates the weight-loss market is Novo Nordisk (Copenhagen: NOVO.B), which makes Wegovy (semaglutide), the other major GLP-1 drug. As with Mounjaro, studies have shown that it can not only treat obesity – with recent studies suggesting that high-dose versions can help people shed more than a quarter of their weight – but also help a range of conditions, including cardiovascular ones. The firm also has a wide range of obesity and diabetes drugs in the pipeline. Sales are more than double the level they were in 2020 and earnings have tripled, yet the shares trade at only 14.2 times 2027 earnings and yield 3.8%.

Polar Capital's Gareth Powell is particularly keen on NewAmsterdam Pharma (Nasdaq: NAMS), which specialises in drugs that treat heart disease. The firm is currently losing money, making it a relatively risky bet, but it stands to make big gains if its flagship drug, obicetrapib, which is in late-stage clinical trials, is approved. Preliminary results suggest that it can lower levels of “bad” cholesterol, with some early indications that it could even be useful in certain patients at high risk of Alzheimer's by lowering the buildup of certain proteins linked with the disease.

Another small high-risk, high-reward drug company that specialises in heart disease is Cytokinetics (Nasdaq: CYTK). At the end of last year, its flagship drug aficamten was approved in the US for treating a particular type of cardiac disorder and was also given the green light in the EU and China. It is running additional late-stage clinical trials to see whether the drug could also be used for other heart patients. It has two other cardiac drugs, omecamtiv mecarbil and aficamten, in advanced trials, and is doing some interesting work aimed at treating neuromuscular disorders.

Daniel Lyons of Janus Henderson particularly likes medical technology company Boston Scientific (NYSE: BSX). It has a strong record of making devices that are “less invasive, easier for doctors to use and gentler on older patients”. Around two-thirds of the firm's revenue comes from cardiovascular devices, which improve blood flow, fix faulty heart rhythms and support the heart without the need for major surgery, which is especially helpful for the elderly. The firm's total sales have more than doubled since 2020 and continue to growth strongly, yet the stock trades at only 14 times 2027 earnings.

Gene-sequencing company PacBio (Nasdaq: PACB) is involved in the quest to find the genetic and epigenetic causes of ageing. It recently won a contract to sequence genomes for the Long Life Family Study being carried out by the National Institute on Ageing. It will track families with a history of long-lived ancestors over multiple generations to try to identify the causes of long life. PacBio has also won other large-scale contracts and its management expects the firm to become profitable in late 2027 or early 2028.

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UK investors looking for income often concentrate on FTSE 100 companies. But it's not just the more defensive, established giants that can deliver attractive dividend yields; mid-sized and smaller companies can too. These smaller businesses tend to be more cyclical and faster growing, helping to drive earnings and dividend growth, which can boost total returns over time. “Time” is the word to emphasise there. Sometimes you have to wait for them to fulfil their exciting capital-growth potential. But if you've targeted good, well-managed companies paying out dividends, you know you're being paid to wait. This area of the market can go through difficult patches, but that can open up opportunities to buy at attractive prices and enhance the dividend rewards further.

It's in one of those difficult patches now. Smaller companies have substantially underperformed their large-cap peers. In my view, this is because smaller companies are more domestic in their exposure at a time when the UK economy is roughly flatlining. And they're more cyclical at a time when there are question marks about the global and UK economies. But this prolonged underperformance has arguably thrown up some interesting value opportunities. Here are three holdings within our multi-cap, income-focused Lowland Investment Company that we think illustrate the potential benefits for long-term investors willing to hunt among smaller companies, as well as larger ones, for dividend yield and potential capital growth.

Three UK smaller companies to consider

Marshalls (LSE: MSLH) makes building products such as paving stones and roofing materials. It's trading on less than ten times forecast earnings, on an earnings number that is depressed compared with its history. End markets, particularly in landscaping products, are challenged, but while you wait for things to pick up there is a dividend yield that is more than 5% and roughly twice covered by earnings. There are also divisions within the group that are more resilient. Its solar panels division, for example, has grown sales strongly in recent years.

Shaftesbury Capital (LSE: SHC) owns much of London's West End, including Covent Garden, Carnaby Street and Chinatown – a mix of retail, office and residential properties. It's trading on a roughly 40% discount to net asset value. The market is gloomy about property, but vacancy rates in this portfolio are very low. The dividend yield is more than 3% and the managers are targeting rental growth of 5%-7% a year. This should mean the company has the potential to grow that dividend sustainably to offset inflation.

Hilton Food Group (LSE: HFG) is a meat packer with customers globally, such as Tesco in the UK and Woolworths in Australia. It has struggled in recent years after expanding into adjacent areas, such as white fish and vegetarian food. But the current CEO seems to be shifting focus back to its core skills. The shares trade on a price-earnings ratio in the low teens and a dividend yield covered by earnings of more than 6%. Hilton is now investing in new growth opportunities. It's starting to work with Walmart in Canada, a venture that might eventually spin out to other countries covered by the supermarket chain. If people can feel confident the problems have been dealt with, they may get more excited about growth opportunities again.

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Ceres Power Holdings (LSE: CWR) is one of many companies to have recently got caught up in the global AI boom. Shares in the fuel-cell provider have charged higher by 240% year-to-date. Over the past 12 months, the shares have risen 850%. Despite this performance, the stock is still down around 50% from its ten-year high in February 2021.

UK-based Ceres Power is a developer of solid oxide fuel cells (essentially mini power stations) and hydrogen-power technologies. For many years, the company and its technology were relatively unloved due to high costs and low demand. That has changed over the past 12 months thanks to the massive energy demands of AI, leading to what can only be described as an arms race for power. Data-centre operators and the so-called hyperscalers – Alphabet, Microsoft, Amazon and Meta – are seeking their own power sources as capacity-constrained electricity grids are unable to meet their needs.

Electricity demand from data centres soared by 17% in 2025. The power demand from the average newbuild data centre is forecast to rise to almost 110MW by 2030, from almost 47MW in 2025, according to S&P Global. Globally, data centres could consume 1,000 terawatt-hours (1,000,000GWh) of electricity by 2023, up 100% from 2030.

In November 2024, US utility American Electric Power entered into a landmark supply agreement with Bloom Energy to procure solid-oxide fuel-cell products capable of delivering 1GW of power. Designed to plug directly into AI data centres, the fuel cells can run on natural gas, biogas or hydrogen blends and, most importantly, can be delivered and turned on in months, not years. Data-centre company EdgeCloudLink claims it can construct a data centre and have it running within nine months, partly thanks to fuel cells removing dependency on power utilities.

A turnaround for Ceres Power?

The market seems split on whether Ceres can replicate the success of its US peer. Its record of delivering is spotty to say the least – revenue hasn't grown over the past five years. It is holding out on its next-generation Endura technology, a solid-oxide stack platform that can run on both natural gas and hydrogen. A solid-oxide stack uses ceramic electrolytes to convert fuels into electricity, and Ceres claims its technology can do so more efficiently than its competitors.

At scale, manufacturing costs are expected to be one-third lower than that of its competitors, according to Ceres, and its output aligns perfectly with the electrical requirements and standards of modern data centres. Berenberg analysts describe this as a “gamechanger” that will allow the company to monetise its research and development into a scalable platform.

Peel Hunt analysts believe this is nothing more than a branding exercise, repacking the company's existing technology into a new product. But ultimately, the company's success will depend on its ability to sell licences for its products. Over the past few years, Ceres has transitioned away from a manufacturing model to a licensing model and has outlined a goal of securing at least one new manufacturing licence agreement per year. That doesn't look like a particularly high bar considering the company has identified a 22GW market opportunity for its products by 2030, driven by demand from industry and data centres, particularly in Asia and the Americas.

A single partner scaling up to 1GW of production using Ceres' new Endura technology could generate £50 million to £100 million in annual royalty revenue. Berenberg believes that would generate $1 billion in shareholder value at current sector valuation multiples. Compared to Ceres's current market capitalisation of £1.4 billion, it's easy to see why investors have raced into the stock.

Should you invest in Ceres Power?

The next few years will be key. Analysts have pencilled in revenue of around £80 million for 2028, up from £52 million in 2024 when the company started its transition to a licensing model. This isn't enough to justify the current valuation. Still, these figures were compiled before the company announced a partnership with Centrica (the owner of British Gas) and Delta Electronics (a Ceres manufacturing partner) for off-grid energy generation.

The partnership will offer customers “competitively priced, on-site power generation, significantly reducing exposure to wholesale electricity market volatility and grid capacity constraints”. The plan is to deploy a demonstration site within the next 12 months and scale up capacity over the next three to five years. Other partnerships signed in 2025 are expected to ramp up and start delivering results in 2026, including partnerships with Shell in India, Doosan in South Korea and Weichai in China.

Five years is a long time. The firm is still loss-making when measured by Ebitda and is burning through cash (Ebitda of £7.8 million is projected for December 2028). The shares are trading at 17.5 times forward sales. Still, with £83 million of cash in the bank at the end of 2025, Ceres has the resources to sustain itself for the next three years until it reaches break-even point. The company burned £20 million of cash in 2025 and costs are expected to be down by around 20% this year.

Ultimately, Ceres is a high-risk play and the company's valuation does not leave much room for error if sales fall below expectations next year. However, it's clear there's a large and growing market for the fuel-cell technology Ceres has spent years developing. With 50GW of additional electric supply needed in the UK alone to meet demand from AI data-centre projects in the pipeline, even a relatively small order could transform the company's fortunes.

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In times of uncertainty, it is comforting to have in your portfolio some substantial, growing companies with leading market shares in stable sectors such as healthcare. A good example is Intuitive Surgical (Nasdaq: ISRG), the global leader in robotic surgery. Intuitive Surgical has more than 11,000 of its da Vinci robotic surgery systems and over 1,000 of its Ion robotic endoluminal biopsy/minor procedure systems installed in hospitals in 70 countries worldwide. The surgeon controlling one of these systems sits at a console with a magnified three-dimensional view of the operating site and controls instruments that have a greater range of motion than the human hand.

Intuitive Surgical has a 60%-70% market share globally of the installed base of robotic surgery systems and a share of about 80% of general soft-tissue systems (excluding niches such as orthopaedics). The market for robotic surgery is growing from a predicted $16 billion in 2026 to $64 billion in 2035, a compound annual growth rate (CAGR) of 16.5%.

Intuitive Surgical has a wide moat

Intuitive Surgical has four features that amount to a wide moat protecting its dominant market share. First is its substantial investment in the research and development of new products – more than $1.3 billion in 2025 – including fifth-generation da Vinci systems that are now in production. Second is its set of more than 4,500 patents protecting its high-tech systems from being copied by competitors.

Third is its unparalleled surgical database gained from more than 20 million surgical procedures carried out using da Vinci systems. This database is used continuously to improve the AI and software incorporated into Intuitive's systems.

Finally, there's Intuitive's da Vinci robotic surgery training scheme, which has trained more than 66,000 surgeons around the world. Surgeons trained on da Vinci systems who plan to move to a new hospital naturally ask that hospital to install a da Vinci system.

Additionally, there are three factors driving further growth. The first is the advantage of robotic surgery over conventional surgery; it is minimally invasive (keyhole) surgery, which ensures shorter hospital stays and improved patient outcomes (for example, fewer complications). That is why robotic surgery is growing at a CAGR of 16.5% .

The second is the application of robotic surgery to more procedures ever since the first two procedures – gall bladder removal and prostatectomy – were approved by the US regulator in 2000. For example, the early 2026 regulatory approval given to da Vinci 5 systems for nine different cardiac procedures clears the way for 160,000 minimally invasive heart procedures in the US and Korea alone.

The third is the extension of Intuitive's reach to more hospitals and more countries. A country is usually served by distributors initially, but as business grows Intuitive starts to serve customers directly to provide a more comprehensive service. In March 2026, Intuitive began direct operations in Italy, Spain, Portugal and Malta by acquiring the existing distributors there. This is likely to result in faster growth.

Intuitive Surgical's 2025 results show revenues up by 20.5% to $10.065 billion. Pre-tax profit was $3.31 billion, up 23.8%. Diluted earnings per share for 2025 was $7.87, up 22.6%. The balance sheet is strong, with more than $9 billion in net cash. Strong growth continued in the first quarter of 2026, with revenue up 23% compared with the first quarter of 2025. Keep buying.

How Intuitive Surgical has performed

This base is important as about three-quarters of revenue comes from instruments, accessories and services. This revenue increases as the number of surgical procedures carried out on the machines rises. In the first quarter of 2026, revenue was $2.77bn, up 23% on the same period the year before, with da Vinci procedures up 16% and Ion procedures up 39%. And the recent approvals for nine new cardiac procedures using da Vinci 5 could add another 160,000 procedures in the US and Korea alone.

The installed base rose with new sales – 431 da Vinci systems and 52 Ion systems were placed in the first quarter of 2026. The total for da Vinci systems included 232 da Vinci 5 systems compared with 147 in the same period last year. The new direct sales organisation for southern Europe should enhance sales there.

Intuitive Surgical expects a gross profit margin of 67.5%-68.5% of revenue compared with 67.6% in 2025 (on a non-GAAP basis). This includes the impact from tariffs of 1% of revenue. Given that Intuitive has a history of under-promising and over-delivering, this implies that the ex-tariff margin is likely to rise.

Most of the 38 analysts covering the stock rate it a “buy” (19) “overweight” (6), with 11 opting to “hold”. The forward price-earnings (p/e) ratio for 2027 at the recent price of $420 is 36.7 falling to 31.6 for 2028. The average one-year target price is $582. There is no dividend, but the firm's strong financial position enabled it to spend $2.3 billion on share buy-backs in 2025, which supported the share price. This is a profitable growth stock worth adding to your portfolio.

Dr Michael Tubbs owns shares in Intuitive Surgical

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UK small caps have been left under-owned by investors' preferences for large-cap stocks in recent times, creating a significant valuation gap. However, as macroeconomic pressures stabilise and confidence returns, this gap is beginning to narrow. The strength of many UK small caps is becoming apparent. They are often more agile than their larger peers, operate in attractive niche markets and remain significantly under-researched – creating a fertile hunting ground for mispriced opportunities. We hold a concentrated portfolio of high-quality UK small caps, and take meaningful stakes and engage directly with management teams. This allows us to support long-term value creation and tune out short-term market noise. Across the portfolio, we are seeing a growing number of smaller companies reaching clear inflection points, yet share prices remain anchored to outdated narratives.

Three UK small caps to consider for your portfolio

The UK wealth-management sector continues to benefit from strong long-term structural tailwinds such as rising levels of household wealth and supportive government policies. Brooks Macdonald (LSE: BRK) looks like an interesting recovery story in that sector. The firm's recent transformation and investment initiatives are beginning to show results. This is complemented by rising momentum across its model portfolio service, which now represents 40% of assets and is growing at double digits. The company has recently returned to overall net asset growth, having now delivered two successive quarters of positive net flows. If sustained, this will show that management's efforts are paying off and could act as a catalyst for a substantial rerating. The firm could also become a takeover target. It is a valuable asset as a standalone platform, or in combination with another player.

Netcall (Aim: NET) also looks compelling. It is a leader in software related to customer engagement and business process automation, and the group serves industries including healthcare, local government and financial services. Its move to offering products from the cloud has transformed the business and accelerated top-line growth to double digits. It remains profitable and has a strong balance sheet. The investment case is being strengthened by AI. Netcall helps public-sector clients implement AI as part of broader efforts to automate services. Many of the relevant bodies lack in-house IT capabilities and therefore require a trusted partner to help them extract efficiency gains from new technology. This is where Netcall comes in, and its business strategy aligns directly with central government's push to digitise public services. The shares have fallen recently, caught up in the “SaaSpocalypse” narrative that AI will make many software providers obsolete. We think this misreads the situation. Netcall isn't being disrupted by AI – it is helping to deliver it.

Everplay (LSE: EVPL) is a developer and publisher of video games. Its model of acquiring and developing games made by independent producers limits the risks around development and improves the quality of earnings – 75%-90% of annual revenue is typically generated from a back catalogue of hundreds of titles, providing diversification and resilience. Recent weakness in the share price reflects concerns about AI's impact on the development of gaming. But Everplay's strength lies in identifying and acquiring successful intellectual property and managing it over time. If AI enables developers to create more content quickly and cheaply, this will increase the volume and make curation and selection even more valuable. Recent management changes support the investment case. We believe Everplay is a well-positioned, scaled player in a fragmented industry, with potential to consolidate further or eventually become an acquisition target.

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Scottish Mortgage has confirmed its holding in space exploration start-up SpaceX is valued below the level the firm is rumoured to be targeting at its upcoming initial public offering (IPO). That could potentially mean an uplift in Scottish Mortgage’s value at the time of the listing, if SpaceX achieves the rumoured price tag, though experts caution that IPOs can be volatile and unpredictable periods.

Managed by Baillie Gifford and one of the UK’s most popular investment trusts, Scottish Mortgage (LON:SMT) invests in innovative companies in which it sees the potential for long-term growth.

As of 30 April, SpaceX – one of the major players in the burgeoning space economy – is Scottish Mortgage’s largest holding, accounting for 18%% of the portfolio.

“Scottish Mortgage first invested in SpaceX in December 2018, deploying capital through to August 2021, with a total investment of £151 million (approximately $200 million at the time of purchase),” said Tom Slater, manager of Scottish Mortgage. Despite no additional capital having been invested since then, Slater confirmed that “SpaceX has been the trust’s largest contributor to returns over one, three and five years, and the fifth‑largest contributor over 10 years”.

Since SpaceX is a private company, its shares don’t trade daily like those of a listed company. That means its value doesn’t fluctuate day by day; instead, it changes intermittently during specific ‘liquidity events’, when insiders sell shares on private markets.

SpaceX is expected to list later this year, and, according to reports, could target a value as high as $1.75 trillion. While this valuation hasn’t yet materialised – and may not, depending on what happens when the company lists – there is an expectation within the market that it could soon be worth this much.

That poses a conundrum for funds and investment trusts that hold its shares. What are they really worth – their level at the company’s last liquidity event, or its rumoured value at a future IPO?

Scottish Mortgage reveals SpaceX valuation

Scottish Mortgage confronted this question in a briefing note on 12 May clarifying that, as of 31 March 2026, the trust values its SpaceX holding based on a $1.25 trillion valuation. This follows “a revaluation during the first quarter as secondary market transactions were rebased to reflect the merged valuation of SpaceX and xAI” – the latter being the artificial intelligence start-up founded, like SpaceX, by Elon Musk.

The trust also clarified that its valuations for SpaceX and other private companies it holds are based on “verifiable transactions rather than market commentary or press speculation” and that they are determined by Baillie Gifford’s valuations team as well as an independent third-party provider, S&P Global.

Even at this valuation, SpaceX has delivered excellent returns for Scottish Mortgage since its initial investment.

“As at 31 March 2026, the holding was valued at £2.98 billion (approximately $3.94 billion), representing an increase of around 19 times the original investment,” said Slater.

But given the rumoured IPO valuation is 40% higher that the trust is currently marking them, could a value bump await Scottish Mortgage shareholders as and when SpaceX lists?

How might a SpaceX IPO impact Scottish Mortgage?

It’s hard to say how a SpaceX IPO could impact the investment trust. For one thing, Scottish Mortgage made it clear in the briefing note that at this stage there is no clarity over what restrictions may apply to existing shareholders post‑listing. They could be subject to a lock-up period – a defined period after a company IPOs, usually 90-180 days – during which major pre-existing shareholders are not allowed to trade their shares.

“Even if SpaceX shares jump to the rumoured IPO valuation level, the Scottish Mortgage management team may not be able to take profits initially,” said Ben Johnson, senior analyst at investment manager Charles Stanley. “The team have made their peace with this and have communicated this clearly.”

The market may also have started to price future gains in already. While the average UK investment trust trades at a discount to its net asset value (NAV) of around 12%, Scottish Mortgage trades at a premium of around 3.5%.

This probably reflects broad optimism over the trust’s strategy, which leans heavily into growth and tech stocks, according to Chris Beauchamp, chief UK market analyst at investing platform IG, but could also in part reflect the market’s expectation that its SpaceX holding might soon increase in value.

But Beauchamp also cautioned that there is a risk of volatility following any tech IPO.

“It’s a different world once you’re a public company,” said Beauchamp, thanks in large part to increased scrutiny over business fundamentals.

Companies like Meta (formerly Facebook) and Musk’s own Tesla endured share price declines in the aftermath of their respective IPOs.

“The risk with IPOs is that people [who have already invested in the company] are looking for an exit,” said Beauchamp. “There’s so much wealth tied up in it they want to realise, understandably.” This can lead to a high appetite to sell.

“Investors should expect significant volatility in the Scottish Mortgage share price during and after the IPO,” said Johnson. “The trust has never had such a big weight in a single name.” He highlighted, though, that the last company in which the trust had a high double-digit weighting was Tesla, “which proved to be one of its most successful ever investments” over the long term.

Global dividend payouts reached a record high during the first quarter (Q1) of 2026, according to data released by investment manager Vanguard.

Investors received a total of $421 billion during Q1, up 6.7% from $394 billion during the same period the previous year.

Reliable dividend payers are often among the most popular stocks for DIY investors, particularly those who want to generate an income from their investments.

Most of the growth in global dividend payments came from developed markets.

Dividend payments in Europe (excluding the UK) increased 34% to $68 billion. Dividend payments in North America rose by 9% to $205 billion.

“Nearly half of global dividend distributions came from North America. Dividends also increased in the UK, Japan and the Pacific region,” said Viktor Nossek, head of investment and product strategic intelligence at Vanguard Europe.

While Europe and North America saw dividend payouts increase by a combined $27 billion, China and emerging markets had a net negative effect on global dividend growth.

China’s financial sector in particular registered a $10 billion decline in payouts, though Nossek highlighted that this does not reflect weaker fundamentals but is the result of a timing effect.

“The four largest banks switched to semi‑annual dividends and paid their interim dividends for the first half of 2025 as early as December 2025,” said Nossek. “This brought payouts forward into the 2025 calendar year, leaving only limited distributions in the first quarter of 2026.”

Which sectors saw the highest global dividend growth?

In the US, the sector that contributed most to global dividend growth was financials; the sector paid out $45 billion in total dividends – up $8.3 billion from the previous year and thereby accounting for 31% of global dividend growth.

This increase was largely thanks to US banks successfully completing stress tests from the Federal Reserve.

“In Europe excluding the UK, growth was heavily concentrated in the healthcare sector,” said Nossek. “A small number of pharmaceutical companies accounted for most of the increase, driven by higher annual March dividends against a backdrop of solid fundamentals.”

Healthcare accounted for $7 billion of the total $17 billion increase in European dividend payments.

How to invest in global dividend stocks

If you are considering where to invest and are hoping to harness the power of dividends, then investing in Europe could be a worthwhile strategy.

Nossek expects Europe to continue to be a good region for dividend seekers in the current quarter given the “structurally strong dividend season in April and May”.

“Energy and materials stocks could once again become key drivers later in 2026, provided high commodity prices persist,” he added.

If you want to tap into regional or dividend stocks, there are a number of funds, exchange-traded funds (ETFs) and investment trusts that could give targeted access.

For passive exposure to global dividend stocks, Vanguard’s FTSE All-World High Dividend Yield UCITS ETF (LON:VHYL) tracks the FTSE All-World High Dividend Yield Index and holds stocks like JPMorgan Chase (NYSE:JPM) and Johnson & Johnson (NYSE:JNJ).

Murray International Trust (LON:MYI) offers global equity dividend exposure via an active strategy, and is a ‘dividend hero’ (meaning it has increased its dividend payments every year for more than 20 years).

ETFs offering exposure to dividend stocks in specific regional markets include WisdomTree Europe Equity Income UCITS ETF (LON:EEI) or iShares MSCI USA Quality Dividend Advanced UCITS ETF (LON:HDIQ).

Bank stocks were hit hard by the 2008 financial crisis. Years of heavy borrowing left many banks exposed, and some of the most trusted names collapsed. Investors faced huge losses as governments stepped in with taxpayer-funded bailouts. In response, regulators introduced strict new rules to prevent a repeat. These measures weighed on profits for years, but the sector has now come through that difficult period. Today, banks are much safer than they were before the crisis. Big investors have returned, helping to push up share prices; some have even tripled in recent years. As valuations edge back towards more normal levels, an important question remains. Do these high-yielding stocks still deserve a place in a portfolio, or have the easiest gains already been made?

Bank stocks’ wilderness years

For more than a decade, the banking sector struggled to regain the confidence of investors. Most professional fund managers suffered significant losses in the 2008 crash and subsequently found the industry difficult to navigate. Investors discovered they lacked understanding of complex balance sheets. Consequently, their appetite for banks' shares vanished for a generation. Even today, many professional investors remain wary because they find the internal mechanics of a global bank difficult to decipher.

While investors remained cautious, regulators rebuilt the global financial architecture. There has been a substantial increase in banks' capital, the cushion that stands between bank assets and insolvency. Core capital ratios, which give the size of this cushion expressed as a percentage of the bank's total risk, were as low as 4% pre-crisis; today, they often exceed 15%. In the UK, the Vickers Report mandated a separation between retail and investment banking operations. This altered the nature of the business and kept valuations low.

Jamie Dimon provided the first credible signal that this era of stagnation was ending. In February 2016, the chief executive of JPMorgan Chase invested $26 million of his own money into his bank's stock. He purchased the shares at roughly $56 per share, which aligned with the company's book value at the time. Dimon realised that the regulatory clean-up was largely complete. He saw an institution that was well-capitalised and undervalued, yet still priced as if it was ruined. His investment marked the start of a decade-long rally that eventually saw the stock price rise more than fivefold. It would take several more years and a radical change in the interest-rate environment for the rest of the market finally to reach the same conclusion.

The return of inflation

The stagnation of the previous decade ended with the return of inflation. Central banks tackled inflation by raising interest rates from near-zero to 5% and, with that, the fundamental engine of banking profit returned to health. This engine is the “net interest margin” – the difference between the interest a bank pays to its depositors and the interest it receives from its borrowers. For years, the industry struggled to generate a decent return in a world where interest rates were near-zero. The shift to higher rates boosted profits.

How much banks paid their depositors played a big role in this windfall – that is, how much of a central-bank rate rise was passed on to savers. When rates went up, banks were slow to increase interest on current accounts. At the same time, they quickly raised the cost of mortgages and business loans. This delay helped to boost profits. In theory, this rise in profits should only be temporary. But it made it easier for a bank to manage future earnings through a “structural hedge”, allowing them to lock in interest rates for several years and smooth profits as rates fall. The result is a more stable and predictable income stream. This improved profitability has transformed how banks manage their capital. After a decade of hoarding cash to satisfy regulations, they are now paying a lot back to shareholders via a mix of dividends and share buybacks. Total shareholder yields, combining dividends and buybacks, now often exceed 10% a year.

Strong recent results from the biggest banks have cast doubt on the idea that upstart digital challenger banks will disrupt them. While the challengers achieved high user numbers and launched attractive software, they lacked the massive and low-cost deposit bases that the traditional banks enjoy. The incumbents used their superior cash flows to adopt the best elements of the digital revolution, investing billions in their own platforms while maintaining the trust and regulatory licences required to dominate high-value lending, such as residential mortgages.

The established banks were also better able to absorb the higher costs of regulation and cybersecurity. For a smaller challenger bank, the compliance burden is often a significant percentage of its total revenue. For a giant bank, it is a manageable operational expense. Some challenger banks, most notably Revolut, have grown to a large size, but the biggest effect of the new banks is a forced modernisation of the older ones.

This combination of rising margins, disciplined shareholder returns and the resilience of the established model has restored the sector's momentum. The banks have demonstrated that they are no longer just safe utilities. They are profit-seeking enterprises with the capacity to deliver high yields to patient investors. The current challenge for investors is to identify which institutions can sustain this performance as the interest-rate cycle matures. The market has recognised the recovery, but the divergence between the winners and the laggards suggests that selection remains critical.

How to navigate the banking market

There are at least three distinct types of banking. Retail banking is the familiar world of the high street, managing residential mortgages and personal savings for millions of customers. Corporate banking offers services to the commercial sector, extending credit to firms and facilitating international trade. Investment banking is a more volatile endeavour that involves mergers, debt issuance and investing in the capital markets. The latter depends on the shifting appetites of the financial markets, which introduces a level of unpredictability that many investors find unsettling. The market typically rewards the steady stability of retail lending with a higher multiple, while it views the inconsistent profits of investment banking with caution.

The main concern for investors is the progression of the interest-rate cycle. Banks generally benefit from rising interest rates because the income they generate from loans increases more quickly than the interest they pay to depositors. However, as rates plateau this advantage often diminishes. Customers eventually move their money from low-interest current accounts into higher-yielding fixed-term products. This shift increases the bank's cost of funding and can lead to a lower profit. Asset quality is another area of vulnerability. Extended periods of high borrowing costs can put pressure on both households and businesses, leading to a rise in loan defaults. The commercial real-estate sector is currently viewed with particular caution, especially in markets where office and retail property valuations have fallen. If a bank has a high concentration of lending in these areas, it may be forced to raise its loan-loss provisions, which hurts profits.

Political and regulatory risks are also a factor. Governments may consider windfall taxes on high bank profits during hard times. Regulators often introduce new rules on capital requirements or consumer protection. Such measures increase operational costs and limit the amount of cash that banks are able to return to shareholders through dividends and buybacks.

Finally, structural shifts in the financial system present long-term challenges. The rise of non-traditional lenders and private credit markets has introduced new competition for corporate lending. Furthermore, the development of digital currencies could alter the traditional deposit-taking model. If consumers begin to hold significant portions of their wealth in digital sovereign currencies rather than bank accounts, the industry's funding costs could rise substantially.

To assess a bank accurately, investors must look past the price-to-earnings ratios used for ordinary companies. Instead, they prioritise the price-to-tangible-book-value ratio. This metric compares the share price against the net value of the bank's hard assets, once intangible items such as goodwill or brand value are stripped away. It provides a realistic view of the bank's worth if it were liquidated today. A bank trading at a discount to this figure suggests that the market believes the management is failing to earn its way, or that the assets on the balance sheet are not as safe as they appear. Conversely, a premium indicates that investors expect the institution to generate superior returns for years to come. In this new higher-interest-rate environment, investors must distinguish between high-quality cash machines and potential value traps.

The efficiency leaders of the banking industry

JPMorgan Chase (NYSE: JPM) remains the undisputed benchmark for the global banking industry. It is the largest bank in the world by a significant margin and is valued at more than double its nearest competitor. This scale allows the firm to simultaneously dominate both investment banking and retail lending. Under the leadership of Jamie Dimon, the bank has maintained a return on equity of nearly 16% while investing billions into its technological infrastructure. While the valuation is high compared with peers, its operational dominance and so-called “fortress balance sheet” provide a unique safety net. It is the go-to investment for those who wish to gain exposure to banking.

Lloyds Banking Group (LSE: LLOY) is a direct bet on the British economy. Unlike its more international rivals, Lloyds Banking Group generates the majority of its profit from domestic retail and commercial lending. Its net interest margin has improved significantly in recent years as it benefited from the shift in interest rates. With a price-to-tangible-net-asset-value ratio of 1.5 times and a healthy return on equity, the bank has become a favourite for dividend-seekers. Its aggressive share buyback policy continues to support the shares even during periods of domestic economic uncertainty.

HSBC (LSE: HSBA) has focused its efforts on the high-growth markets of Asia, which now drive the majority of its earnings. The bank trades at 1.7 times tangible net asset value and delivers a return on equity of 13.7%. For the income investor, the appeal lies in consistent dividends and regular share buybacks. However, the heavy exposure of HSBC to Hong Kong and mainland China remains a double-edged sword. These regions offer superior growth potential, but also introduce geopolitical risks.

NatWest Group (LSE: NWG) has completed its journey from a government-controlled institution back to a fully private enterprise. Many investors will remember the bank as the Royal Bank of Scotland, which rebranded to distance itself from the reputational damage suffered during the 2008 crisis. The bank has shown remarkable profitability recently, with a return on equity approaching 20% in its most recent results. The shares trade at a more modest 1.3 times tangible net asset value, offering an attractive entry point for those seeking exposure to banking. Its focus on digital efficiency has allowed it to maintain a competitive edge.

The recovery candidates

Barclays (LSE: BARC) trades at a discount of 0.8 times to tangible net asset value, despite delivering a return on equity of more than 10%. The market remains cautious regarding its large investment-banking division, which requires significant capital and produces volatile returns, but management recently vowed to return substantial capital to shareholders by the end of this year. If the bank can prove its investment arm is no longer a drag on the retail business, the potential for a valuation re-rating is substantial. It remains an interesting candidate for those looking for value and who are comfortable with higher risk.

UniCredit (Milan: UCG) has emerged as one of the most efficient banks in the eurozone. Under a disciplined management team, the Italian giant has achieved a return on equity of nearly 17%, far outstripping many of its domestic and international peers. It trades at 1.5 times tangible net asset value, reflecting a market that has finally begun to appreciate its streamlined operating model. By aggressively cutting costs and returning capital, UniCredit has proved that a European bank can thrive without the tailwinds of a massive domestic mortgage market.

Deutsche Bank (Frankfurt: DBK) has historically been the sick man of European banking. After years of losses and scandals, the bank has finally returned to consistent profitability, posting a return on equity of 9.2%. Reflecting this, it remains one of the cheapest major banks in the world, trading at just 0.7 times tangible net asset value. The discount is due to its poor reputation, but the structural improvements in its corporate and private banking arms are undeniable. For the patient investor, it represents a bet that the final stages of its turnaround will lead to a revaluation.

The specialists

BNP Paribas (Paris: BNP) is the closest institution Europe has to a diversified American-style giant. It operates a massive corporate and investment bank alongside a stable retail presence across several countries. Trading at 0.9 times tangible net asset value, it offers a diversified stream of earnings and a healthy dividend yield. The bank has successfully used its scale to gain market share as American rivals pulled back from certain European markets. It is a solid choice for those who want exposure to European growth without the concentrated risk of a single-country lender.

Banco Santander (LSE: BNC) has exploited its unique geographic footprint, spanning from Spain to Brazil and the US, to protect itself from regional economic shocks. The bank trades at 1.7 times tangible net asset value and delivers a return on equity of more than 12%. Its diversified model means that when the European economy slows, its Latin American operations often provide a profitable cushion. This geographic spread is its greatest strength, although the complexity of managing such a diverse empire often leads to a slightly lower valuation than its simpler peers.

Standard Chartered (LSE: STAN) provides a unique way to gain exposure to the emerging markets of Asia, Africa and the Middle East. Unlike HSBC, it has a smaller retail presence and focuses more heavily on corporate and institutional banking. It trades at 1.1 times tangible net asset value and has recently exceeded its own profitability targets. It is a primary beneficiary of the rise in intra-Asian trade and is well-positioned to benefit from the ongoing economic development in its core markets. It remains an attractive option for investors looking towards the emerging economies.

Bank of America (NYSE: BAC) is the second-largest lender in the US and serves as a bellwether for the US consumer. It trades at 1.8 times tangible net asset value, a premium that reflects its massive deposit base and its leading position in digital banking. While it is highly sensitive to US interest rates, its diversified earnings from investment banking and wealth management provide stability. It is often seen as a more conservative alternative to JPMorgan Chase for those who want exposure to the American financial system.

Goldman Sachs (NYSE: GS) remains the premier investment bank in the world. Unlike the universal banks, Goldman Sachs is heavily weighted towards merger advice, trading and asset management. This makes its earnings more volatile and dependent on the health of the financial markets. After a period of strategic drift into consumer banking, the firm has refocused on its core strengths. It remains an option for those trying to gain exposure to pure investment banking rather than more traditional lines of business.

The best bank stocks to invest in now

The banking sector has transitioned from a source of risk to a reliable engine of shareholder returns. For those seeking stability, Bank of America offers a good balance sheet and direct exposure to the US economy. Its historical resilience provides a degree of security for investors prioritising long-term capital preservation. Barclays represents a more opportunistic choice. It remains priced at a discount compared with its domestic peers, and the successful execution of its current strategy should allow this valuation gap to narrow, rewarding patient holders. Finally, Standard Chartered serves as a unique vehicle for those desiring exposure to emerging markets. As a UK-listed entity, it provides a regulated gateway to high-growth regions in Asia and Africa.

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While AI is the main investment theme in the markets at present, robotics is also increasingly in the spotlight. Almost every day we see a new headline about a robot running a marathon, breakdancing, or beating a human at table tennis. Most experts predict a vast jump in the number of droids within the next few years. But not every robotics stock is worth buying. Some companies produce ideas that just don't work, face too much competition, or have shares that have become absurdly overpriced. That brings me to Serve Robotics (Nasdaq: SERV).

Serve Robotics’ business model appears plausible enough. Many people spend large amounts of money on takeaways delivered to their homes. This “last-mile” delivery takes time, costs money (either upfront or in tips) and causes pollution and congestion (if delivered by car). Occasionally, deliveries can get lost. In theory, Serve Robotics' delivery robots, which look like a box on wheels, can cut out this cost by taking food from restaurants to customers, navigating roads and pavements. As of February 2026, the group had around 2,000 robots in operation.

Serve Robotics is facing an uphill struggle

However, there are several flaws in the business model. While the technology has greatly improved over the past few years, Serve's robots still get stuck or lost, while there are also ongoing concerns about food theft. Serve Robotics also faces competition from a host of other providers, such as Coco Robotics and Starship Technologies, which are also pursuing similarly aggressive expansion plans. Many of the major food-delivery firms, moreover, are exploring other in-house solutions, such as self-driving cars or drones.

An even bigger difficulty is that the robots are deeply unpopular with many people, at least in America. Part of this is due to genuine concerns that they are creating a hazard for pedestrians, especially the elderly and those with disabilities, and other road users. Some people just find the idea of robots roaming the streets unnerving, and vandalism has also been a problem.

There are widespread calls for them to be banned, while parts of San Franciso and Chicago have blocked, or severely restricted, their expansion. The robots aren't popular with restaurants either. Research by short-seller Edwin Dorsey suggests that many restaurants have ditched them because they delivered few or no cost savings.

To cap it all, Serve is projected to keep losing money for the next few years, yet the shares are priced for perfection, trading at a whopping 20 time forward sales and 262 times current revenue – far more than the ratio of between seven and ten that most fast-growing technology firms can command.

The market seems to be taking a similarly negative view, with the stock down 50% from its 52-week peak and trading below its 50-day and 200-day moving averages. I therefore suggest you go short Serve Robotics at the current price of $9.40 at £100 per $1. I would put the stop-loss at $18.40, which gives you a total downside of £900.

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In February, major US brokers such as Marsh & McLennan , Willis Towers Watson, Aon and Arthur J. Gallagher & Co. declined by 8%-11% in a single day on news that OpenAI, the owner of ChatGPT, had approved the first insurance-focused AI app designed by US intermediary Insurify. OpenAI's tool arrived a week after Claude, the model developed by Anthropic, also released a new plug-in to automate sales, legal and financial analytical functions.

As well as this risk of obsolescence, investors have had to try to factor in the growing challenges of a so-called “soft” insurance market. Since 2017, the insurance market has been in a “hard” phase, where prices have been rising, and profits have jumped. However, two years ago, prices started to flatten and then fall as the market turned from hard to soft. The hard market was very good to Marsh & McLennan (NYSE: MRSH). Between 2017 and the beginning of 2024, shares in the broker and global-intelligence company rose more than 200%, but since topping out in the first half of 2025, they have fallen by around 28%.

This decline was needed. Insurance is a highly cyclical business and, coming into the soft cycle, Marsh was trading at about 22 times forward earnings, a multiple that left little, if any, room for error. After the re-rating, the shares are now trading at just 16.8 times forward earnings, according to UBS. That is still a bit high for this stage of the market cycle, but there's a good argument that you should start buying the shares at this level.

Marsh & McLennan plays an important role in the insurance market

Marsh & McLennan is the parent firm of Marsh Inc, one of the world's largest risk-management and insurance-services firms. The group also owns Guy Carpenter, a risk-management and reinsurance specialist; management consultancies Mercer, plus Oliver Wyman and Jardine Lloyd Thompson Group (JLT), an insurance, reinsurance and employee-benefits broker based in London.

The group's largest division is Marsh Risk, which generated $14.4 billion in revenue in 2025. The second largest is Mercer, with revenue of $6.2 billion, and Marsh Management Consulting, at $3.6 billion. The total consulting business turns over $9.8 billion a year. The risk-management and insurance businesses (including Marsh Risk) generated $17.3 billion in revenue.

Marsh Risk plays an important role in the insurance market. Large, complex risks are often underwritten by pools of insurers and reinsurers bought together by brokers. The insurers like it because they're not overly exposed to a single risk, and the buyer of insurance likes the security of multiple parties underpinning the contract. Marsh Risk helps navigate this process. The company also manages the claims process, which most large insurers and reinsurers don't have the capacity to handle, as it can be costly and time-consuming.

For example, Marsh has helped set up a clean hydrogen insurance facility, where developers pay an insurance premium, and Marsh negotiates insurance coverage with insurers to transfer the risk from the project owners' balance sheets. Investors (in this case, the insurers) provide capital investment for the projects, with their risk exposure mitigated by tailored insurance coverage. In the event of insured incidents, Marsh manages the claims process. The single platform helps lower costs for all involved.

It's hard to imagine a world where AI disrupts this process. It will certainly help streamline the paperwork, but the human touch of the Marsh brokers will always be required to navigate deals among key stakeholders. This business is highly profitable and cash-generative. The insurance arm booked an adjusted operating margin of 32% last year, compared with 21.1% for consulting. Of the $7.3 billion in adjusted operating income, $5.3 billion fell to the bottom line as operating cash flow. The company's return on invested capital, a measure of profit for every £1 invested in the business, is 25%.

How Marsh is embracing AI

The real AI threat is to Marsh's consulting arm, but even here, the company claims it is addressing the potential risk. In the company's first-quarter results, it said Oliver Wyman's AI Quotient, which helps firms deploy and scale AI tools, has advised on upwards of $50 billionin AI investment. This helped the consulting arm outperform in the first quarter, with Oliver Wyman recording revenue growth of 6%, ahead of group top-line growth of 4%.

Management is deploying these tools internally to help reduce costs. It's targeting a total of $400 million in savings over three years and has logged a 20% improvement in efficiency through AI-powered document processing. Other tools have saved an estimated one million hours of the team's time in the first year. UBS estimates this could help drive Marsh's return on invested capital to near 30% by the end of the decade.

So while the market frets about the risk AI poses, the company is quietly leveraging the technology to enhance its own services. This suggests that, if anything, the firm is an AI play.

Marsh's most important assets are its people and technology, and while it spends heavily on both, overall capital spending requirements are low. As a result, most of the cash generated from operations converts to free cash flow. Management has set out to return as much cash as possible to investors. At the end of last year, management authorised a $6 billion share buyback, with $750 million deployed in the first three months of the year. While the market was selling, Marsh was buying its own shares.

Cash flow is the firm's most attractive quality. While the shares might not look too cheap on a price-earnings basis, according to UBS, the shares are trading at a forward free cash-flow yield of 6.2% for 2026, 6.7% for 2027 and 8.1% for 2030.

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You might expect the £219 million Guinness Sustainable Energy Fund to have performed poorly in recent years, given the dreadful performance of renewable-energy infrastructure funds. Far from it: the fund returned 18% in 2025 after losing 17% in the previous three years, but returning 150% in the three before that.

That is because its portfolio is much broader. While the renewable infrastructure funds invest in just a few energy-generation projects, the Guinness Sustainable Energy Fund is spread across quoted companies in the equipment, efficiency, electric vehicles, power generation, batteries and infrastructure sectors.

Last year's returns were due to improving policy clarity, lower interest rates and surging power demand, not just from data centres and digital infrastructure but also from transport, building, industry and the re-shoring to the US of manufacturing, says co-manager Jonathan Waghorn. “Global investment in clean energy in 2025 was $2.2 trillion, twice as much as in fossil fuels, reflecting the fact that renewable energy is the cheapest form of electricity in most situations,” he notes. “Growing power demand has taken over from decarbonisation as the central secular theme.”

Capitalise on the rising demand for electricity

The International Energy Agency forecasts that electricity demand will grow at 3.7% in 2026 – well above the 2015-2023 average of 2.6% – and at 4% per annum thereafter. AI and data centres currently account for 4%-5% of US power demand, but this will grow to around 12% by 2030. Electric vehicle (EV) sales are expected to increase by 4 million to 25 million in 2026 (when they will make up 29% of total sales). Battery prices fallen 93% since 2010, but are likely to drop significantly further by the 2030s. In China, which accounts for 60% of global sales, EV sales are already over half the total. In the US, they are just 10% (against 20%-25% in Europe) due to cheap gasoline and range anxiety in a country where driving distances are longer, but this is expected to increase to 45% by 2030. Policy support has been inconsistent but changes in Donald Trump's “One Big Beautiful Bill Act” last year were not as adverse as many feared.

China added 430GW of renewable capacity in 2025, more than the rest of the world put together, and hit its 2030 target six years early. Approvals for new coal-powered plants have slowed – Waghorn says that global coal-fired generation is at a peak and expects it to halve by 2050. He expects gas-fired generation to continue to grow until 2040, then decline slightly. Renewable energy's market share of energy demand will increase from 15% to 40% as electricity's share of total energy increases from 25% to 40% in 2045.

“Given the growth in electricity demand, it is no longer about renewables or fossil fuels, but about both,” says Waghorn. “Not only is renewable capacity cheaper but costs are falling and lead times for installation are shorter than for gas, whose costs are rising. Gas-fired generation will still have a very important role, providing base load capacity and smoothing out the intermittency of renewable energy. Nuclear power will be slower to expand as expertise needs to be built up.”

“There is significant scope for energy efficiency gains, enabling overall demand growth to slow from 2% to 1% per annum long term.” Growth in electricity demand requires a doubling in expenditure to $600 billion per annum by 2030 and a further increase to $800 billion by the 2040s. “Much of the Western world's power grid is 40-50 years old, and over half of US grid transformers are 30 years old. Estimates point to a doubling of the global power grid by 2040.”

All this adds to the investment opportunity, reflected in the breadth of the fund's portfolio. It makes the funds focused solely on renewable energy projects – with high sunk costs and facing falling wholesale prices – look stuck up a cul-de-sac. Despite this, the portfolio still trades on a 12% discount to the broader market – with higher earnings growth, estimated at 12.7% per annum in 2024-2027 and above that of global markets, there is surely plenty more upside to go for.

An energy fund for a world that still needs oil

The oil and gas sector was a popular contrarian tip for 2026, largely because it had performed so poorly for so long. With the Brent oil price stuck at $65 a barrel, the dollar weakening, demand weak and plenty of potential additional supply visible, the argument for the sector did not look compelling. Yet the Gulf war changed all that, with the oil price surging to over $100 a barrel. Oil and gas companies are back in favour, with the Guinness Global Energy Fund returning 41% in sterling in the first quarter. So is it too late to jump in?

Oil looks expensive relative to recent prices but it was a “cheap commodity and at a 100-year low relative to the gold price”, says co-manager Will Riley. “The world was paying just 2% of GDP for its oil compared with a 30-year average of 3%, and 5% in 2012.”

The International Energy Agency has reduced its estimate for growth in demand from 0.73 million barrels per day (bpd) in 2026 to an average fall of 80,000 bpd. In the longer-term, oil demand, which stood at 104 million bpd in 2025, was previously forecast to peak at 107 million bpd in the 2030s. That peak may be brought forward if higher prices now provide an incentive to shift from oil at the margin, but demand is expected to decline only slowly.

The closure of the Strait of Hormuz theoretically prevents 20 million bpd of oil and 10-11 billion cubic feet of gas per day reaching markets. Alternative pipelines can transport some of this oil, but only some. While high prices will stimulate new investment – both in new production and new transport infrastructure – that will take time. There is no simple alternative to replace Qatar's 20% of global liquefied natural gas (LNG) production, for example. On a longer time scale, there is potential for additional oil and gas supply around the world, which can partly offset the depletion of existing fields. This includes Venezuela, which has the world's largest oil reserves and whose heavy (and costly to extract) crude has a breakeven point of at $80 a barrel, estimates consultancy Wood Mackenzie. However, “under-investment, infrastructure decay, sanctions and loss of technical capacity will take years to rebuild even if political stability and foreign investment returns”, notes Riley.

The Guinness Global Energy Fund had returned a respectable 9% in sterling last year, before oil prices rose – comfortably ahead of the sector, though it had lagged badly over five and ten years. This explains why the fund had shrunk to £125 million, though it is now up to £240 million. Last year's performance was driven by the focus of companies on cash flow and returns on capital, says Riley. Integrated European majors, notably BP and Shell, have been good performers “as they tilted away from renewable energy to fossil fuels”. Canadian companies have also done well as the government U-turned towards fossil fuels.

At the start of the year, the Guinness Global Energy Fund portfolio was trading on a trailing price/earnings (p/e) ratio of 12.8, a 40% discount to global equities, with little prospect of growth in earnings and cash flow if prices remained flat. However, an $80-$90 Brent oil price will add 65% to earnings, says Riley. Even after recent share-price gains, that will bring the fund's p/e ratio back down to about 13 times, compared with a long-run average of 15. Rising earnings also enable firms to pay down debt while distributing higher dividends, making share buybacks and still funding more investment.

The crucial consequence of the Middle East crisis is that the world has been reminded of the risks of supply disruption. This is likely to result in significant investment in new production to reduce dependence on the Gulf, actively encouraged by governments. That is good news for oil and gas companies with the necessary capital and expertise. Professional investors, who neglected the sector for so long, will be looking for an opportunity to invest. So should retail investors.

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J. Craig Venter was a “risk-taking outsider” who “brought speed, competition and controversy to one of science's biggest races”, says The New York Times – the quest to decode the human genome. A former surfer and Vietnam veteran turned medical researcher, Venter combined a brilliant scientific mind with the single-minded drive of an entrepreneur. Having decided in the 1990s that the US government's $3 billion Human Genome Project (HGP) was moving at a snail's pace, he took the gamble that “he could enter the race late and beat it with a much faster method”, launching a private company, Celera Genomics, as his vehicle. A decade later, he made another significant breakthrough, creating the world's first synthetic bacterial cell.

“The idea of commercialising the genome was extremely unpopular in the scientific community,” says The Telegraph. Nicknamed “Darth Venter”, he was demonised by critics. But Venter relished the controversy – “flashing his Learjet, yacht and Rolex, and his ability to raise $1 billion on the New York stock market in a single day” when he floated Celera in February 2000 at the height of the biotechnology boom. Celera pioneered a technique called “shotgun sequencing”, says Chemistry World: the idea was to randomly cut up the genome into fragments, sequence them, and then use a supercomputer to work out how the pieces related to one another. The method was faster and cheaper than the HGP's approach of slogging systematically through the genome. Indeed, the privately backed company took two years to achieve what the HGP had been trying to do for 14 years, says The Times. “The scramble ended in a photo finish” with the two sides jointly announcing their success at a press conference presided over by Bill Clinton in 2000. Crucially, by publishing the full sequence, the HGP undermined Venter's plans to register patent rights.

J. Craig Venter was a brash entrepreneur

Often described as “the alpha male of US science”, J. Craig Venter was an extremely competitive character, noted the Financial Times in 2007. Born in 1946, into a military family and brought up in Millbrae, California, he was an unruly youth who dropped out of high school to become a surfer before being called up to serve in Vietnam in 1967. Venter returned to the US with a new interest in medical research, earning a degree in biochemistry from the University of California, followed by a doctorate, says The Telegraph. He began working on gene sequencing in the 1980s at the US National Institutes of Health, later co-founding the nonprofit Institute for Genomic Research, with his then-wife, genomicist Claire Fraser.

J. Craig Venter was not an easy man to work with, says Chemistry World. Just over a year after his human genome coup, he was fired by Celera because of internal conflicts, but continued to drive genome sequencing forward via a new non-profit, the J. Craig Venter Institute. Having banked a considerable sum from listing Celera, he continued creating firms – and landing in trouble over them, says The Guardian. He co-founded Synthetic Genomics to advance the technology in vaccines, biofuels and medicines. In 2013 he launched Human Longevity Inc, only later to be sued by the firm, says The Times, “over allegations that he pilfered its trade secrets, poached its staff and sought to lure away its investors”. He was diagnosed with prostate cancer in 2016.

By the time of his death last month aged 79, Venter was worth tens of millions of dollars. But he missed out on the bonanza that synthetic biology now promises in “myriad applications”, says The Telegraph. Maverick to the end, he was regarded by detractors as an “opportunistic maniac” – and by admirers as a plucky “genius” who challenged the research establishment and “should have been given a Nobel Prize”.

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Investing in UK small-cap stocks does not necessarily mean exposure to businesses struggling against larger rivals. On the contrary, we actively seek smaller companies that dominate niches. They may not be FTSE 100 giants, but they are leaders in their specialist areas, with the scale, data and strategic positioning to thrive. The UK small-cap sector is rich with such firms. Market leadership in a niche area confers several key advantages. It can enhance pricing power, which is especially valuable in today's inflationary environment, increasing the likelihood of profits. We place equal importance on competitive barriers and the structure of the industry in which the company operates. Without barriers to entry, competitors can swiftly erode profit margins even as demand grows. Here are three examples of smaller companies that we believe have an edge.

UK small-cap stocks to consider for your portfolio

MONY Group (LSE: MONY), owner of the MoneySuperMarket and Money Saving Expert brands, is one of the UK's market-leading price-comparison platforms. It may not be the largest in every category, but it has the broadest offering, which is important because by offering a multitude of products – for example, current accounts, broadband, energy, loans and travel insurance – MONY frequently interacts with its customers. Its rewards programme, SuperSaveClub, goes further in helping to convert a one-off transaction into a recurring revenue stream and reduces MONY's reliance on Google and television advertising. It is growing quickly: it had 2.1 million members and accounted for 16% of group revenues in 2025.

Concerns about the risks posed by AI have brought the shares down to attractive levels. There are also a number of barriers to entry that will help cement MONY's competitive advantages, including regulation, links to the multitude of insurers and brand strength. It says something that Amazon attempted to enter this market in 2022, but pulled out 15 months later.

Moonpig (LSE: MOON) is a UK small-cap stock that dominates the country's online greetings-cards market with a 70% share. That means data. Moonpig has more than 100 million customer reminders on its system, which it is using to convert one-off purchases into repeat business. Its subscription model, Moonpig Plus, has surpassed one million customers, and they are using the service not only to buy cards more often, but also to spend more by adding gifts. The business floated at an inflated price. Five years later, and with the share price about 50% lower, it now looks like a good investment.

Victorian Plumbing (LSE: VIC) is another market leader. Its acquisition of its (near) namesake Victoria Plum has cemented its strong market position, and the firm can now invest far more effectively in its brand. Its recent move to a new warehouse should enable it to scale, and it could double its sales within its existing infrastructure. Like Moonpig, Victorian Plumbing was a beneficiary of Covid and was overvalued at its initial public offering. More recently, the shares have been hit by concerns about UK consumer spending and its decision to invest in entering the homewares market. These concerns are temporary. The Iran conflict is pushing up inflation, delaying interest-rate cuts and has further eroded fragile consumer confidence. Nevertheless, consumer savings rates are high, and household debt-to-income levels are at a generational low. We see this as a strong platform for when consumers' confidence does recover.

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UK dividends rose by more than a fifth in the first quarter to £16.4 billion kicking off a strong start to the year for income investors, despite short-term uncertainty caused by the conflict in the Middle East.

Higher-than-projected numbers were reported for both regular and one-off special dividends during the first three months of 2026, according to investment administration business Computershare’s latest dividend monitor report.

First-quarter payouts were at their highest level since 2021, largely due to sizeable one-off payments, although regular dividends were also ahead of projections – up by 1.1% on a constant currency basis, rising to £13.2 billion. Median company dividend growth was 2.8%.

Mark Cleland, CEO issuer services, UK, Channel Islands, Ireland & Africa at Computershare, said the economic fallout from the Middle East conflict represents a significant shock but the implications for income investors remains to be seen.

He said: “The Middle East conflict is likely to place pressure on profits across a number of sectors, reducing the cash available for dividend payouts.”

Cleland explained it takes time for such pressure to present itself in dividends because they are only declared once company results are finalised and profits are reported.

He added companies tend to protect dividends in the short term by cutting buybacks or increasing borrowing, as dividend cuts send a negative signal to the market.

Special dividends dominated payouts in Q1

Investors received a ninefold increase in special dividends in Q1 compared with the same period last year, to £3.3 billion.

Consumer goods giant Reckitt Benckiser (LON:RKT) accounted for roughly half of that amount as it distributed the proceeds following the sale of Essential Home to a private equity buyer.

Similarly, telecommunications services business Zegona Communications (LON:ZEG) paid out £1.2 billion to shareholders following the disposal of its Spanish fibre network joint ventures.

Retailer Next (LON:NXT) was the third major special dividend payer, distributing £441 million following higher-than-expected sales, strong online performance and a land sale worth £54 million.

Computershare said beyond the contribution of extraordinary payments, a weaker pound also played a part in the numbers beating its projections, resulting in higher-value dollar payments.

What sectors paid the highest dividends?

At sector level, most categories performed better or in line with Computershare’s projections, with airlines, leisure and travel dominating, including cruise operator Carnival (LON:CCL), which paid its first dividend since the pandemic.

The two largest-paying sectors – healthcare and oil – reported 3% and 4% declines on last year’s Q1 numbers, respectively.

Both categories raised their per-share dividends in US dollar terms but as the pound weakened during the quarter, it held back the amounts actually returned to shareholders.

In spite of the geopolitical tensions and subsequent movements in the oil price, the outlook for the energy sector remains unclear.

In the oil and gas sector, low recent profits, small dividend increases and ongoing share buybacks all held back levels of cash returned to investors.

Such uncertainty can also lead to winners. Oil producers had seen lower profits as energy prices fell, leading to stagnating dividend growth and BP (LON:BP.) suspending its share buyback scheme to shore up its balance sheet. But now oil and gas prices are rising, energy producers will see their revenues rise faster than their costs in the near term.

Similar inflationary effects followed in food, beverages and tobacco.

Healthcare was the biggest distributor in the first quarter – contributing a quarter of Q1 total dividends. Pharmaceutical company AstraZeneca (LON:AZN) remained the top payer during the period for the fifth consecutive year but total payouts dipped due to those currency effects.

A broadly positive picture in housebuilding and consumer goods and services was hampered by Berkeley Group’s (LON:BKY) decision to cancel its dividend, citing tough trading conditions.

A stalwart for income seekers, utilities were a key positive contributor, in part due to companies like National Grid (LON:NG.) and SSE (LON:SSE) issuing “significant” numbers of new shares to fund major investments, increasing the size of their equity base.

The report said: “It might appear paradoxical to simultaneously raise new equity and pay a dividend but the point of continuing to remunerate shareholders is to signal confidence in the future.

“Utility investors are often very income-focused so maintaining the dividend is important to such companies.”

Both companies offered scrip dividends, where shareholders can choose to receive shares instead of cash, which helps companies manage cash levels.

Mid-caps, miners and banks all faring well for 2026

Elsewhere, the report also highlighted the higher growth rate of dividends from mid-sized companies compared to their larger counterparts.

Companies in the FTSE 250 index posted underlying dividend growth of 5.9% in the first quarter, far surpassing the 0.9% growth rate of the top 100 blue-chip names.

With UK equities projected to yield 3.5% over the next 12 months, up from 3.3% in January, the report said second quarter dividends were already shaping up favourably and ahead of Computershare’s January forecast.

It said miners were benefiting from rising commodity prices even before the war began, with payouts finally recovering after several weak years.

Banks are also pushing up their dividend increases beyond expectations.

As a result, Computershare is upgrading its forecast to £91.6 billion headline payments in 2026, including special dividends – an increase of 5.3% year on year. In January it had this predicted at 1.5%.

Underlying growth projections have also improved, expecting regular payouts of £86.7 billion – up 3.1% year on year, versus the earlier projection of 2%.

Cleland added: “Overall, 2026 dividends are currently tracking ahead of our January forecast after a solid first quarter and a positive outlook for Q2.

“Based on current information, the second half looks a little softer than initially expected, but not enough to offset a strong first half.”

Danaher (NYSE: DHR) has generated investment returns of around 200,000% over the last 40 years, outpacing the broader stock market by several multiples. The firm remains less famous than the major technology giants, but its record of creating value for shareholders ranks among the best in the world. Since its move into manufacturing in 1984, the firm has turned a small sum into a fortune by mastering a disciplined system of buying and improving companies.

This firm shows how a steady focus on process can change even the most unpromising assets into a strong competitive advantage. It moved from its early days as a failing property firm to its current status as a leading healthcare-equipment provider when the founders shifted from corporate raiding to a more patient model of long-term compounding. To understand the current success of this business, one must first look back at the lessons learned during its high-stakes beginnings.

Danaher began as DMG, a real-estate investment trust that by the early 1980s had fallen on hard times. In 1984, two ambitious young brothers, Mitchell and Steven Rales, bought and repurposed the entity as a vehicle for aggressive dealmaking. The brothers used high-yield debt and the trust's accumulated tax losses to buy unloved industrial companies and shield profits from the taxman. At this stage, the company operated as little more than a machine designed to make a fast return on borrowed money. In 1985, the strategy changed after a failed bid for the Scott Fetzer Company. This attempt at a hostile acquisition turned into a public clash between two different styles of investing. The Rales brothers offered a significant sum, but the owners preferred a lower, friendly offer from Warren Buffett – the legendary CEO of Berkshire Hathaway. They chose the lower offer because they preferred his plan for the company over the aggressive tactics of the Rales. It was like a homeowner choosing a buyer who plans to raise a family in their beloved house rather than an investor who intends to turn it into a block of flats.

Danaher's lessons from Warren Buffett

This unsuccessful bid taught the brothers that hostility and excessive debt often destroyed the very value they wanted to capture. This loss prompted a new way of thinking and they began to pursue businesses with a durable competitive advantage that they could hold for decades. This shift occurred during a fishing trip that the Rales brothers took at Danaher Creek in Montana. The name change to that of the river reflected a move away from asset-stripping. The business began to pivot from being a collection of random businesses into a conglomerate of niche plays. By targeting companies with dominant positions in small markets, Danaher applied a consistent system to drive growth over many years. It remained important to secure attractive deals, but the emphasis shifted away from financing concerns towards expanding profit margins and strengthening the competitive positions of newly acquired businesses.

By 1990, the brothers completed the transition of Danaher into a professional investment machine. Mitchell and Steven Rales stepped back from executive roles to become board members, acting as stewards of the company rather than its daily managers. By hiring professional leaders to run operations, the founders focused entirely on the broader investment strategy. This enabled Danaher to evolve into a platform designed to acquire high-quality businesses and manage them with care. The strategy was set, but the company required a rigorous process to ensure these new acquisitions improved after the purchase.

Danaher solved this operational challenge through the Danaher Business System, or DBS. This framework serves as the organisation's central guiding operating system. In the late 1980s, the leadership looked to Japan to understand why Toyota outperformed American car companies. They discovered the concept of kaizen, or continuous improvement. Ironically, Japanese corporations had adopted American business styles in developing kaizen, so, in a sense, Danaher was merely repatriating US ideals. While other Western firms viewed this as a tool for the factory floor, Danaher's bosses adopted it as a universal management philosophy. They applied the concept to every corner of the business, from factories to the head office.

The system rests on four central pillars: people, plan, process and performance. This framework mandates a culture where associates spend most of their time on execution rather than on analysing results. This approach prevents the common corporate trap of “analysis paralysis”. One important component is hoshin kanri, or “compass management”. This ensures every part of the business points toward the same goal. It aligns the board's strategy with the daily tasks of every employee to ensure everyone pulls in the same direction.

DBS operates as an underpinning philosophy embedded in the way that every unit runs, rather than simply a manual or a newsletter that people might ignore. Even the board members regularly spend entire weeks leading kaizen events on factory floors to identify and eliminate waste. By focusing on the place where the work happens, known in Japanese as gemba, the firm stays grounded in reality. This commitment to process ensures that every acquisition quickly improves to generate superior margins and predictable growth. This internal engine has allowed the business to transition between industries without losing its competitive edge.

Danaher has moved from purely industrial businesses towards areas with long-term competitive advantages, specifically life sciences and diagnostics. The business operates a “picks-and-shovels” model, choosing the firms that provide the essential tools for research rather than taking the risks associated with drug development. If a pharmaceutical company fails to bring a new cure to market, they can lose everything. Danaher sells the filters and resins that laboratories need regardless of which specific drug wins approval. This creates a steady revenue stream tied to the broader growth of global healthcare.

The biotechnology branch drives much of the growth. Through its brands Cytiva and Pall, the firm dominates the production of monoclonal antibodies. These complex medicines treat diseases such as cancer and migraines, and were vital during the pandemic. They also feature in everyday laboratory testing, most notably in pregnancy tests. The equipment is specified into the drug manufacturing process itself. Once a medicine wins regulatory approval, the specific filters and components used to produce it are locked in. Switching to a rival supplier would require a long and costly review of the entire factory process. The diagnostics division offers a similar edge. This creates a high degree of certainty for future sales. It moves the business away from the unpredictable cycles of heavy industry towards a more reliable stream of income and this focus on non-discretionary health trends has lowered the long-term risk profile of the business.

A professional acquisition machine

Danaher functions as a professional acquisition machine, which avoids buying businesses simply for the sake of growth. Instead, it follows a rigorous plan to identify markets where it can create a sustainable competitive advantage. These acquisitions fall into two main categories: platforms representing foundational entries into vast new industries that serve as a base for future expansion; and bolt-ons, or smaller firms designed to fill specific technical gaps. The group merges these smaller companies into existing divisions to remove overheads and share technology.

A high level of discipline dictates the price paid for these assets. Every potential deal is measured against a strict financial goal, where the business must produce a 10% return on invested capital by its fifth year. Management specifically looks for businesses with high gross margins, but low operating profits. A high gross margin suggests the product is vital to the customer. A low profit margin suggests the business is being run inefficiently. This gap represents the opportunity for improvement. By applying the Danaher Business System, the firm often doubles the margins of a new arrival within three to five years.

The DBS Office manages this transformation. This team of internal specialists helps new staff adopt the company culture. This requires employees to spend 70% of their time defining a problem and only 30% on the solution. This ensures the team fixes the root cause of an issue rather than just the symptoms. This explains the success rate, which far exceeds the industry average.

The business has faced setbacks during its growth. The acquisition of Cepheid, which became famous for producing rapid Covid tests, succeeded by scaling a niche provider into a global leader in diagnostics. However, other areas proved more difficult. The bioprocessing inventory glut of 2023 and 2024 presented a recent challenge. During the pandemic, customers over-ordered supplies to avoid shortages. This led to lower sales in the post-pandemic world as those stocks were used up. The firm was caught off-guard by the speed of this shift, leading to frustration among some investors.

Learning from mistakes made internally has also shaped the company. In the past, subsidiary managers made mistakes by focusing too much on specific tools of improvement while losing sight of the broader strategy. These managers would lead kaizen events to fix minor floor issues without ensuring they aligned with the long-term plan. This led the parent organisation to refine its “strategic compass” to ensure every change serves a clear purpose. These challenges forced Danaher to become more transparent and to improve its forecasting to prevent a repeat of such supply-chain shocks.

The firm is currently positioning itself at the frontier of genomic medicine. By using a platform approach, the group aims to standardise the way new cures are made. This is often compared to a burrito, where the outer wrap remains the same while the filling changes. This method could significantly lower the time and cost of treating rare diseases. By integrating artificial intelligence, the firm is creating a digital backbone for the industry. Furthermore, the acquisition of Masimo, a leader in pulse oximetry, allows the firm to capture vital data directly from the patient at the hospital bedside.

Danaher is a much larger organisation today than it was in its industrial beginnings, suggesting that a repeat of the 200,000% return over the next 40 years is improbable. Nevertheless, it remains one of the best businesses in the world at identifying, buying and managing assets. Its unique culture and the rigorous application of its business system set it apart. The astronomical gains of the past may be behind it, but the firm remains an excellent choice for those seeking a high-quality investment.

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At Janus Henderson's North American Income Trust (NAIT) we focus on US income stocks – quality franchises that consistently generate cash and have disciplined capital-allocation policies focused on investment in the business to sustain competitive advantage while paying a progressive, covered dividend. Surplus cash beyond this may be used for bolt-on mergers and acquisitions, or to repurchase shares when the stock is dislocated from long-term assessments of fair value. The NAIT has a strong record of paying a progressive dividend and growing revenue reserves since the fund's inception in 2012 (it was converted from the Edinburgh Tracker Trust). The average dividend in the portfolio is 3% and dividend growth averages an attractive 6%-7%.

Our revenue reserves can comfortably cover one year of payouts and may be used if needed. However, there was only one small dividend cut during the 2020 pandemic period and none since then. Many UK investors may not automatically think of US income stocks, but there are several that offer attractive and growing dividends. The US has a history of superior earnings growth, which can often translate into higher dividend growth, too.

How to gain exposure to US income stocks

Dell (NYSE: DELL) is a technology infrastructure company uniquely positioned to grab a slice of the next wave of corporate spending on AI applications. Its scale, global supply chain and deep relationships with customers from the private and public sectors make it a preferred supplier of AI servers and data-storage technology. As enterprises move from experimentation to deployment, Dell will benefit from recurring technology update cycles. Growing profitability is supported by the company's shift toward higher-value technology infrastructure and its disciplined cost management. Debt has been cut and capital returns support the yield. We believe Dell's valuation fails fully to reflect the durability of demand and the firm's exposure to capital expenditure on AI.

Johnson & Johnson (NYSE: JNJ) is another US income stock that offers a rare combination of earnings quality and durable growth. Following the spin-off of its consumer-health division in 2023, it is a focused, innovation-driven pharmaceutical company and a leader in medical technology that should comfortably deliver mid-single-digit revenue growth. It has a diversified drug pipeline, which reduces risk, and its franchises in oncology, immunology and cardiovascular treatments are best-in-class, which will support cash flows in the long term. The medical-technology sector is growing strongly and the worst seems to be behind the company when it comes to legal issues. This is restoring investors' confidence and valuations. With a strong balance sheet, consistent free cash flow and a long record of dividend growth, Johnson & Johnson remains a core holding in volatile markets.

Morgan Stanley (NYSE: MS) is a global leader in the capital markets. Its earnings have become more resilient following a strategic pivot toward wealth and investment management, which generates stable, fee-based revenues. These annuity-like income streams provide downside protection while preserving upside exposure to appreciation in the markets and net asset inflows. The firm's strong capital position is enabling it to buy back shares and grow dividends. We believe Morgan Stanley's improved position will deliver impressive gains tied to long-term growth in the financial markets.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

It is hard to imagine a better opportunity for Airbus. Its rival Boeing has been in crisis for years. Its 737 MAX was grounded following two crashes in 2019 and 2020 and then again in 2024. Whistleblowers revealed safety issues. It overhauled its management. Even so, in a brutal 2024, the share price fell from $260 to as low as $155 as the firm racked up annual losses of more than $11 billion. A firm that once seemed impregnable appeared to be spiralling into irreversible decline. In the last few months, Boeing staged a remarkable comeback. In April, it recorded its first lead in deliveries since 2023, shipping 143 aeroplanes for the first quarter of the year, 29 more than Airbus, and its widest quarterly lead since 2018.

For Airbus, the French-based consortium of which Britain is a crucial part, that must have been disappointing. With its great rival in so much trouble, it had the perfect opportunity to take a dominant position in the global market for passenger jets. It should have been seizing that, delivering more and more aeroplanes, and booking long-term orders, until it had 60% or more of the global market. Instead, it got snarled up in production delays of its own. Now it is paying the price. Boeing is back on level terms again and may well be ahead of Airbus for the rest of this year.

It is not all bad news for Airbus. Last month, the A320 family became the best-selling commercial jet of all time, overtaking Boeing's 737, with 12,260 deliveries since it was introduced in 1988. Airbus still has a strong range of fuel-efficient, modern, safe aeroplanes that are popular with airlines around the world. Even so, investors are starting to feel the impact of Boeing's recovery. Its share price is up by 5% over the last six months, while Airbus's is down by almost 20%. Airbus lacks the killer instinct.

It's not going to get any easier over the next few years. Few people are taking it seriously right now, but China is putting huge resources into the commercial aerospace industry. Comac, its national champion, has already launched the C919, a direct competitor to the A320 and the 737, and it is now in service with Air China and China Southern. It's planning the C939, a competitor to the larger A350 and Boeing 777, for long-range routes. Earlier this month, it landed its biggest export deal so far with a major order from Vietnam. Comac is guaranteed a huge domestic market and it can probably do just as well in countries where China has a lot of political and commercial influence.

Airbus won't have another opportunity like this

Russia is trying to get back into the industry too. Last week, it announced it was planning a new jet from Tupolev, a relic of the Soviet era now trying to stage a comeback. Under sanctions, Boeing and Airbus have stopped supplies of parts and new aeroplanes to Russia, so it either has to start making its own, or else would eventually have to start buying from Comac instead. Either way, the days when the industry was a cosy duopoly between Airbus and Boeing are now in the past. It is about to become a three-way, and possibly four-way fight for every order.

Airbus should have been entering that era from a position of dominance. It could have seized on Boeing's woes to take a clear lead in the industry, tying up the major airlines with long-term contracts for new aeroplanes, and locking them into its range so that it would be too expensive for them to contemplate switching to new suppliers. It could have ramped up production and replaced orders Boeing was not able to deliver on. It could have taken the opportunity to launch new models, which would have sewn up the market for years to come. The chance to dominate the industry for a generation or more won't come again.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Space is coming closer to home, playing an ever-increasing role in our lives. And like the universe itself, the investment opportunities are expanding rapidly.

Space consultancy firm Novaspace estimated the size of the space economy at $626 billion, in 2025, with $236 billion accounted for by the space market and $329 billion by space-enabled applications.

While the space races of the mid-late 20th century were primarily driven by government spending, this time it’s different. Private companies now provide around 70% of the capital for space exploration, meaning that investors have unprecedented access to the growing space economy.

Why is all this money being spent on space? What’s the payoff for sending all these payloads into orbit?

There’s two types of answers. There are some space applications that impact the economy on earth, and others are related to the impact of the growing economy that exists outside the atmosphere.

At present, almost all the revenue that is generated from space pertains to space-enabled applications on earth. Think GPS trackers, or satellite-enabled internet connectivity: essentially, satellites are sent into space to provide information or functionality of some sort to what happens on earth.

In itself this is driving tremendous value, but the biggest rewards could be on the applications that remain in space.

The future of the space economy

The recent Artemis moon flight underscored the fact that moon landings are now the focus of attention once again. NASA is up front about the fact that putting astronauts back on the moon’s surface in the 2020s will provide the experience and technology to conduct the first human missions to Mars.

Professional services firm PwC estimated in January that the Lunar economy could be worth $127 billion by 2050. NASA, meanwhile, estimates that ‘Moon to Mars’ programs could create 69,000 jobs and support over $14 billion in total economic output.

There is all sorts of economic activity that can take place in space itself, and the potential of these is only just starting to be explored. These include mining asteroids for key resources, running data centres in space, or constructing research labs that take advantage of zero-gravity and other unique conditions in space.

Activities like these are “technologically nascent”, says Evelyn Chow, portfolio manager of Neuberger Berman's Next Generation Space Economy Fund, “so the ability to commercialise it is still some time away”. Orbital data centres, for example, would still be prohibitively expensive to launch, even if the solar power and semiconductor hardware going into them could withstand the level of radiation they would be exposed to in space.

“Based on estimates that we’ve run, it costs something like 8-10 times more per megawatt to do orbital data centre power versus even gas turbine power today,” said Chow.

But this could change in future.

“If you go back to the 50s and 60s, the first Apollo missions, it cost around $400,000/kg to launch something into space,” says Chow.

Analysis from ETF issuer ARK Invest shows that launch costs have fallen from approximately $15,600/kg to less than $1,000/kg in the 17 years since 2008.

Analysis from Google suggests launch costs could fall to $200/kg by the mid-2030s. At this level, the costs of running data centres in space would be comparable to the energy costs of AI on earth.

One of the key innovations has been reusable rockets. It’s an obvious point, but if you use a rocket twice rather than once, you double the return you make on building it in the first place (besides, of course, any extra costs you incur in re-using it).

Satellites themselves have also become much cheaper. Low-earth-orbit (LEO) satellites tend to be smaller and cheaper to launch than other types, and smaller satellites are increasingly dominant in our skies. That is driving an increase in the total number of satellites that can be launched: according to Chow, there are now approximately 15,000 satellites in orbit and some experts think that could rise to around 100,000 by 2030.

SpaceX: IPO and beyond

One of the major driving forces behind many of these costs coming down has been Elon Musk’s Space Exploration Technologies (SpaceX).

Its reusable rocket, Falcon 9, has brought the incremental costs of launch down to around $1,500/kg, and according to Chow its upcoming Starship model could halve this cost.

SpaceX dominates the launch industry. According to the US Federal Aviation Administration, of 199 licensed space launches last year, SpaceX launched 161 – giving it more than 80% of the total market share.

As well as monetising these launch services, SpaceX also has a network of over 9,000 satellites comprising its Starlink network which provides internet connectivity across the face of the earth. Starlink is thought to generate 50-80% of SpaceX’s revenue.

Interestingly, SpaceX also owns xAI, which develops the chatbot Grok and the social media network X (formerly Twitter). So there is an artificial intelligence (AI) angle on SpaceX too.

“Running AI requires immense power for storage and processing, and Musk reckons the only way to scale up is to tap into solar power from space,” said Dan Coatsworth, head of markets at AJ Bell. “SpaceX plans to use its satellite network to operate as orbital data centres, while at the same time Musk wants xAI to become a leading AI provider. Therefore, parking the two companies together means SpaceX can power AI in multiple ways.”

At present, SpaceX is a private company, so most investors can’t buy its shares directly – though there are various ways you can get exposure, which we’ll get into shortly.

It isn’t going to be private for long, though. SpaceX is reportedly filing for an IPO that could make it one of the world’s most valuable companies – reports indicate that it is targeting a valuation of $1.75 trillion.

Once SpaceX goes public, you’ll be able to buy its shares like any other.

When will SpaceX’s IPO take place?

SpaceX’s IPO isn’t yet finalised but the latest reports suggest that it will take place in June 2026.

How much will SpaceX be worth when it IPOs?

The latest reports suggest that SpaceX could achieve a valuation of $1.75 trillion when it IPOs.

If that transpires, it would immediately make SpaceX one of the world’s most valuable companies. If SpaceX listed with a $1.75 trillion valuation today it would comfortably make the top ten list (though, ironically, it would push Musk’s company Tesla out of this list).

How to invest in SpaceX before its IPO

In the meantime, there are ways you can gain exposure to SpaceX. It is held by a number of funds and investment trusts.

Scottish Mortgage (LON:SMT), for example, has 19% of its portfolio invested in SpaceX – making it the largest holding.

While this isn’t exactly the same as investing in SpaceX, since less than 20p in every pound you put in will be held in SpaceX shares, it is a good way to get some exposure, putting you in a position to profit should the IPO reach or exceed expectations.

Should you invest in SpaceX’s IPO?

There is a caveat over SpaceX’s potential $1.75 trillion listing. While private companies don’t have to disclose financial details in the way that public companies do, KeyBanc analysts estimate that SpaceX made $21 billion in revenue last year. The rumoured IPO valuation is over 83 times that amount. That’s a lot – as of 23 April, Tesla trades at around 14 times sales, and Nvidia trades at around 23 times.

“Bulls might argue that SpaceX’s earnings growth potential is so great that valuing it using 2027 or 2028 forecast earnings might make the equity rating look less outrageous,” said Coatsworth. “Bears could respond by saying that SpaceX is too immature or too high-risk a business to warrant a sky-high valuation.”

So before you join the rush of investors looking to buy SpaceX during its IPO, it is worth considering the risks involved should it fail to live up to its stratospheric valuation in the long run.

How to invest in space

SpaceX competitors and space pure-plays

There are other alternatives to SpaceX if you do feel that the company is too richly priced, though it bears mentioning that many of these also trade at high valuations.

In terms of launch, one of SpaceX’s biggest competitors is RocketLab (NASDAQ:RKLB). Founded in New Zealand, RocketLab is now headquartered in Los Angeles and posted annual revenue of $602 million in 2025.

That revenue number is a small fraction of SpaceX’s rumoured sales, underscoring the fact that, while RocketLab is the second-largest launch company, it is still some way behind rivalling SpaceX’s dominance of this market.

Similarly, AST SpaceMobile (NASDAQ:ASTS) is the second-largest provider of internet connectivity, behind Starlink.

Companies like these are pure-play space stocks. Many of them, though, while driving lots of revenue, are not yet profitable. For more established businesses that are tapping into the growing space economy, Chow looks at more diversified companies.

These include defence stocks like BAE Systems (LON:BA.) and Leonardo (MI:LDO), many of which can tap into space-related technology and revenue streams such as BAE’s contract with the US military for satellite missile tracking.

Angeline Ong, senior investment analyst at trading platform IG, says that the advantage of investing in defence/space double-plays is that they offer growth potential alongside the stability of government-backed contracts.

“Names like L3Harris (NYSE:LHX), RTX (NYSE:RTX) and Kratos (NASDAQ:KTOS) sit at this intersection - spanning satellite systems, communications, surveillance and missile technology - while players like BlackSky (NYSE:BKSY) add a data layer through geospatial intelligence used commercially and by defence,” said Ong.

Industrial firms like Mitsubishi Heavy Industries (TOKYO:7011) also offer diversified space exposure.

“Mitsubishi gets a lot of airtime for gas turbines and the AI boom, but of course, it's really, really critical to Japan's satellite manufacturing as well,” said Chow.

Space picks and shovels

That makes Mitsubishi a potential ‘picks and shovels’ stock for the space economy – the well-worn stock market adage being that it was the companies selling picks and shovels during the gold rush that made more money than the miners themselves.

“Don’t try to pick the winner - back the companies supplying all of them,” said Ong. “In space, that means businesses providing mission-critical components, satellite data and infrastructure - companies that benefit whether SpaceX or Rocket Lab wins the launch race, or whether Starlink or AST wins the connectivity battle.”

Canadian firm MDA Space (TORONTO:MDA) is favoured by Greg Eckel, portfolio manager of Canadian General Investments (LON:CGI).

The company provides components for space exploration companies, as well as constructing satellites, and builds the Canadarm robotic arm which will be used on NASA’s Gateway space station orbiting the moon.

“They have a $4 billion backlog,” said Eckel. “For a company that only has revenues of not even $2 billion yet, that’s a good indicator that something good is happening behind the scenes”. This is especially the case in the context of MDA having recently doubled satellite production capacity at its Montreal facility.

Italian solid rocket motor (SRM) manufacturer Avio (MI:AVIO) could also be worth a look.

“SRMs are probably one of the biggest defence pinch points globally,” said Chow. They drive propulsion for everything from rocket launches to missiles. “These SRMs are getting depleted at an astonishing rate, just in this Iran conflict alone,” said Chow. “They’re extremely specialised… maybe only half a dozen players globally are capable of making them, and Avio is one of the only scale players in this space.

Space funds and investment trusts

Ong picks out three funds and investment trusts that investors could turn to for space exposure:

• Seraphim Space (LON:SSIT)
• VanEck Space Innovators ETF (LON:JEDG)
• ARK Space & Defence ETF (LON:ARCX)

Scottish Mortgage is another option for investors who specifically want SpaceX exposure, though it should be noted that this is a diversified investment trust and isn’t specifically focused on space.

“Nothing is as complex as cancer, which is aptly called the emperor of all maladies,” says Servaas Michielssens, head of healthcare at asset manager Candriam. The emperor has been expanding his dominion. The number of cancer cases has been on the rise recently. That's partly due to populations ageing, but is also a result of the fact that they're getting fatter. Worryingly, the average age of onset of some conditions, such as colorectal cancer, is getting younger and younger as a result, says healthcare investor Paul Major.

The earlier you catch the cancer, the better chance of survival and the less money that healthcare systems have to spend treating patients, says Moritz Dullinger of Pictet Asset Management. There is “a tremendous amount of excitement” among researchers about work to find new ways to detect cancer early. Cancer diagnostics is expected to improve in the years ahead, as Joseph Cordi, co-manager of the Impax Asset Management US Large Cap Strategy fund, points out.

Cancer diagnostics – “liquid biopsies” showing big promise

Most systems, especially in the US, are “set up for sickcare, not healthcare”, says Maryann Selfe, a global wealth and investment strategist and author of The Billion Dollar Blindspot: Why Women's Health Is the Investment Opportunity of Our Time. Diagnosis is therefore largely “reactive”, with the responsibility placed on patients to go and see their doctors when they have symptoms. But for many cancers, that may be too late – by the time symptoms have emerged, the cancer may have become untreatable.

Even the few proactive cancer screening programmes that currently exist have their limitations. Mammography, for example, has been proven to help spot breast cancer early, but it “doesn't necessarily spot all types of breast cancer equally well”, says Simon Vincent, chief scientific officer at Breast Cancer Now. That's especially true of lobular breast cancer, which accounts for around 15% of all breast cancers. Not everybody takes up the offer of going for mammograms – all the four parts of the UK are not currently meeting their targets – and the offer is limited to specific age ranges. Overworked GPs may be reluctant to order tests for those outside these groups.

Amanda Rice, founder and CEO of Chick Mission, who has survived cancer three times, has experienced such failings first hand. She went to the GP in her 30s concerned about her symptoms, but was dismissed by her doctor, who thought that at her age it was unlikely to be anything serious. She had to do a lot of pushing to get the tests she needed before she was formally diagnosed with breast cancer. Had she not been so persistent, she would probably have accepted her doctor's reassurance or skipped the additional tests because they were “so painful, invasive and costly”.

The limitations of traditional cancer diagnostic methods have led to a search for blood tests that can diagnose cancer. These “liquid biopsies” test for “circulating tumour DNA” (ctDNA), which are small fragments of DNA released into the bloodstream by cancer cells. The aim is to come up with tests sensitive enough to pick up even tiny amounts of such DNA and hence catch the disease at an early stage, says Major. Some tests screen for mutations associated with individual cancers, but the ultimate goal is to produce a “multi-cancer early detection test” (MCED) that can identify a range of cancers and which you can take every few years.

A big challenge is that any test needs not only to be sensitive enough to detect the presence of disease at an early stage, but also have the specificity to avoid large numbers of false-positives, which would clog up healthcare systems and cause patients unnecessary stress. It must also be affordable. Meeting all three criteria is tough. Diagnostic firm Grail's Galleri MCED recently failed in a large trial, which found that its test “wasn't quite effective enough and produced too many false-positives for the NHS to use”, says Major.

Despite these setbacks, there is optimism that liquid biopsies will become “incredibly valuable”, especially for cancers where there is no specific screening programme, or for ones that currently go undetected until they've started to spread around the body, says Vincent. The market for liquid biopsies was already worth between $5 billion and $10 billion in 2025 and is estimated to reach $10 billion-$20 billion by the end of the decade, reckons Erin Xie, managing director and portfolio manager for health sciences at BlackRock.

Blood tests that screen for a wider range of potential signs of cancer are likely to be more successful in diagnosing cancer than those which use ctDNA alone, says Major. One company working on this is DXcover, which was spun out of the University of Strathclyde, Glasgow. Its MCED screens for proteins, lipids and carbohydrates as well as DNA to detect whether cancer is present, its CEO Matthew Baker explains. Trials have suggested that such tests can detect malignant brain cancer with a sensitivity of 86%, even though only a small number of brain cancers shed ctDNA. They might also detect a broader range of cancers at the very earliest stages.

Some cancer diagnostic tests might not even need a blood sample. A test developed by Serox, for example, uses surface-enhanced raman spectroscopy to identify cancer in urine in under three minutes. That makes it much easier to screen, as getting samples will not require trained phlebotomists, as Serox's founder and CEO Cici Muldoon explains. Serox is working on a lateral-flow style stick that works in a similar way to a pregnancy test. Serox is still in the early stages of raising money and is working with John Radcliffe Hospital in the UK and Massachusetts General Hospital in the US.

From diagnosis to treatment

Detecting disease is “only part of the equation”, says Michielssens. Cancer diagnostic tests also have a role to play in directing treatment (companion diagnostics) and in detecting minimal residual disease (MRD) – the small number of cancer cells that may remain in the body following otherwise successful treatment. They can also help determine whether a treatment is working. For example, ctDNA is released when tumour cells die, so a sudden increase in levels of ctDNA immediately after treatment can indicate that the treatment is working.

Similarly, other more complex genetic tests, including those provided by companies such as PacBio, “can give an indication as to whether a patient's cancer is becoming resistant to a particular treatment”, says vice-president Neil Ward.

Another company operating in the area where cancer diagnostics and personalised medicine overlap is CanCertain, which has developed a test that enables clinicians to “pre-screen cancer treatments on the patient's own cells”, says its business development director Dharmesh Mehta. Circulating tumour cells are extracted from patients' blood and then exposed to potential treatments so that the oncologist knows in advance what is likely to work and what is likely to fail. CanCertain is working with The Christie NHS Foundation Trust in Manchester and the University of Leeds to test the technology.

Even if initial therapies treat the cancer successfully, patients typically have to undergo adjuvant treatments, such as chemotherapy and radiotherapy, to eliminate any lingering cancer cells. Patients are then monitored to see if there is any evidence that the cancer has come back, says Gareth Powell, head of healthcare at Polar Capital. Liquid biopsies may in many cases reduce the need for adjuvant therapy and enable quicker follow-up treatment if the cancer returns, says Powell. The fact that there are nearly 20 million cancer survivors in the US alone suggests that there is a great demand for accurate MRD tests, says Michielssens.

A revolution in scanning technology

Alongside the development of more efficient blood tests, imaging and radiology is also starting to undergo its own revolution. While the average MRI machine “isn't fundamentally different from the first machines produced by Peter Mansfield and his team nearly 50 years ago, they are lighter, can fit in smaller locations and don't need as much power”, says Lizzie Tuckey, managing director at imaging platform Scan.com. Advances in AI are also transforming the software that is used in the machines.

AI has made the process of taking a large number of images of the body and then combining them much more efficient, allowing radiologists to get away with fewer images without reducing the quality of the final image. This in turns means that each patient now needs to spend less time inside the scanner, which means that more patients can be scanned, bringing down costs. In the case of CT scans, the fact that the patient is in the scanner for less time means that their exposure to radiation is reduced. AI is also very good at spotting small changes over time.

One firm using AI to cut both the cost and duration of MRI scans is Ezra, part of Function Health. Ezra already offers comprehensive scans for most organs and tissues, which take only 22 minutes, “typically the time most other providers would take to scan a single major organ”, says founder and CEO Emi Gal. The firm hopes that by next year it will have reduced this time to 15 minutes and has set a medium-term target of five minutes for repeat visits.

Such a premium product comes at a price – Ezra's multi-organ scan currently costs £1,299 in the UK. But prices are falling and Gal indicates that he hopes to cut the US price to around $500 soon. Once this happens, having an annual MRI scan to track all sorts of changes in the body “could become something that everyone does, in the same way that we give smokers low-dose CT to screen for lung cancer, or give women who are over a specific age regular mammograms”.

Going forward, the technology is only likely to continue to make scans quicker and cheaper as we already see in the “explosion” in the number of patents filed (traditionally a good leading indicator of future development) and the number of devices approved. At the time of writing, the Food and Drug administration, the US regulator, has approved 1,451 AI-enabled medical devices, “of which around 80% are in the field of radiology”, say Robert Wiseman, Rob Sackin and Alexander Frank of Reddie & Grose patent and trade mark attorneys.

Improving the patient's journey

As well as improving medical imaging, Wiseman, Sacklin and Frank think that AI could help speed up blockages in “the patient's journey”, by making sure that patients get referred to the right specialists, that the proper tests are carried out, and that these tests are then analysed appropriately. The legal uncertainty surrounding software patents makes this sort of development less publicly visible, but they reckon that beneath the surface there is plenty of work going on in this area.

One company at the forefront of using AI to bring together the vast amount of medical information available to doctors is xCures, a service platform that “basically aggregates, organises and structures medical records”, says CEO Mika Newton. Instead of doctors “having to read thousands of pages of medical records and then manually input the information into their own system, the information can automatically be extracted, enabling them to see all the important information quickly”. The technology can, for example, convert unstructured records, such as scans and medical notes, into a more structured form.

In the longer run, speeding up the flow of information through the medical system could be helpful in cancer diagnostics, enabling researchers to find new connections between various symptoms and cancers that human researchers might be unable to spot on their own.

Only 5% of cancer patients are currently involved in some sort of clinical trial, so opening up medical records in this way (with appropriate consent) could speed up developments in both the diagnosis and treatment of cancer.

AI can also help hospitals and healthcare systems decide how to choose between the various cancer tests that are suddenly appearing on the market – many of which are built by small companies with very specific applications, say Flann Horgan and Mitchell Goldberg of NTT Data. NTT Data has recently developed a platform, in conjunction with the Royal Marsden Hospital and the Institute of Cancer Research, that helps researchers “evaluate lots of different algorithms without having to fly all over the world, and then integrate them into their workflow”.

The best cancer diagnostic investments to buy now

Until recently, one of the leading players in the liquid biopsy market was Exact Sciences. It had several of its tests approved and had developed Cancerguard, a separate blood-based multi-cancer early detection (MCED) test. This year, the firm was acquired by Abbott Laboratories (NYSE: ABT). While liquid biopsy is only part of Abbott, which also sells medicines and cardiovascular devices, the deal gives Abbott a strong foothold in the area. Indeed, Grégoire Biollaz of Pictet Asset Management points out that Exact Sciences with its high-teens revenue growth adds a faster-growing segment to Abbot's Diagnostics division. Abbott trades at 17 times expected 2027 earnings and pays a yield of 2.5%.

A purer play on liquid biopsies is Guardant Health (Nasdaq: GH). It has already had a blood test for colorectal cancer approved – a more convenient alternative to the current stool-based test. The colorectal test is, however, really “just a proof of concept” for Guardant's more ambitious medium-term plans for further MCED tests, says healthcare investor Paul Major. Guardant is also developing tests that will help guide treatment as well as one to detect residual levels of cancer. It isn't yet making any profit, but its revenues more than tripled between 2020 and 2025.

Major is also a big fan of Adaptive Biotechnologies (Nasdaq: ADPT). It has already developed clonoseq, a test approved by the US regulator to detect the presence of residual tumour cells in lymphoid cancers. It can be used to inform decisions around treatment, sparing many patients unnecessary chemotherapy, and is also used by many drug companies in clinical trials to evaluate the effectiveness of drugs. Like many biotechnology companies, it is currently losing money, but sales are rocketing. Major believes that it is a prime takeover target for a large company looking to acquire its core technology.

The leading imaging company in the US is RadNet (Nasdaq: RDNT). As Polar Capital's Gareth Powell explains, RadNet has found a way to undercut hospitals, which means that many US insurance companies will try to get patients to use the company's services. It has been investing large sums in developing AI that can read scans, which has been validated in clinical studies, and the firm is in the process of rolling it out. The stock trades at a pricey 57 times estimated 2027 earnings, but revenues have essentially doubled between 2020 and 2025. It is expected to keep on growing strongly.

Siemens Healthineers (Frankfurt: SHL) is “in a very good position” when it comes to producing MRI and CT scanners, say Dullinger and Biollaz. Siemens also makes a wide range of medical devices and its laboratory division will benefit from any rise in the volume of blood tests being carried out. Sales have grown by two-thirds between 2020 and 2025 and the stock trades at only 15 times 2027 earnings. The yield is 2.9%.

Finally, Dan Buckley of Daytrading.com likes Illumina (Nasdaq: ILMN). It provides a lot of the infrastructure necessary in the use of genomics in diagnosing cancer and the use of diagnostics in informing treatment. The stock trades at 23 times 2027 earnings.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

At the beginning of March, Aptiv, a global industrial technology company, approved the spin-off of its electrical distribution systems business into a new publicly traded company, Versigent (NYSE: VGNT). When the new company started trading at the beginning of April, it's fair to say investors were underwhelmed, to say the least. There were hopes that the market would be willing to pay up to $31 a share, but it closed the day below $28 per share.

Yet in 2025, the firm reported $8.8 billion in revenue, $528 million in net income and $893 million in adjusted earnings before Ebitda. The shares are up slightly since the initial public offering, but it is still only valued at $2.5 billion, which looks cheap relative to earnings. And unlike most spin-offs, which are often loaded with debt to offload liabilities from the parent firm, Versigent's leverage is only 1.3 times Ebitda, roughly the market average and well below the market median of 2.6 times, according to S&P Global.

Why is Versigent so unloved?

Versigent is one of those businesses that often fly below investors' radars, but that play an integral role in the global economy. With 138,000 employees in 25 countries, the group has a huge footprint and is deeply embedded in the supply chains of major manufacturers in the vehicle, agricultural and energy-storage sectors.

Officially, Versigent describes itself as “a global leader in the purposeful design and advanced manufacturing of low- and high-voltage electrical architectures”. In simple terms, this means the company designs, develops and manufactures components to help improve the efficiency of electrical systems in vehicles.

This is a highly specialised and labour-intensive process that the original equipment manufacturers have always been happy to outsource, giving Versigent a critical advantage. The group is already one of the top-three suppliers in every region in which it operates and its technology is embedded in one in every six vehicles produced globally (one in three for electric vehicles (EVs)). In addition, around 75% of sales are linked to full-service programmes, in which the firm becomes deeply embedded in electrical-architecture design early in the development process, tying the manufacturer and Versigent together through the design, development, testing and production phases.

In a world that's becoming increasingly dependent on electrical infrastructure and where vehicles are becoming smaller and smarter, the company's services are in demand. UBS has pencilled in revenue growth of 13% by the end of the decade, driven by rising demand for the high-voltage equipment it develops and sells to power network and battery-storage providers, and EV charging systems.

But growth isn't the story here; it's cash generation. Versigent will boast an Ebitda margin of 10.3% for 2026, according to UBS. The company has said it can drive 200 basis points of margin expansion by 2028, although UBS thinks 100 basis points is more likely (the base case). That would still be a near 10% increase on what is already a healthy level of cash generation.

Savings are expected to come from automation. At 80% of sales, manufacturing costs are the firm's largest overhead expense. Management has estimated that 30% of its workforce performs basic tasks, such as wire-cutting and stripping. In its two Chinese factories, these processes are mostly automated, and management wants to roll this out across the rest of its business. As a newly separated business, there are likely to be some additional costs in the short term as employees bed into new functions and the company fills positions previously overseen at the group level, but as an independent company Versigent should be able to identify and strip out costs faster than it would otherwise as part of a larger group.

Versigent is a cash cow

Versigent's appeal lies in its cash generation. UBS believes free cash-flow conversion on net income could hit 80% by the end of the decade. On top of that, analysts are only projecting “minimal capital spending” over this period (about $250 million per annum), so the majority of this should fall to the bottom line. For a company with an already healthy balance sheet, this implies that there will be a healthy amount of cash available to return to investors. Versigent's own projections suggest $1 billion of free cash flow over the two years to 2028 (UBS has pencilled in $830 million).

Cash returns could start imminently. Pre-spin-off, Versigent's management said it required only $400 million in cash for day-to-day liquidity, compared with about $700 million on the post-spin-off balance sheet. Coupled with its regular free cash-flow generation, Versigent could have somewhere in the region of $1.1 billionin extra cash in the next two and a half years to the end of 2028. Analysts at UBS have crunched the numbers on Versigent's potential and come up with some eye-catching figures. The firm's peers pay out around 23% of free cash flow as a dividend. At present, Versigent's average yield is about 2.2%. UBS estimates that if the company pays out 23% of free cash flow (about $170 million to the end of 2028), the shares could yield around 3%.

Assuming the company does not decide to go hunting for acquisitions, that would leave about $930 million for share repurchases, enough to buy back 42% of the group's current outstanding shares. Add that together and it seems as if Versigent has the potential to return about 44% of its current market value to shareholders by the end of 2028. If that isn't enough, the company is around 30% cheaper than its peer group valued by free cash-flow yield. Versigent appears to be somewhat of a hidden gem.

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It makes sense to invest in a company benefiting from a long-term trend; if you can find one profiting from two, so much the better. Best of all is a company exploiting two structural shifts, in the midst of a turnaround, reasonably priced, and with an activist investor taking a large stake in it. Enter Saga, which makes its money from selling services to the over-50s, a fast-growing segment of the British population.

Until recently, the company was a mess, racking up enormous losses. This was partly due to Covid, which greatly reduced consumers' demand for its cruises and holidays. However, even before the pandemic, and for a few years afterwards, Saga grappled with major problems. It had spread itself too thin by becoming involved in too many businesses, with its insurance-underwriting arm in particular bleeding money. This strategic ineptitude, in turn, propelled debt to dangerously high levels.

Saga is gathering strength

However, recently Saga appears to have got its act together. It negotiated a partnership with Ageas, which last summer involved Saga selling off its underwriting arm to the Brussels-based insurer. This raised a large amount of cash, which Saga has used to pay down debt; the company has also restructured its loans so that they are not due until 2031.

The sale also moved Saga away from the capital-intensive and difficult business of judging risk, reducing overall complexity in the business. This allowed it to focus on what it does best: the customer-facing part of the job, including selling Ageas' policies and managing complaints. At the same time, Saga has started to rebuild its travel business, a sector booming as people seek out experiences rather than goods. The group's river and ocean cruises have proved to be extremely popular, with a rising number of forward bookings providing a high degree of security for the business. The fact that only a tiny fraction of Saga's holidays involve trips to the Middle East and Mediterranean (and even those are to the relatively safe countries of Cyprus, Egypt and Turkey) means it should be unaffected by the ongoing global geopolitical tension.

Revenue jumped nearly 75% between 2021 and 2025 and continues to grow at a strong pace, with an 11% increase during the last quarter compared with the same period a year ago. Most importantly, Saga is expected to move into the black in the coming financial year. Yet its valuation seems very reasonable at 16.2 times 2027 earnings.

The share price also boasts impressive momentum, having more than tripled in the past year. It trades above both its 50-day and 200-day moving averages and continues to outperform the rest of the FTSE 250 over one, three and six months. I suggest you go long at the current price of 627p at £4 per 1p, putting the stop loss at 400p. This gives you a total downside of £908.

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