Technology giants with an edge in artificial intelligence (AI) have dominated equity market returns in recent years, but enthusiasm is slowing down with chip stocks looking jittery as competition heats up.

There have also been warnings of a potential AI bubble, but as yet, the jury remains out over which companies will emerge the longer-term winners or losers. A recent survey by fund management group Natixis Investment Managers revealed that despite a number of global headwinds – ongoing US-Iran conflict, volatile energy markets and persistent inflation – 91% of the 33 strategists interviewed were optimistic that AI will be a driving force behind market performance in the second half of the year. It also found 88% expect the AI sector to accelerate with just 12% believing its bubble will burst in the second half of the year.

But should investors be seeing that disruption as an opportunity?

How to invest in AI beyond ‘big tech’

There are two distinct strategies the AI wave opens up. One is to aim to capture the growth potential of AI but without limiting yourself to the big names, such as the ‘Magnificent 7’ – Apple (NASDAQ:AAPL), Microsoft, Amazon, Alphabet (NASDAQ:GOOGL), Meta, Nvidia (NASDAQ:NVDA) and Tesla.

BlackRock’s Helen Jewell, international chief investment officer of fundamental equities, believes by looking at the AI story through a wider lens, investors could discover more upside with less of the volatility that comes with high valuations and market concentration.

One route is to look at infrastructure and the power investment needed to facilitate the AI boom and the broader shift towards electrification it has helped accelerate. Jewell said this trend is being “turbocharged” by governments focusing on energy independence.

“These sectors may offer exposure to structural growth trends while potentially providing more diversified return streams, attractive valuations and lower concentration risk than some of the most highly valued areas of the market,” she added.

Where are the next big opportunities in global equities?

In 2025, a handful of sectors led market gains – namely banks, aerospace and defence, and industrials.

All three areas are expected to continue to perform positively, as valuations are increasing. European banks in particular look promising; BlackRock's Jewell said they’ve shown resilient earnings despite interest rates calming down from recent highs.

She added that banks are increasingly adopting AI to modernise their own systems. Better integration across the European banking and capital markets system, alongside consolidation indicates a more profitable sector and, therefore, better likely returns for shareholders.

How to invest in contrast to AI

Another way to play the AI theme is in reverse. Concentration risk presents a problem if too high a share of your overall investments are gathered in one stock, region or sector – hence the ‘don’t have all your eggs in one basket’ analogy.

If there’s a correction in AI, and share prices fall (or the supposed bubble bursts), being exposed to different areas of the market that aren’t correlated will offer investors a degree of ballast to their portfolio.

Jewell cited healthcare as a strong diversification play, though it is also a sector that can benfit from AI. The sector has historically traded at a premium to the market but is now at a 15% discount, with earnings growth that has been second only to technology.

Elsewhere, she likes Latin America, which also has a low correlation to the AI trade. It’s trading at lower valuations than historical average, and while it makes up just 0.8% of the MSCI All Country World Index (ACWI), it accounts for 7% of global GDP.

In the UK, the FTSE 100 index has outperformed global stocks on a total return basis, without any direct AI exposure. Broadly, rising interest rates over the past five years and higher energy prices have boosted banks and oil companies, while defence has also returned to prominence amid the ongoing conflicts around the world.

The three income stocks picked below demonstrate the diversity of opportunities in the Aberdeen Equity Income Trust portfolio and the combination of income and capital growth that we look for.

The trust takes a deliberately index-agnostic approach, searching for companies undergoing change that the market under-appreciates. The idea is simple: the most compelling opportunities are often found in overlooked or under-researched areas. This leads to a portfolio that looks very different from other traditional UK equity income strategies.

With no sector constraints and a flexible approach to size, the trust can access a broader universe of income stocks, many offering attractive yields and the prospect of dividend growth. As the businesses gain wider recognition, valuation re-ratings can follow, supporting capital appreciation. With the macro backdrop starting to improve and investor attention moving beyond the FTSE 100, this approach is increasingly relevant.

Three income stocks to consider

We have held Chesnara (LSE: CSN) since 2014, reflecting our long-standing confidence in its business model. It operates as a disciplined acquirer of legacy life insurance assets, completing £440 million of acquisitions over the past five years. As large financial institutions streamline operations and dispose of non-core assets (often at attractive discounts) and private equity focuses elsewhere, Chesnara has carved out a niche by pursuing overlooked deals and refusing to overpay. This disciplined approach has built a strong record of earnings-accretive transactions. At the same time, the steady flow of acquisitions replenishes the book as older policies run off. Scale has increased meaningfully, with assets under administration rising from £8.5 billion to more than £20 billion, alongside expansion into Europe. With more than £100 million of available firepower, management sees further opportunities ahead. Chesnara generates cash through efficient management of existing books and delivers investment returns above the risk-free assumptions embedded in its actuarial models.

GTT (Paris: GTT) is a global leader in containment systems for liquefied natural gas (LNG), a market set for structural growth. Demand for LNG is expected to rise by around 60% between 2025 and 2040 as economies transition away from coal, driving the need for additional tanker capacity. GTT's membrane technology is critical to the safe transport of LNG, and decades of research and development have secured it a dominant market position. Barriers to entry are high, with shipowners and insurers reluctant to risk unproven suppliers, thus supporting pricing power and consistently high margins. Core growth should benefit from increasingly global LNG flows and a replacement cycle for an ageing tanker fleet. GTT is also building a digital services platform, with technology already installed on more than 15,000 vessels. This creates a valuable opportunity to cross-sell software and consulting services – an area that remains under-monetised, but offers high returns. A new CEO may accelerate this focus, while robust cash generation underpins both dividends and reinvestment.

The sharp correction in software stocks in early 2026 created an opening for investors hunting for income. UK IT reseller Softcat (LSE: SCT) plays a key role in connecting businesses with complex IT, partnering with more than 200 global technology providers. It has delivered consistent organic growth, expanding market share and securing a highly loyal customer base – 95% of revenues come from repeat business. The rapid adoption of AI is driving demand for processing power, storage, networking and security infrastructure – areas where Softcat is well positioned. This structural tailwind is expected to support continued earnings growth for the business, resulting in rising dividends.

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Two oil stocks are among the cheapest equities on the London market today. Harbour Energy (LSE: HBR) and Serica Energy (LSE: SQZ) are trading at price-to-earnings (p/e) ratios of 5.3 and 2.7, respectively, for 2026 based on figures compiled by Peel Hunt. On a cash flow basis, the companies look even cheaper. The shares are trading at free cash flow yields of 35% and 29.9%, respectively, and a large chunk of this cash is flowing right back to investors. Harbour is trading with a forward dividend yield of 9.9%, rising to 15.4% next year, and Serica is expected to yield 7% for 2026 and 2027 at the current share price, according to Peel Hunt.

It's clear why investors are steering clear of these businesses. Both are UK-focused oil and gas companies, and they're highly exposed to the country's unhinged energy and tax policies. But in the words of billionaire distressed-debt investor Howard Marks, there are no bad assets, only bad prices, and at current prices, the market is valuing these oil stocks at such a deep discount that it's going to be hard for the market to continue to ignore them.

Investors should buy these oil stocks together

I view Harbour and Serica as a deeply discounted pair that should be acquired together rather than individually. While both are cheap (Serica is half the price of Harbour), buying the two helps spread management execution risk. Harbour Energy is the largest London-listed independent oil and gas company. It used to be entirely UK-focused, but after a series of deals it now has a global presence, with assets in the UK, Norway, Germany, North Africa and the Americas. It also holds a 15% stake in Southern Energy SA, Argentina's first large-scale floating liquefied natural gas (FLNG) export project.

The group started the year with production of 506,000 barrels of oil equivalent per day (boepd) in the first quarter, thanks to higher output from the recently acquired US LLOG assets in the Gulf of Mexico. Its Norwegian assets also helped boost output and, combined with new wells, management is now looking for between 480,000 and 500,000 boepd for the rest of the year, with average operating costs of $14.5 per boe.

Based on these costs, the company is modelling free cash flow generation of $1.4 billion for 2026, up from $600 million at the beginning of the year, assuming an average oil price of $80 and $13 for gas. These numbers don't look too outrageous for the rest of the year. While the Brent benchmark trended down to the low $70s per barrel at the beginning of July, when it looked as if the US and Iran would sign a lasting peace agreement and the Strait of Hormuz would reopen, the recommencement of hostilities has sent oil back up to $88 at the time of writing.

Analysts at Canaccord Genuity have modelled Brent averaging $83 in 2026 and $75 in 2027 before falling to $70 in 2028. Based on these estimates, they have Harbour generating free cash flow of $1.9 billion in 2026, $0.7 billion in 2027 and $1.1 billion in 2028. Analysts at Zeus are a bit more cautious, forecasting a Brent price of $75 for the rest of the year.

Even on this lower target, based on Harbour's goal to pay out 45% to 75% of free cash flow to shareholders every year, the analysts believe the company will return in the region of $500 million to shareholders at the low end of this target, giving a dividend yield of 6.9%. Canaccord has pencilled in a yield of 8.3%, and Peel Hunt's is the most optimistic at 9.9%. The yield will probably land somewhere in the middle, but whichever way you look at it, it's clear Harbour is cheap and throwing off cash.

Serica's valuation is a bargain

Serica's production profile is predominantly UK-based, and the company is listed on the Aim market, which goes some way to explaining its bargain-basement valuation. The first point it can't do much about, but on the second point, Serica is working to remove some of the uncertainty by moving to the main market in the third quarter of 2026.

Despite its UK focus, Serica's management believes the company can maintain production at over 50,000 boed into the 2030s (it aims to exit 2026 with production in the 65,000 boed range) based on its existing portfolio with well-executed capital spending.

Capital spending is expected to rise through to the end of the decade, which will crimp free cash flow. Still, management has outlined plans to pay out 30% of cash flow from operations over the coming years, which, Berenberg estimates, delivers a dividend yield of 11% in 2027 and then averages 7% through to 2030 based on an average oil price of $75.

Unlike Harbour, which has accumulated a large pile of debt following a series of mergers and acquisitions, Serica is expected to move from a net debt position of –$203 million in 2025 to +$91 million in 2026 and +$192 million by 2027. This, analysts at Berenberg believe, will allow management to begin considering bolt-on acquisitions of increasing size. Last year, it completed mergers with Prax, One Dyas and Spirit Energy, which added production from 25 fields in the North Sea.

As other companies have decided to flee the UK-owned section of the North Sea, Serica has been able to step in as a buyer of last resort. These deals were done at between $2 and $4 per barrel of reserves. By comparison, Harbour paid around $12 for the US LLOG assets at the end of last year. When it comes to further deals, Serica is following Harbour's lead and looking for deals outside of the UK. In conversations with analysts, Serica has highlighted Southeast Asia as a region of potential interest.

As the company moves forward with these growth plans, it may only be a matter of time before the market catches on and re-rates the stock.

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Travel firm Expedia has experienced the rough and the smooth of recent turbulence in the travel industry.

America’s war on Iran has raised the price of jet fuel, and higher prices at the pumps have compounded a cost-of-living crisis that has prompted many to wonder whether they can even afford to take a holiday.

More broadly, however, the industry continues to enjoy a post-pandemic boom, while a further tailwind is the increasing propensity (among younger people in particular) to prioritise experiences over possessions.

Expedia (Nasdaq: EXPE) has two main businesses. Around two-thirds of the group's revenues come from a range of consumer-facing websites that help customers book hotel rooms and car rentals, including Expedia.com, Hotels.com, Vrbo.com and CarRentals.com. However, in recent years, a growing proportion of its revenue has come from supplying the technical infrastructure that allows hotels, car-hire companies and other firms to manage their bookings.

Expedia isn't threatened by AI

After tripling in three years, Expedia's shares swooned at the start of this year. Markets were buffeted by the current conflict in the Gulf and concerned that AI could carry out much of Expedia's work automatically. In the worst-case scenario, developments in “agentic AI” would allow people to type a few prompts into a chatbot, which would then automatically book a holiday with the best prices, completely bypassing the need for comparison websites such as the one Expedia runs.

However, such fears seem overblown. While an increasing number of people seem willing to rely on chatbots to provide advice about what to see, few would trust it enough to allow it to book hotel rooms on their behalf, even if such software merged. Large companies are even less likely to trust a chatbot to oversee the distribution of hotel rooms and flights for their staff. At the same time, Expedia's exclusivity agreements with several hotel chains and airlines such as no-frills carrier Allegiant Travel provide a degree of security. Expedia is also examining how it can use AI to enhance its own operations.

The group has a strong record, with profits more than quadrupling since 2022. Expedia also has strong operating margins, with a return on capital employed of more than 30%, allowing it to raise dividends and buy back $5 billion of shares while growing sales at a double-digit pace. Despite this fast growth, Expedia appears relatively cheap, with the shares on only 12 times 2027 earnings.

Investors' confidence in Expedia seems to have recovered: the stock is up 33% from its low of early 2026, and is now close to its 52-week high. It is are also above both its 50-and 200-day moving averages. I would therefore go long on Expedia at the current price of $268 at £9 per $1. Put the stop-loss at $168, giving you a total downside of £900.

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Technology, and its ever-present subsector artificial intelligence (AI), are perhaps the hottest topics in investment – and have been for several years.

Information technology officially accounts for 32% of the MSCI ACWI Index. Yet in reality, what we’d all intuitively think of as ‘tech’ companies account for a greater proportion of this, since MSCI officially designates companies like Alphabet, Amazon, Meta and Tesla into industry sectors other than information technology.

This concentration brings risks with it. Passive tracker funds act to condense stock markets into the biggest names, and investors therefore run the risk of being over-exposed to the sector – which can exhibit volatility when times get tough.

There is also the intensely competitive nature of tech growth to contend with. Nascent, disruptive technologies like AI can create as many losers as winners, if not more. Knowing which stocks to invest in can be difficult, even for the professionals.

An investment trust – which is by definition actively managed – has the potential to mitigate some of these risks, and the vehicles offer some structural advantages too.

“The closed-ended nature of investment trusts makes them well-suited to technology investing,” said Alex Trett, investment trust research analyst at Winterflood Securities.

“The permanent capital allows managers to take a genuinely long-term approach, supporting investments in private companies and giving them the patience to see investment theses play out over time.

“The structure can also facilitate exposure to smaller-cap technology businesses, where liquidity can be a constraint for other investment vehicles. In addition, it enables managers to build concentrated, high-conviction portfolios, allowing them to express their strongest investment ideas.”

Here’s six of the best-known investment trusts that can offer you exposure to some of the world’s most innovative technology companies.

Scottish Mortgage

Just as many ‘big tech’ companies aren’t designated tech, one of the biggest investment trusts that many people think of as ‘tech-focused’ isn’t actually a technology trust.

Scottish Mortgage (LON:SMT) aims to own “the world’s most exceptional public and private growth companies”. As it happens, a lot of these are tech companies, but the trust emphasises that its focus is on long-term growth potential, whatever sector that may be in.

Still, buy Scottish Mortgage now and you’ll get a lot of tech. As of 30 June, SpaceX accounted for over 25% of the portfolio, followed by Taiwan Semiconductor (6.4%), Nvidia (5.0%) and TikTok’s owner Bytedance (4.2%).

ByteDance and, until recently, SpaceX have exemplified part of the appeal of SMT: its ability to hold private companies alongside publicly listed ones, tapping into the future growth potential they offer. The heavy weighting towards SpaceX is largely a consequence of this and its recent initial public offering (IPO); Trett expects the position to be trimmed once lock-up periods permit.

^{Source: Association of Investment Companies, as of 21/07/26.}

Polar Capital Technology

Polar Capital (LON:PCT) has focused its approach on the hardware and infrastructure underpinning the buildout of artificial intelligence (AI).

“The managers believe these areas offer greater earnings visibility and forecastability, with semiconductors representing the largest exposure at 44% of the portfolio, followed by equipment, components and storage including Advanced Micro Devices and LAM Research,” said Trett.

^{Source: Association of Investment Companies, as of 21/07/26.}

Allianz Technology Trust

All of these trusts are listed in the UK, but Allianz Technology (LON:ATT) is distinctive in having its management team based in San Francisco, giving it close access to many of the companies in its portfolio – approximately 90% of which is allocated to North America, as of 30 June.

“The portfolio provides broad exposure across the technology and AI ecosystem,” said Trett.

“The managers have highlighted the role of technology in creating differentiation across a wide range of industries [and] believe the AI opportunity is continuing to broaden beyond the initial infrastructure buildout, supporting a more diversified and durable phase of growth across the technology sector”.

^{Source: Association of Investment Companies, as of 21/07/26.}

Schiehallion

Like Scottish Mortgage, Schiehallion (LON:MNTN) is managed by Baillie Gifford and, depending on how pedantic you’re feeling, isn’t technically a technology investment trust.

But it has an interesting focus on early-stage companies – even more so than SMT, given that it invests in later-stage private companies.

“While not a dedicated technology fund, technology represents around 47% of the portfolio, with holdings including Anthropic, Bending Spoons, SpaceX, ByteDance and Databricks,” said Trett.

^{Source: Association of Investment Companies, as of 21/07/26.}

Herald Investment Trust

Again, Herald Investment Trust (LON:HRI) technically belongs in the Global Smaller Companies category, but it has a strong focus on technology and communications companies.

It was the subject of a bid from Saba Capital Management to displace its board, which led to a tender offer and for the trust to become part of Aberdeen.

Trett picks out Super Micro Computer, BE Semiconductor Industries, Celestica and Fabrinet as among its key holdings.

^{Source: Association of Investment Companies, as of 21/07/26.}

Manchester and London

Some people use investment trusts to diversify away from big tech concentration. Manchester & London (LON:MNL) is an investment trust for people that want to lean into it.

The fund takes a concentrated approach to investing and predominantly holds large-cap stocks, with AI a high-conviction play for the managers.

“The fund’s concentrated portfolio allows it to hold significant positions in its preferred ideas; Nvidia represented 43.6% of net assets in January before being subsequently reduced to 9.0% as at 30 June,” said Trett.

^{Source: Association of Investment Companies, as of 21/07/26.}

Biotech is one of the most innovative and fast-changing sectors of the stock market, with lots of areas where investors can find value.

It can be a tricky sector to define as the term is so broad. Biotech initially referred to firms using what we know about biology to help treat diseases. But now it's expanded into a more capital markets definition where many emerging, developmental stage companies that combine tech and biology are lumped together.

Biotech firms have long laboured under the unfair characterisation that they are all small, risky, unprofitable, and always going under.

But in the latest episode of the MoneyWeek Talks podcast, Ailsa Craig, fund manager of Schroders’ International Biotechnology Trust, tells Andrew Van Sickle, editor-in-chief of MoneyWeek, that this is far from the truth.

Craig suggests this prejudice may come from a time when many biotech firms were listed in London and failed. However, across the pond in the US, many of these firms have been great successes and some are even larger than well-known pharmaceutical companies.

“For example, Gliead and Amgen, are hundreds of billions in market cap. Glauco is $100 billion. So they are very much in the ‘big pharma’ pack, but are still named and classified as biotech for legacy reasons. So over in the US they have matured.”

“Many companies are still in clinical development – which we would call ‘white coat’ biotech – but many companies are mature, cash flow generating, high growth healthcare companies.”

At the same time as many biotech firms are now maturing, big pharma firms are also finding that patents for their drugs are running out. As the larger pharmaceutical companies are scared of losing revenue, they need to find new drugs to sell. This presents a tailwind for biotech.

Craig said: “Pharma is facing a wave of patent expiries much larger than we've seen before. Hundreds of billions of dollars in sales are going off patent in the next two to five years.

“They've got a problem – their internal R&D [research and development] productivity isn't great, so they're looking to biotech companies to fill that void of sales.”

For more on biotech, the future of weight-loss drugs, and how AI can impact the sector, listen to or watch the full episode of MoneyWeek Talks wherever you get your podcasts.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

There have been just three initial public offerings (IPOs) of investment trusts between 2023 and 2025, and none of them raised over £100 million. Achilles Investment Company (LSE: AIC), an activist trust, raised £54 million last year, while Ashoka WhiteOak Emerging Markets (LSE: AWEM) raised £30.5 million in 2023. Both have received a reasonable amount of coverage.

By far the smallest and least well-known of the three is Onward Opportunities (LSE: ONWD), which has raised £12.8 million through a listing on Aim in 2023. It has since grown in size to £42 million via several follow-on raises and graduated from Aim to the main market this year.

Onward Opportunities has a focused approach

Onward, which focuses on UK smaller companies and micro-caps, set a target of earning an annualised return of at least 15% and doubling invested capital within a three-to-five-year holding period. A share-price return of 18.5% (and a total net asset value (NAV) return of 26%) over three years means that it has so far failed to meet this goal. Still, it has outperformed the UK Aim All-Share total return index (8.4%) and matched the performance of its peer group, the AIC UK Smaller Companies sector.

The trust is managed by Laurence Hulse, who started his career at Gresham House in 2015. He worked on a number of equity funds – including Gresham House Strategic (which is now Rockwood Strategic (LSE: RKW)), the Strategic Public Equity Fund and the Gresham House Smaller Companies Fund – before he moved to Dowgate Wealth in 2022 to start Onward. Hulse and his team own 5% of the trust, and Dowgate owns 33%.

Onward has a concentrated portfolio of ten core positions and 12 smaller holdings (25% of the portfolio), which the team call “nursery” positions. It looks for profitable, cash-generative businesses, while also aiming to take meaningful positions in situations where an activist approach can unlock value.

The top two holdings at the end of June were Likewise (9.5%) and Angling Direct (8.3%). Likewise is a UK distributor of floor coverings, rugs, and matting that Onward first bought in 2024. It doubled down on the position at the end of last year, arguing that Likewise is well-positioned to outperform its “loss-making and heavily indebted rivals”, whose continued decline is a key part of the thesis. CEO Tony Brewer, who co-founded the firm in 2018, was previously at competitor Headlam, where he increased the firm's value tenfold between 2009 and 2015.

Angling Direct, a leading UK retailer of fishing equipment, has been a top holding for the trust since its inception. Onward wants management to reconsider the company's expansion into Europe amid continued losses and to focus on its app and social channels.

Pottery firm Portmeirion is a recent new nursery holding. While this firm has lost money over the past two years, Onward believes its new CEO Michael Scheepers, who comes from Le Creuset, can help drive the company forward.

Onward Opportunities is too expensive

While Onward is establishing a solid record in the small and micro-cap sector, the fees are quite pricey. The management fee is 1.5% of NAV up to £50 million and 1% above £50 million. On top of this, there is a performance fee of 12.5% of the excess return above a non-compounding hurdle of 6% per annum. While this gives managers an incentive to outperform, it's eating into returns.

Ongoing charges, including the performance fee, hit 4.4% in 2024 and 5.2% in 2025. This makes the trust nearly five times more expensive than the weighted average for its peer group, and 2.5 times higher than Rockwood Strategic, which has returned 56% over three years.

It's a shame that performance accrues to the managers rather than to investors. Strip out the fees and it would be a top performer.

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Following a considerable run of strength, the price of gold began to settle as this year unfolded. The sudden rise in the price of crude oil and associated products drove the market to free up cash to cover increased costs and buffer against any further uncertainty. As a highly tradeable asset, gold hence fell victim to broad selling.

However, as the market stabilises, an opportunity could appear for those seeking to build up their gold exposure. Gold miners provide a way to leverage bets on gold. Their profits come from the difference between gold prices and the cost of extracting gold and, as gold miners invest in expanding their network of mines, new potential revenue sources appear. Material by-products of gold mining, such as copper, are also valuable and can provide a buffer against declines in the value of gold.

Three gold mining stocks for your portfolio

Barrick Mining Corp (NYSE: B) is a mining company producing gold and copper. Its operations span South and North America, Africa and the Middle East. Barrick was the world's largest gold-mining company until 2019, and its 2026 production guidance totals 2.9 million to 3.25 million ounces of gold and 190,000 to 220,000 tonnes of copper.

Following the broad shift in the industry to an increased focus on shareholder value, Barrick has been a leading example of the success of this move. The firm has strong policies to generate cash flow and a target dividend payout of 50% of free cash flows. A $3 billion share repurchase was authorised in May and the company is moving forward with plans to publicly list its North American gold assets, further strengthening shareholder value.

B2Gold (NYSE American: BTG) is a Canadian mining company operating across Mali, Namibia and the Philippines. It is focused solely on gold mining and produced just under 240,000 ounces in the first quarter of 2026. This smaller output means B2 cannot benefit from the scale efficiencies of larger mining operators, increasing its extraction costs and therefore the leverage of firm value relative to gold prices.

Despite this higher cost base, B2's all-in sustaining cost (AISC), a key metric for the industry, came in lower than predicted in the first quarter, which is particularly beneficial in the current environment of rising fuel costs. What's more, B2's strong financial and liquidity position means that the firm is well placed to deal with any further market shocks or uncertainty. The company's AGM in June revealed a strong commitment from B2's shareholders to leverage this strength to achieve growth and manage risk.

OceanaGold Corporation (Toronto: OGC) is a gold-mining and exploration company based operationally across Canada and Australia. Although costs exceeded expectations for the first quarter of 2026, the company reported strong operational performance. It posted record quarterly revenue and earnings, with a significant year-over-year increase. Furthermore, free cash flow surged by 271% when compared with the previous year.

Despite all this, over the same period, the stock price declined nearly 4%. The strong technical performance paired with observed price weakness suggests a potential buying opportunity. The company predicts a decline in extraction costs as production expands and access to high-grade ore improves. Its Haile mine project in South Carolina is expected to lead to a 35% rise in gold production, while reducing costs by about 25%.

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Taiwan Semiconductor Manufacturing Company (TSMC) (Taipei: 2330 and NYSE: TSM) may be the most important business most people have never heard of. Right now, you're probably carrying products that it has made. Most consumers recognise names such as Apple and Nvidia. Yet behind many of the products they sell sits a Taiwanese manufacturer responsible for turning their designs into reality.

Every day, billions of people rely on devices powered by chips produced by TSMC. The company's influence stretches far beyond smartphones. From artificial intelligence to consumer electronics, much of the modern digital economy ultimately depends on a business with headquarters on an island roughly 100 miles off the coast of China.

What makes TSMC remarkable is not simply its scale, but the way it achieved it. Unlike most technology giants, it did not become dominant by creating the best consumer products or developing a monopoly over software. Instead, it positioned itself as a neutral supplier to an industry filled with fierce competitors. In effect, TSMC became the Switzerland of the semiconductor world, doing business with everyone and doing so in secrecy.

How Morris Chang founded TSMC

That strategy was the brainchild of Morris Chang, a veteran semiconductor executive who spotted a flaw in the industry's business model and built an entire company around solving it. Nearly four decades after it was founded, his insight sits at the centre of the global technology industry.

Chang never set out to build one of the world's most important firms. For 25 years, he worked at Texas Instruments, rising high to run its global semiconductor business. During those years, Chang noticed a problem. Brilliant engineers regularly designed innovative chips, but turning those designs into products required vast sums of money.

In the 1970s and 1980s, semiconductor firms were expected to do everything themselves. Designing chips was only half the job. Companies also needed expensive factories, specialised equipment and the expertise to run them. The result was an industry dominated by a handful of large, vertically integrated firms.

Then Chang's own career took an unexpected turn. In 1983, aged 52, he was passed over for the top job at Texas Instruments and left the company. After a brief spell in a senior role at another American chip company, he received an unusual offer. The Taiwanese government wanted to build a domestic electronics industry and was looking for someone with Silicon Valley experience to lead the effort. Chang accepted.

He arrived in Taiwan with decades of semiconductor experience and a conviction that copying America would be a mistake. Taiwan lacked the design expertise, customer relationships and global brands needed to compete. But Chang had spent years watching another problem unfold. The industry was full of talented chip designers who could not afford to manufacture their ideas. What if somebody built the chips for them?

That simple question led to the creation of TSMC in 1987. At the time, the idea looked absurd. Bringing a chip to market required access to a fabrication plant, or “fab”. The industry believed serious companies should own these factories themselves. In practice, that meant chip designers relying on one of the industry giants.

That created another problem. The company manufacturing your chip was often also a competitor. Handing over your most valuable intellectual property required a leap of faith. Chang's solution was that TSMC would make chips for anyone willing to pay, but would never design products of its own.

In 1987, that sounded like madness. When Chang went looking for investors, many of the industry's biggest names rejected him. Texas Instruments and Intel both declined his offer. A factory without its own products looked like a recipe for bankruptcy. How could a manufacturer survive without guaranteed demand?

In the end, Chang persuaded the Dutch electronics group Philips and several wealthy Taiwanese families to back the venture. Even then, enthusiasm was limited. Philips largely viewed the investment as a way of supporting the Taiwanese government's ambitions rather than as a compelling commercial opportunity. It intended liquidating its investment early. Potential customers were hardly more enthusiastic. Many designers saw little reason to outsource manufacturing. A company that only made chips for other people seemed unnecessary.

By now, Chang was a 56-year-old executive pitching an untested business model in an industry convinced it could never work. Then, fortune presented an opportunity. In 1988, Intel found itself short of manufacturing capacity. Faced with the prospect of disappointing customers, it reluctantly turned to TSMC for help. Intel's engineers arrived in Taiwan expecting a low-cost, unsophisticated subcontractor. Instead, they found a world-class operation run by one of the industry's most experienced executives. Passing Intel's quality standards was not easy, but once TSMC secured the American giant's approval, attitudes across the industry changed quickly. If Intel trusted TSMC, others reasoned, perhaps they could too.

That endorsement transformed the trajectory of the company. Designers no longer needed to spend billions building factories before launching a new product. Instead, they could focus on what they did best – designing chips, and letting TSMC handle the rest. Without TSMC, it's unlikely that Nvidia could have existed, nor could a host of other chip companies.

A new generation of semiconductor firms emerged, freed from one of the industry's biggest barriers to entry. While rivals competed to design better chips, TSMC focused on becoming the best manufacturer in the world. By choosing not to compete with its customers, the company turned neutrality into a competitive advantage. That decision would prove far more powerful than anyone imagined. But the success of TSMC's model created an obvious question: if it was such a good idea, why didn't somebody copy it?

Many tried, but almost all failed. For years, Samsung looked like the most credible challenger. The South Korean giant had deep pockets and decades of manufacturing experience. The problem was that Samsung was also a competitor. Unlike TSMC, Samsung sold smartphones and consumer electronics under its own brand. That created a dilemma for customers. Why hand your most valuable chip designs to a firm that might one day compete against you? No customer wrestled with that question more than Apple.

During the early years of the iPhone, Samsung made many of Apple's processors. The arrangement worked, but it became increasingly awkward as the two companies emerged as fierce rivals in the smartphone market. By the early 2010s, they were fighting a series of patent disputes. Apple found itself in the strange position of relying on one of its biggest competitors to make some of its most important components.

TSMC offered an escape route. With the launch of the A8 processor in 2014, Apple shifted production to Taiwan. The move was risky, but Apple concluded that the benefits outweighed the costs. TSMC's neutrality had become one of the most valuable assets in the technology industry. Today, many of Silicon Valley's biggest rivals manufacture their chips at TSMC. Apple, Nvidia, AMD and Qualcomm all rely on the same company, despite competing aggressively in their own markets.

Samsung's problem was a conflict of interest; Intel's was something different: success. For decades, Intel dominated the semiconductor industry. Its factories were among the most advanced in the world. However, the company became increasingly focused on its own products. When Apple approached Intel in the mid-2000s about supplying chips for what would become the first iPhone, Intel declined.

Management believed the opportunity was too small to justify the investment. It was one of the most expensive misjudgements in the history of the technology industry. By the time Intel recognised its mistake, Apple had moved on and TSMC was becoming the manufacturing partner of choice for a new generation of chip designers. When Intel later attempted to open its factories to outside customers, its manufacturing systems had been built around Intel's products, not the needs of third-party designers.

Other competitors couldn't keep up with the investment needs. GlobalFoundries, an American rival, spent years trying to keep pace before effectively giving up on leading-edge manufacturing in 2018. The company concluded that each new generation of chip technology required so much investment that the returns no longer justified the risk.

China's national champion, SMIC, faces a different challenge. Western export controls have restricted access to advanced manufacturing equipment, making it difficult to compete at the industry's frontier.

TSMC's greatest advantage

TSMC's greatest advantage is not its technology, because that can be copied. Its real advantage is the business model Morris Chang created nearly four decades ago. The company sits at the centre of the semiconductor industry, serving customers that often compete with one another. That position generates enormous scale, which in turn funds the next generation of factories and equipment.

The most advanced chips require ultraviolet lithography machines built by the Dutch company ASML. Each cost more than £275 million. A state-of-the-art fab may contain dozens of these machines, helping to push the cost of a new facility beyond £15 billion before production even begins. That creates a problem for potential rivals.

Customers will not trust an unproven manufacturer with their most important products, especially if they don't have advanced fabs. Yet building a state-of-the-art factory requires billions of pounds before those customers appear. Having already achieved enormous scale, TSMC now largely escapes this trap. The company controls roughly 92% of advanced chip manufacturing and generates the cash needed to fund the next generation of technology.

In 2026 alone, TSMC expects to spend nearly £45 billion on new factories and equipment. Few companies in the world could contemplate spending that much. None can do so with the same confidence of earning a return. The result is a powerful feedback loop. Scale attracts customers. Customers generate cash. Cash funds new factories. New factories attract even more customers.

Every year that cycle turns, TSMC becomes harder to catch as the price of entry rises ever higher. That scale gives TSMC another advantage: it allows customers to help fund its expansion. Most manufacturers have to build factories first and hope demand follows. Today, TSMC often works the other way around. Some of its largest customers commit billions of pounds years before new facilities begin production, effectively helping to finance the next generation of capacity.

At the end of 2024, TSMC held more than £7.3 billion of customers' deposits. As production ramped up on newer technologies, some of that money was recognised as revenue, but the balance remained substantial. Technology companies are willing to tie up enormous sums because access to TSMC's manufacturing has become critical to their own growth plans. This arrangement shifts much of the risk away from TSMC.

When companies such as Nvidia sign long-term agreements worth billions of pounds, they provide “visibility” – confidence in management forecasts – that few industrial businesses can match. New factories can be built with a high degree of confidence that demand will be waiting when they open. That helps explain why TSMC can continue investing through industry cycles.

AI is a game-changer for the semiconductor industry

For years, Apple was the company's most important customer. The iPhone generated the predictable demand that allowed TSMC to refine successive generations of manufacturing technology and steadily expand its lead. Now a new force is reshaping the industry. AI has become the biggest driver of demand for advanced semiconductors. Training and running large AI models requires vast quantities of computing power, creating an arms race among technology companies desperate to secure enough chips.

The biggest beneficiary has been Nvidia. In 2025, Nvidia overtook Apple as TSMC's largest customer, generating more than £18 billion of revenue for TSMC and accounting for roughly a fifth of total sales. The shift says a great deal about how quickly AI has altered the economics of the technology industry, but the opportunity extends beyond chip design.

Producing cutting-edge AI processors is one of the most demanding manufacturing tasks in the world. The chips themselves are larger, more complex and more difficult to assemble than those used in smartphones. As demand has exploded, bottlenecks have emerged throughout the supply chain. For TSMC, that has translated into even greater pricing power.

The world's largest technology firms are competing for a limited supply of advanced manufacturing capacity. Many have little choice but to accept TSMC's terms because there are few credible alternatives. AI has reinforced the advantages of specialisation. Developing a leading-edge AI chip already costs hundreds of millions of pounds. Building the factory to make it would require billions more. As AI pushes the technological frontier forward, the advantages of specialisation are becoming even more pronounced.

But TSMC's dominance creates a problem. Most of the world's most advanced semiconductor manufacturing remains concentrated in Taiwan. That has become a concern for governments, particularly as tensions between China and Taiwan have intensified. A disruption to TSMC's operations would ripple through the global economy.

Smartphones, data centres, AI systems and countless other technologies depend on its chips. Under pressure from the US and other governments, it's begun expanding overseas. The largest investment is a vast complex in Phoenix, Arizona. Similar projects are underway in Japan and Europe.

Building advanced factories in the US is estimated to be roughly 50% more expensive than doing so in Taiwan. Labour costs are higher, experienced engineers are harder to find and supply chains are less developed. TSMC has reportedly had to transfer experienced staff from Taiwan and create thousands of new operating procedures to support its US operations. Yet even these higher costs have not weakened the company's position.

Customers are willing to pay a premium for chips manufactured on US soil. For many, securing a politically safer supply chain is worth the extra expense. In an ironic twist, efforts to reduce dependence on TSMC have largely demonstrated how dependent the world has become on its expertise.

The future looks bright for TSMC

Whether the company can maintain its current position forever is another question. The semiconductor industry has a long history of dominant firms losing their edge, while geopolitical tensions surrounding Taiwan remain an ever-present risk. Governments are spending heavily to build alternative sources of supply and rivals continue searching for ways to close the gap.

However, history suggests writing off TSMC would be unwise. For nearly 40 years, the company has repeatedly adapted to changes in technology, customers' demands and the structure of the industry. It has survived downturns, outlasted competitors and continued strengthening its position at the heart of the digital economy. The story of TSMC is ultimately the story of how a company became indispensable. In an industry defined by relentless change, that may be its most remarkable achievement.

None of this means TSMC is a bargain. Investors are well aware of the company's strengths and the shares have performed exceptionally well over the past decade. As a result, the stock trades on a valuation that reflects high expectations for future growth. Still, TSMC has qualities that are difficult to find elsewhere. It occupies a dominant position in one of the world's most important industries, enjoys deep relationships with many of the largest technology companies on the planet and continues to invest heavily to maintain its lead.

Most importantly, investors do not need to predict which company will ultimately win the AI race. Whether the future belongs to Nvidia, AMD or some future challenger, there is a good chance that their chips will still be manufactured by TSMC. That does not guarantee attractive returns from today's share price. But betting against the company has rarely been a profitable strategy. For investors seeking exposure to long-term growth in technology and AI, TSMC remains one of the highest-quality businesses in the market.

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The artificial intelligence (AI) boom has so far rewarded the companies building the hardware underpinning it. Experts believe that investors looking towards the future should focus on the companies that will win the next phase of the technology’s rollout.

“The AI story is evolving,” said Lisa Wang, head of EMEA investment strategy at Franklin Templeton Investment Services (FTIS). “For the past two years, investors have been rewarded for concentrating on a small number of technology stocks. We believe the next phase of the AI investment cycle is likely to be broader, creating opportunities across different sectors and markets.”

It may be that the cycle is already beginning to turn against the AI infrastructure suppliers. FTIS recently noted in a multi-asset outlook report seen by MoneyWeek that while AI adoption is continuing apace, there are signs that it is starting to become commoditised and that the customers of so-called ‘hyperscalers’ are less willing to pay for “expensive marginal AI gains”.

If AI is becoming more price competitive, this could play out to the benefit of the companies putting it to use to improve their performance. Where should you go to look for these?

Which sectors are currently using AI the most?

Sanjiv Tumkur, head of equities at wealth manager Rathbones, says the sectors that are currently investing the most into generative AI (genAI) as users (outside the technology sector) are healthcare, financial services, retail and consumer, manufacturing and professional services.

Healthcare

“In healthcare, AI is being used to improve productivity in the pharmaceutical R&D process,” Tumkur told MoneyWeek. “For example, helping design new molecules to optimise potency and reduce side effects, providing tools to create 3D protein structures and predict interactions, identifying promising trial patients, and significantly speeding up the drafting of clinical trial protocols and of regulatory submissions.”

Financial services

Financial services like banking and insurance potentially stand to gain as AI end users as they have substantial middle- and back-office functions as well as customer service operations that could be automated by AI.

“However these sectors are highly competitive and gains typically get eroded and replicated, with few players earning sustainably attractive returns on equity,” Tumkur added, “so we are not confident in the sector being able to see a step-change in profitability through employing genAI.”

An exception to this rule is JPMorgan Chase (NYSE:JPM). Not only is it the US’s largest bank but it is also the one that spends the most on technology, with an annual technology spend of around $18 billion of which approximately $2 billion is thought to be on AI.

“JPMorgan is already seeing significant benefits from genAI (quantified at $2 billion in realised annual value) through cost savings and revenue gains in for example real time fraud detection, much faster processing of loan agreements, and improved regulatory compliance,” said Tumkur.

Retail and consumer staples

Many retail companies have already adopted AI into areas of their business like logistics and online retailing.

Walmart (NASDAQ:WMT) is a prime example of the kinds of retail and consumer staples businesses that are harnessing the benefits in marketing, data analytics, demand forecasting, customer experience and supply chain optimisation that AI potentially offers, according to Tumkur.

Are there buying opportunities in AI end users?

Software, publishing and data analytics companies are all investing heavily into genAI. RELX (LON:REL) for example has a product called Lexis+ AI for legal professionals which uses conversational searching and aids legal drafting.

But these sectors are being punished by the market at present; their “ability to withstand the more general threat of external AI agents is being questioned currently, so stock prices are discounting more risks than benefits from genAI currently”, said Tumkur.

Depending on your perspective, you might see this as a buying opportunity. Many professional investors believe sectors and companies like these have been unduly or prematurely sold off.

But despite its share price falling 39% in the year to 14 July, RELX still trades at 22 times its earnings over the last year – it’s not a cheap stock, but it still has some risk attached to it, so you should think carefully before jumping into opportunities.

How to invest in AI end users

You might feel that you can pick the individual companies that could benefit from being AI end users, and some that the experts see as beneficiaries have been highlighted in this article already.

But in general, picking individual stocks is a difficult challenge, even for the professionals.

As yet there is not a wide array of funds or strategies that specifically target AI end users (without, at the same time, boosting your exposure to the producers).

One possible option to consider though is the iShares AI Adopters & Applications UCITS ETF (LON:AIAA). This exchange-traded fund (ETF) tracks the STOXX Global AI Adopters & Applications Index which mostly includes companies that are adopting AI. Top holdings as of 13 July include cyber security firm Palo Alto Networks (NASDAQ:PANW) and finance companies Barclays (LON:BARC) and Visa (NYSE:V). Meta Platforms is its second-largest holding, though, so it does still add some hyperscaler exposure.

Or, for funds that invest in the sectors that Tumkur highlighted as potential AI winners, you could consider the Worldwide Healthcare Investment Trust (LON:WWH), the Vanguard Financials ETF (LON:FINW) (whose top holding as of 13 July is JPMorgan Chase) or the Xtrackers MSCI World Consumer Staples UCITS ETF (LON:XDWS) (Walmart is the top holding as of 13 July with over 11% of assets).

The second quarter (Q2) of 2026 saw increased enthusiasm from British investors, and they appear to be positioning their assets strategically in order to capitalise on looming challenges for the artificial intelligence (AI) boom.

Data from investment platform eToro shows that their its investors predominantly bought semiconductor stocks, particularly the makers of memory chips, during Q2.

Memory is a key bottleneck for the AI and technology trade. Ownership of memory hardware producer Sandisk (NASDAQ:SNDK) on the platform rose 185% in Q2 compared to Q1, according to the analysis, while ownership of Marvell Technology (NASDAQ:MRVL) rose by 90%.

^{Source: eToro}

“We are entering a more mature phase of the AI trade,” said Lale Akoner, global market strategist at eToro. “Retail investors are no longer just buying the most obvious winners; they are starting to look for where supply bottlenecks, pricing power and capital spending are likely to create the next layer of beneficiaries.”

Despite the rise in ownership of these winners, none were significant enough to knock the AI infrastructure giant Nvidia (NASDAQ:NVDA) off pole position as the most-owned stock for eToro’s UK retail investors.

^{Source: eToro}

Investors became more confident during Q2

According to research from retirement firm Scottish Widows investors were more willing to put funds into their portfolios during Q2 than in the previous quarter.

Average portfolio contributions rose by 47%, reaching £3,554 between April and June, up from £2,413 from January to March, according to the firm’s latest investment pulse survey of 2,000 UK-based retail investors.

“Investors have shown real resilience this quarter, increasing their contributions even as global conflict has escalated and the UK political landscape has shifted expectations,” said Manuel Pardavila-Gonzalez, Scottish Widows’s managing director of investments. “Even as the cost of living continues to bite, most aren’t reacting to short-term noise or alarmist headlines – they’re staying the course rather than making knee-jerk decisions.”

He added that Q2 often sees a seasonal spike in investing as investors top up their portfolios and make use of their ISA allowance around the end of the tax year on 5 April.

The survey also identified a shift in allocations overseas. While UK-held investments remained the largest single allocation at 57% (down from 62% in Q1), allocations to North America increased from 16% to 21% – consistent with eToro’s findings that US tech stocks held high appeal for British investors last quarter.

Similarly, AI was the post popular investment theme – 35% of respondents highlighted this as their favourite theme – followed by renewable and clean energy infrastructure with 25% of respondents.

Where else did retail investors look last quarter?

Memory isn’t the only AI bottleneck that retail investors exploited last quarter.

Energy is another important part of the AI puzzle. With the power demands of AI data centres rising all the time, demands for energy are set to grow, and this was reflected in a dash for clean power and energy infrastructure stocks like GE Vernova (NYSE:GEV), Bloom Energy (NYSE:BE) and NuScale Power (NYSE:SMR).

“Energy remains on retail investors' radar, but the perspective is evolving,” said Akoner. “While traditional oil and gas names feature heavily among the fallers, investors appear to be turning their attention to clean power, nuclear-linked energy and low-carbon infrastructure.”

Akoner added that as well as AI’s increasing power demands, the energy transition away from fossil fuels in order to improve individual countries’ energy security is a further tailwind for clean energy stocks.

Unsurprisingly, given SpaceX’s blockbuster IPO taking place in the quarter, the space economy was another focal point for investors in Q2.

Space infrastructure manufacturer Intuitive Machines (NASDAQ:LUNR) was the fourth-biggest riser among UK users, with holders increasing 62%, while Rocket Lab (NASDAQ:RKLB), AST SpaceMobile (NASDAQ:ASTS) and Ondas (NASDAQ:ONDS) were also among the 20 stocks that saw their ownership on eToro increase most during the quarter.

It remains to be seen whether investors will sustain their current tech optimism going forward, but Scottish Widows’ Pardavila-Gonzalez believes investors should stay the course.

“While we’re expecting more of the same uncertainty in the next quarter, the principles of investing remain the same and it’s important not to let short-term volatility derail long-term plans,” he said.

Since the last time I covered Fuller's – Fuller, Smith & Turner (LSE: FSTA) – in November 2022, the shares have returned around 51% excluding dividends, outperforming the FTSE All-Share index's 41% over the same period. The pub group has not been immune to the headwinds facing the wider hospitality sector, but its robust balance sheet, cash generation and focus on higher-earning consumers in the wealthy areas of London and the southeast have helped it outperform in a tough market. In the past two years, the company has also reorientated its approach to shareholder returns.

How Fuller’s is shifting focus on the customer

For its financial year ending March 2022, Fuller's reported total revenue of £254 million. The following year, the first full year of uninterrupted trading after the pandemic, top-line sales came in at £337 million. However, due to economic uncertainty, rampant cost inflation and disruption caused by Russia's war in Ukraine, operating profit was just £16.5 million and the company reported an operating margin of 3.2% for the year.

Most of this uncertainty-driven disruption is now in the rear-view mirror. For the company's 2026 financial year, it reported sales of £398 million, and analysts at Panmure Liberum have pencilled in sales of £416 million for 2027, rising to £450 million by fiscal 2028. Operating profit was £40 million for 2026 and could hit £51.3 million on current projections.

Fuller's clientele and its aggressive focus on costs are both helping it hit these targets. There is a whole section in the firm's annual report on the customer, which rightly insists that “understanding your customer is key to the success of any business”. To this end, management has invested heavily in a database of 6.9 million customers, 2.6 million of whom are fully contactable to help identify spending patterns and tailor marketing. Fuller's now knows that most of its customers have a household income above £75,000, a group that can be relied upon to spend its spare money on going out.

Management believes that it's this attention to detail that drove like-for-like food and drink sales up 3.5% and 5.8% respectively last year. Meanwhile, continued investment helped hotel sales rise 4.9%. Fuller's has 1,030 bedrooms, up from 1,009 two years ago, with an average room rate of £127.50, up from £120.

Fuller’s champions sustainability

Fuller's has also made progress with controlling costs. Since 2022 it has made a concerted effort to refurbish its pubs and switch from gas to electricity, helping push down energy costs. Its “Too Good to Waste” plan has also helped reduce food waste across its pubs and the group has offset rising costs through labour efficiency improvements and price increases.

One of the biggest problems in the hospitality industry is high staff turnover and inexperienced staff, which can slow service and dent customer satisfaction. To overcome these issues, Fuller's has built a reputation as a leader in training and retaining its staff. Last year, the group opened the new Fuller's Kitchen Academy in Reading, which has already delivered nearly 500 training sessions for chefs, while several thousand team members have also undertaken technical and career-building courses and management training.

New investments in procurement have also yielded significant efficiency savings across the supply chain. Thanks to such initiatives, the overall group operating profit margin hit 11.5% in full-year 2026, up from 7.5% in 2023. The Ebitda margin across the firm's managed pubs – those managed by the group directly rather than leased to individual landlords – hit 21.6%, up from 17.4% in 2023.

Fuller's is a cash machine – here's why you should buy in

With costs under control and margins growing, Fuller's has become something of a cash machine. Last year, it generated £80 million in cash from operations and reinvested £40 million into the business, resulting in free cash flow of around £40 million, suggesting the shares are trading at a free cash flow yield of around 10.5%.

Finance costs were £11.3 million including lease liabilities, or £8.4 million on bank debt and debenture stock (100% of net debt excluding leases). This borrowing looks sustainable given the value of cash flows and assets. The directors' valuation of the entire property estate is £991 million, £397 million higher than the net book value of £594 million, implying a net asset value per share of 1,512p.

Management has laid out plans to continue investing around £40 million a year in its estate, upgrading hotel rooms, adding new rooms to existing pubs (particularly in and around central London to capitalise on a booming tourism market) and pursuing select acquisitions.

The rest of the capital will either be returned to shareholders or used to pay down debt. Fuller's recently declared a full-year dividend per share of 21.2p, up 7.3% year on year. It has also commissioned a series of share buybacks over the past couple of years, in one-million-share lots. Last year, the group retired 2.3 million of its “A” shares and it has returned £54.7 million to shareholders through buybacks since fiscal 2023, retiring around 15% of outstanding shares. Including dividends, total shareholder yield was around 7.5% last year. The forward dividend yield is 3.2%.

As if shareholders didn't need more of a reason to buy, investors who own more than 1,000 A or C ordinary shares can apply to receive a “Shareholder Inndulgence Card”. Cardholders get a 15% discount on food and drinks in any of the group's managed pubs and hotels and special rates on some of its rooms – equivalent to a nice little tax-free dividend.

Rupert owns shares in Fuller's

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In May 2025, Dario Amodei, the CEO of AI company Anthropic, said that the technology his company is helping push forward could drive unemployment up to 10%-20% in the next one to five years and wipe out half of all entry-level white-collar jobs, as Josh Tyrangiel points out in The Atlantic.

Jim Farley, the CEO of Ford, has estimated that AI will eliminate half of all white-collar jobs in a decade. Sam Altman of OpenAI has opined that it is just a matter of time before we see a billion-dollar company staffed by just one person.

That the advent of a new technology has given rise to predictions of disastrous consequences is hardly new. But that the prophets of doom come not from the ranks of the usual suspects, but from the makers of the new technology and those most in a rush to adopt it, is.

So, are they right? AI is clearly already transforming work, says Tyrangiel. Companies including Meta, Amazon, Walmart, and JPMorganChase have recently announced lay-offs due to “automation”.

Three academics from the Stanford Digital Economy Lab have found that entry-level jobs that are exposed to disruption from AI have already seen a 13% decline since late 2022. So the transformation may already be under way, even if it's too early to be sure (other factors could explain the decline and the evidence is sparse and mixed).

If that transformation unfolds slowly and the economy adjusts quickly, then we may, as economists reassure us, be fine, or even better off in aggregate. But if AI instead triggers a rapid reorganisation of work, compressing years of change into months, affecting roughly 40% of jobs worldwide – as the IMF projects – then the consequences could be huge.

Is AI actually any good for us?

Which will it be? Let's remember that humanity has been automating work for 250 years, as technology analyst Benedict Evans has pointed out. History shows that every wave of automation has destroyed whole classes of jobs and created new ones. The process may be painful for some, but over time and in the aggregate the result has been greater prosperity.

Two concepts from economics give us confidence that this time is unlikely to be different. The first is the “lump of labour fallacy” – the misconception that there is a fixed amount of work to be done and that if some work is taken by a machine then there will be less work for people. But if it becomes cheaper to use a machine to make a pair of shoes, say, then the shoes are cheaper, more people can buy shoes, and they then have more money to spend on other things, and we discover new things we need or want, and new jobs get created.

The second concept is Jevons Paradox. In the 19th century, the Royal Navy ran on coal and people worried about what would happen when the coal ran out. Don't worry, said the optimists: steam engines are getting more efficient, so they'll use less and less coal. Not at all, said economist William Stanley Jevons: if we make steam engines more efficient, then they will be cheaper to run, and we will use more of them and use them for new and different things, so more efficient steam engines means we will use more coal.

That paradox has been at work in relation to white-collar work for a long time, says Evans. In the 1880s, typewriters and carbon-copy paper meant that clerks could produce more than ten times the output of the days when they copied out documents one at a time by hand. The result for clerical employment? Far more clerks were hired. If one clerk can do the work of ten, then perhaps you might want to do more of the work that clerks do – more analysis, or manage more inventory, say. You might build a different and more efficient business that is only possible because of the new technology.

It was the same story when, much later, digital spreadsheets were introduced that could do at the click of a button what might previously have taken a whole team of accountants all week. Employment for accountants went up.

The most recent study into what AI is doing to jobs seems to confirm that this is indeed what is happening this time, as Noah Smith reports on Substack. A study by Ara Kharazian, Lisa Simon and Ryan Stevens, researchers at US technology start-ups Ramp and Revelio Labs, examined private data to determine what happens when companies start using generative AI. The answer is that they hire more humans. The number of entry-level jobs rose, too. So it seems that AI is “still mostly a complement to human labour rather than a substitute” for it, says Smith. For now at least, AI is “behaving pretty much like a normal technology”.

AI is just software

That's the usual pattern, and if AI did indeed start to progress at the rates feared and with the consequences predicted, it would be “unprecedented in human history”, says The Economist. New technologies have never spread fast enough to make large numbers of people unemployed for long periods of time because the diffusion of the technology always proceeds slowly.

To see why that is unlikely to be different this time, remember that AI is just software, as Tyrangiel points out. And the thing about software is that “people hate it almost as much as they hate change”. Before AI can transform a company, it has to access data and be woven into existing systems. A “trade secret of most Fortune-500 companies is that they still run critical functions on lumbering, industrial-strength mainframe computers that almost never break down and therefore can never be replaced”. Integrating such legacy tech with AI would mean big changes involving lots of people with strong opinions about the “right” way to proceed. Meanwhile, months pass, then years – and “the CEO still can't understand why the miracle of AI isn't solving all of their problems”.

Indeed, the idea that “one magic piece of software” will change everything instantly and override all the complexity of real people, real companies and the real economy “sounds like classic tech solutionism, but turned from utopia to dystopia”, says Evans. The reality looks rather different, as Zeynep Tufekci shows in The New York Times. Firms that have experimented with fully automating functions such as customer service have been burned. The result has been scammers talking chatbots into handing over control of key functions, promising refunds or incredible deals, such as a new car for $1. The bot taking orders at McDonald's proved “wildly dysfunctional”.

The key thing to understand is that these incidents are not the result of errors, but of the technology functioning as it is designed to do. Currently existing AI technologies are “not reasoning machines” – they simply produce answers that are probable based on the data they've been trained upon. They have no common sense or intelligence. AI can “do many things with astounding efficiency”, especially if those things are formal and structured and can be tested and checked in real time. Most jobs are simply not like that and still require “good old-fashioned human intelligence”.

This doesn't mean the “job apocalypse” definitely won't happen, says The Economist. Maybe this time will be different. Perhaps the technology will transform in ways we cannot yet predict. If so, you may know the apocalypse by these signs: sharply rising productivity combined with weak real-wage growth in the US, the world's frontier economy. This would show up as an increase in GDP per person above the 2.5% upper limit that is the historical norm in frontier economies and a simultaneous jump in corporate profits, reflecting that the gains from higher output were flowing to capital, not labour. Another sign would be big job losses in lots of industries, showing up in a recession. Which jobs vanish in the next recession will “give a hint about the shape of the AI world to come”.

Is there actually any sign of any of this happening? Not really. The labour market “certainly is not cracking yet”, says The Economist. “The share of the OECD's working-age population with a job keeps breaking records, unemployment across the club of mostly rich countries is just 5%, and America employs more people than ever in ‘AI-exposed' industries, such as law.” American graduates have been struggling to find jobs since before the launch of ChatGPT fired the starting gun on the AI revolution in late 2022. Many economists foresee relatively little disruption ahead. Those at America's Bureau of Labour Statistics think the country will add 5.2 million jobs between 2024 and 2034, increasing total employment by 3%.

Robots can't do your job

There are broader reasons for scepticism. The heaviest users of AI have recently been scrambling to curtail its use as the cost of using it outweighs the gains. Surprisingly few people use the technology on a regular basis and the share of companies in the OECD that have adopted AI remains small (about 20% for the latter, although figures for both individual use and company uptake vary widely across different studies, depending on what is deemed to count.) The basic problem here is that most people just don't know what AI is supposed to do for them, as Evans has argued. There's a box you can type stuff into, and you get text in response. Often the text is roughly right, but precisely wrong. For how many people will that be life-changing? As Pablo Picasso perceptively saw in 1968, “Computers are useless. They can only give you answers.”

The likelihood is that AI will not so much replace jobs, as make certain tasks easier and quicker for some people. Generally, says Evans, jobs are a complex mesh of things that we might not even be able to explain explicitly. You may have a good idea of just why a chatbot is never going to be able to do your job, for example, but will be impressed if someone says that it can of course already do the job of a lawyer or a doctor. The blunt truth is we do not know just what is involved in jobs we are confidently predicting will be gone tomorrow, nor do we know how AI will change them, if at all.

What we should most fear is fear itself. A recent poll found that 70% of Americans believe that AI will reduce their employment opportunities, says Robert Shiller, also in The New York Times. That fear could in itself have economic consequences. When millions and millions of people make economic decisions based upon negative expectations, there is a risk that the fear can actually “help birth the reality”. The leaders of Silicon Valley should learn to do better than peddle alarmist narratives in the hope that the resulting media attention will highlight how powerful their latest AI model is. They will find it harder to sell their wares in future if the result is an economy paralysed by fear and recession.

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Our philosophy at the Guinness Emerging Markets Equity Income fund is based on identifying quality firms, defined as those that have consistently generated returns on capital above their cost of capital.

Such companies tend to pay sustainable dividends because of the cash profits they generate. This sets our approach apart in emerging market stocks, which are often characterised by pronounced volatility.

We avoid rollercoaster cyclical sectors and focus on businesses with stable, consistent financial characteristics that can weather different market environments.

Three emerging market stocks to consider

Largan Precision (Taiwan: 3008) is a Taiwanese manufacturer specialising in the design and production of optical plastic lenses and is a key supplier for Apple. Largan's core business has been the smartphone market, but it has recently been expanding into co-packaged optics (CPO) technology.

CPO is essential for data transmission between AI chips and has proved to be more energy-efficient and less heat-producing than copper wires. Exploiting its existing expertise in precision optical lenses, Largan is developing in-house technical capabilities to manufacture fibre array units (FAUs), a central component of CPO, which may prove to be a crucial element for determining success.

Both the momentum behind FAU technology (currently in client testing) and the continued demand from smartphone manufacturers should help Largan to maintain its growth rate. This can be seen in its recent share-price performance, with the stock gaining 44.1% (in sterling terms) over the year to the end of May.

Arca Continental (Mexico City: AC) is one of the largest Coca-Cola bottlers in Latin America and has delivered consistent returns, gaining 22.4% (in sterling terms) in the year to the end of May. The brand itself provides a structural moat, with its pricing power derived from distributing one of the world's most recognised consumer brands.

Additionally, marketing investment from Coca-Cola itself is at a level that would be impossible for Arca to replicate. This is complemented by geographic diversification across the US and Central and South America. A fragmented bottling market in Latin America offers Arca opportunities for expansion through the consolidation of smaller bottlers.

Brasil Bolsa Balcão (São Paulo: B3SA3), also called B3, is Brazil's sole stock exchange. It integrates exchange, clearing-house and depository functions under one entity, making it structurally irreplaceable within the domestic market. Nearly all organised trading and over-the-counter registration of securities in Brazil flows through its systems. Diversification into data analytics and payments – via Trillia, B3's internally formed data-analytics division, and the acquisitions of Shipay and CRDC – provides a buffer against cyclicality in exchange-traded volumes.

Brasil Bolsa Balcão is also competitive on a global scale, having overtaken India's National Stock Exchange to become the world's largest derivatives exchange by volume in 2025. High Ebitda margins, sustained returns on capital and Brazil's growing retail-investor base underpin the long-term investment case. The shares have gained 33.2% in sterling terms in the year to the end of May.

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Good news for shareholders in the International Biotechnology Trust: their fund has a significant holding in US cancer research business Nuvalent, for which GSK has just agreed to pay $10.6 billion– 40% more than its share price prior to the deal being announced. Even better: Nuvalent is the sixth company in the portfolio to have been acquired at a premium this year.

The deals are part of a spree of merger and acquisition (M&A) activity taking place in the global biotechnology sector – to the benefit of many investment trusts and open-ended funds specialising in this area – as part of a marked reversal in fortunes. For much of the past few years, sentiment in the sector has been downbeat – preoccupations about risk, volatility and rising interest rates have overshadowed optimism about the undoubtedly huge long-term potential of the products. More recently, however, the tide has turned. “The outlook is looking increasingly constructive,” says Jo Groves, an analyst at Kepler Trust Intelligence.

The fundamentals of investing in biotech are compelling. You're backing companies that are developing new treatments for health problems ranging from life-threatening cancers to lifestyle-related illnesses. The demand for such treatments is huge, particularly in the context of rising and ageing populations as life expectancies increase. The United Nations estimates that the number of people in the world aged 65 or over will rise from 800 million in 2024 to two billion by 2067. No wonder biotechnology is such a high-growth industry. Precedence Research forecasts average annual growth of 4% over the next decade, which would see the market grow from $1.8 trillion today to $6.3 trillion by 2035. At the same time, biotechnology companies are finding new ways to respond to demand, developing ever more sophisticated treatments, even for the most complex diseases and conditions. For example, they're harnessing technologies such as AI to accelerate drug discovery and to move into areas that scientists previously considered too ambitious.

Another positive factor is the so-called “patent cliff”. Pharmaceutical companies are only entitled to exclusive rights to the drugs they own for a limited period; once this period ends, rivals can make their own versions of the drug. This adds to the demand for biotechnology companies that develop new treatments while individual companies continue to benefit from the enhanced revenues that the patents generate.

Biotech M&A generates positive returns early

All of this can add up to exciting returns for investors in biotechnology companies working on new drugs in high-value areas. And often, those returns materialise early, because a biotechnology company with a promising pipeline of treatments is an attractive takeover target for the global pharmaceutical industry. The biggest companies do blockbuster deals – Novartis alone spent $29 billion on M&A last year.

Investing in biotechnology also carries risks and potential downsides. In particular, most biotech companies are relatively small and focused on a handful of specialist projects – perhaps even a single drug candidate. Trials that start out looking highly promising can – and often do – fail later on, leaving the business without a product to sell. When investors are feeling broadly optimistic, they're more willing to take such risks, but during less confident times their appetite for danger may be diminished. Global trade tensions and international conflict have therefore been challenging headwinds for biotech investment in recent times.

Another factor is the cost of finance – partly as biotechs often borrow to fund their early-stage work, but also because investors are effectively being offered returns that will come in the future rather than today; such returns needed to be discounted by what investors could earn elsewhere on their cash in the meantime. In this context, rises in global interest rates during 2024 and 2025 were unhelpful to biotech businesses; more recent reductions have been a positive.

Policymakers can also have an impact on the industry in other ways. Most countries attempt to regulate drug prices in some way or to restrict intellectual property rights. The US, the world's biggest spender on pharmaceuticals, is especially important; the industry was certainly anxious about the approach Donald Trump would take in his second term of office.

Ebbs and flows in all these positive and negative factors feed the cycle of biotech businesses' share-price performance. The sector performed poorly through most of 2024 and early 2025, but has been much stronger over the past 12 months. The Nasdaq Biotechnology index has risen by more than 51% over the last year; the MSCI World Biotechnology index is up by more than 15%.

Still, sometimes it's also important to look past the numbers. One fascinating part of the biotechnology story is the incredible science that businesses are pursuing – and the advances they're making for humanity. “The development I find most compelling is RAS-targeted therapy,” says Oliver Kenyon, a senior director at RTW Investments, pointing to cancerous tumours caused by mutations in the RAS family of genes. “RAS mutations drive roughly 90% of pancreatic cancers, 40% of colorectal cancers and 30% of non-small-cell lung cancers. It's one of the most common drivers in all of oncology, and for decades it was considered ‘undruggable' – that's now changing fast.” We are seeing the “combination of genomics, gene editing and AI accelerate both the discovery and development of new medicines”, adds Chris Hollowood, CEO of Syncona Investment Management.

AI is helping biotech companies deliver

AI is also helping, says Hollowood. Researchers are analysing complex biological and clinical datasets and identifying promising targets in a “more efficient and robust” way. “The last decade saw the development of a huge number of new ways to make drugs; gene therapy, cell therapy, RNA, gene editing and many others. So as these new targets emerge in the next decade, developers and patients have many more ways to address them, meaning medicines will be more precise and have greater impact.”

So much is possible. “A real hope would be if something works for Alzheimer's disease,” says Marek Poszepczynski, portfolio manager of International Biotechnology Trust. It has been especially tough to find efficacious drugs in this area, but “the industry continues with its efforts and perhaps we will see something in the next decade or so”.

And breakthroughs in mental health are possible, too. “Around a third of the 300 million people living with depression globally don't respond adequately to existing antidepressants,” says Kenyon. “Conventional psychiatry has largely run out of answers for that population, but psychedelic-derived medicines are starting to change that.”

It's not just about developing cures to diseases and conditions previously thought untreatable. Geoffrey Hsu, general partner of OrbiMed, points to the huge and ongoing impacts of weight-loss drugs. “Their effects are not purely cosmetic,” he says. “These medications in clinical trials have reduced the incidence of strokes, heart attacks and diabetes, and have helped alleviate symptoms of patients suffering from sleep apnoea and osteoarthritis.”

Biotechnology firms are at the heart of innovation in all these areas, says Groves, who points to data from industry analyst IQVIA showing that the number of clinical trials currently stands close to all-time highs. “The rapid development of biologic treatments and therapies is constantly expanding the [range] of products, particularly in chronic and complex diseases,” she says. “There has also been a healthy pipeline for novel drug approvals, with recent approvals for treatments for lung cancer, leukaemia, haemophilia, schizophrenia and Alzheimer's, amongst others.”

All of this points to a potentially exciting period for the biotechnology sector – and the prospect of further gains to come. Further M&A would help – while the pace of deals has accelerated in recent months, many analysts think there is more to come. Partly, that reflects the patent-cliff issue, with pharmaceutical companies now approaching a particularly precipitous drop-off. Between now and 2030, the industry will lose exclusivity rights to drugs currently generating $230 billion of revenues a year; they won't forfeit such money overnight, but as patents run out, rivals will be able to produce much cheaper alternatives. Other drivers of M&A include the increasing desire of many pharmaceutical businesses to diversify their holdings, acquiring biotechs with drugs that take them into new areas, and the accumulation of deal finance during a period of fewer deals. It also helps that the US government appears to be taking a more laissez-faire approach to regulation.

In this case, there is still some time to join the biotech party. At an aggregate level, valuations remain reasonable by historical standards – and while there have been good gains from many stocks, the sector's performance has been eclipsed by, for example, the surge in the technology arena. Still, the vast majority of investors will prefer to get exposure through a collective investment fund rather than by buying individual stocks themselves. The science is just too advanced for non-specialists to make realistic assessments of the prospects of individual businesses and their key drugs.

A fund offering diversified exposure to a pool of companies chosen by a professional manager therefore provides relative comfort. Indeed, managers in the sector are often more qualified and experienced than peers investing in other industries, with relevant clinical experience of their own as well as professional investment experience. We look at some of the best options in the box below.

The best biotech stocks to buy now

A broad range of collective funds invest in the sector, but there's a strong argument for considering a closed-ended trust over other types of fund. Biotech can be an illiquid area and prone to exaggerated shifts in sentiment that drive significant inflows and outflows of cash. A trust, where you're buying exposure to the underlying portfolio of assets, provides some insulation from that.

The Association of Investment Companies' healthcare and biotechnology sector offers seven investment trusts to choose from. Its top performers over the past 12 months are the Biotech Growth Trust (LSE: BIOG), with a total share price return of 103%, the RTW Biotech Opportunities Trust (LSE: RTW), up 93%, and the International Biotechnology Trust (LSE: IBT), which has returned 83%.

Alex Trett, a research analyst at Winterflood, points to the potential of two in particular to continue benefitting from M&A activity. “RTW Biotech Opportunities has seen ten M&A-related transactions in the last 12 months, all resulting in an immediate uplift to net asset value,” he says. Worldwide Healthcare Trust (LSE: WWH) is another beneficiary. “In addition to its portfolio holdings, the trust maintains a basket of M&A swaps that provide exposure to potential takeover activity across the sector.” Should the current pace of M&A activity persist, “we believe these trusts remain well-positioned to benefit. They combine extensive sector resources with teams possessing deep scientific and medical expertise, enabling them to identify innovative firms and emerging technologies, which in some cases become attractive acquisition targets.”

That's not to say open-ended funds should automatically be excluded. If you prefer this type of vehicle, Dzmitry Lipski, head of funds research at investment platform interactive investor, picks out the Candriam Equities L Biotechnology Fund, run by Linden Thomson. The Luxembourg-domiciled fund has holdings in around 75 companies.

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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.

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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.

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.

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.

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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.

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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.