EPIC Global Equity Fund : March Bigtech

Big Tech fundamentals remain strong amid volatility

The phrase “years can happen in days” has never been more fitting, particularly when assessing today’s market landscape. Initially, President Trump’s pro-business policies—marked by tax cuts and deregulation—fuelled investor optimism. His re-election further reinforced bullish sentiment, solidifying the so-called Trump trade. However, what began as a surge in confidence has quickly given way to a market correction.

The shift has been driven by increasing unpredictability and escalating trade tensions, which now dominate headlines and weigh heavily on investor sentiment. While such volatility can be unsettling, we remain steadfast in our view that long-term value creation hinges on strong fundamentals, sustainable earnings growth and sound business models: not short-term speculation.

The latest earnings season has largely reinforced our conviction in the resilience of high-quality companies, including those in the technology sector which we shall be covering. While market reactions have been exaggerated in some cases, we see evidence that fundamental trends remain intact and, in many instances, business momentum is strengthening.

Microsoft: bookings acceleration overlooked by the market

Microsoft’s December quarter highlighted robust demand, yet investor focus remained on a modest revenue growth miss. Azure posted 31% year-over-year growth, slightly below the guidance of 31to 32%, but what the market missed was the significant acceleration in commercial bookings—surging from 23% last quarter to 75% this quarter, fuelled by major commitments such as OpenAI’s multi-year deal. Additionally, remaining performance obligations grew 36% YoY to $298 billion, underscoring strong forward revenue visibility.

Alphabet: short-term supply constraints mask strong underlying trends

Google Cloud's revenue growth decelerated to 30% YoY (from 35% in the prior quarter), a slowdown driven by supply constraints rather than demand issues—a challenge mirrored across AWS and Azure. As new capacity comes online in 2025, we expect a meaningful re-acceleration from an already strong base.

Despite near-term headwinds, Alphabet delivered solid Q4 results, with total sales rising 12% and operating margins expanding 460 basis points YoY. Google Search revenue grew 13% YoY, bolstered by AI integration and increased engagement. Contrary to concerns that AI could disrupt traditional search, Google's AI Overviews are enhancing search functionality, driving greater user interaction.

In our view, Alphabet is materially undervalued. Google maintains its dominance in search and remains the third-largest cloud provider globally. The company has a stellar track record of capital allocation, with some of the most successful acquisitions in history—including DoubleClick, Android, Maps and YouTube. Meanwhile, Alphabet’s Other Bets segment is gaining traction, particularly Waymo. As the only operational robotaxi service in the U.S., Waymo is rapidly expanding across multiple cities. Recent data from California’s Public Utility Commission shows that Waymo’s trips in San
Francisco surged from just over 12,000 in August 2023 to more than 270,000 in August 2024—a more than twentyfold increase.

Despite Alphabet maintaining a net cash position of $85 billion and generating tens of billions in annual free cash flow, the company trades at a discount to the S&P 500. Given its structural advantages, we believe the market is not assigning the right value.

Meta: a showcase of AI-driven operating leverage

Meta’s latest earnings underscore the transformative impact of AI across its platforms. The company continues to demonstrate its ability to drive engagement and monetisation through AI-driven content recommendations and advertising efficiency gains. With an increasingly streamlined cost base and growing operating leverage, Meta remains a prime beneficiary of AI integration at scale.

Meta delivered robust results, exceeding expectations on both revenue and profitability. Revenue grew by 21% yearover-year to $46.8 billion, while operating margins expanded by 700 basis points to 48%. Despite initial concerns over significant capital expenditures, the benefits of AI are proving far greater than anticipated. AI is driving value in three key ways: increasing monetisation, improving margins and raising competitive barriers as rivals struggle to keep pace.

Meta’s advertising business has been the primary beneficiary of AI advancements, delivering exceptional performance. Growth in advertising impressions and higher price-per-ad contributed to a 16% increase in average revenue per user. Adoption of Meta’s generative AI tools has accelerated significantly, with more than 4 million advertisers now using them—quadrupling in just six months.

These developments have propelled Meta’s Family of Apps segment to an impressive 60% operating margin. By developing its own large language models and AI chips, Meta is reinforcing its competitive position while working to lower long-term costs. Additionally, Meta has focused on improving operational efficiency. Through AI-driven automation, the company announced a 5% workforce reduction as part of its broader strategy to streamline operations and boost profitability.

Revenue per employee has fluctuated in recent years. After averaging $1.66 million from 2018 to 2021, it declined to $1.39 million in 2022 before recovering to $1.91 million in 2023 and $2.29 million in 2024. The positive impact of AI is evident here, with quarterly trends suggesting further increases in 2025.

Conclusion: betting on innovation and resilience

Overall, it has been a solid earnings update for our holdings, as indicated by core tech figures, with strong performance across the board despite ongoing market volatility. We believe fundamentals remain robust and there is clear value in the Fund, with current stock prices presenting attractive entry points for long-term investors. Our holdings continue to demonstrate resilience and are well-positioned for sustainable growth, making them compelling opportunities within a high-conviction portfolio. Additionally, there is clear evidence of the growing impact of AI, particularly in sectors like advertising and cloud services. This underscores that now is an excellent time to gain exposure to companies capitalising on AI-driven advancements, offering promising returns for forward-looking investors. We will also cover opportunities in the consumer discretionary sector, healthcare, and serial compounders, all of which demonstrate strong potential for growth and long-term value creation. Notable names include Pool, Intuitive Surgical, Constellation Software, and Kelly Partners Group.