Key points

• November saw strong equity market gains, led by the S&P 500, following a decisive US election outcome
• The technology sector performed well, with AI-driven and small-cap stocks leading the way
• Generative AI adoption accelerates, driving growth across multiple industries, though market volatility is expected
  

Market review

US and global equity markets delivered strong returns in November, the MSCI All Country World Net Total Return Index rose +4.9% and the S&P 500 Index returned +7.0%, while the DJ Euro Stoxx 600 fell -0.5% (all returns in sterling terms).

After modest losses in October, equities bounced sharply, led by US markets as Donald Trump’s decisive victory in the presidential election buoyed sentiment and removed a significant overhang given uncertainty around a very close, possibly drawn-out contested outcome. The S&P 500 finished higher for the ninth time in the past 11 months.

The S&P 500 posted its strongest monthly gain of 2024, with the market broadening, demonstrated by the outperformance of the equal-weighted S&P 500 which was up +7.6%. The Russell 2000 (small cap) Index posted its largest monthly gain (+12.2%) since December 2023, while bitcoin rose +40%, closing just below the $100,000 mark as the new administration accelerated the adoption of cryptocurrencies via a more supportive regulatory backdrop.

President Trump is broadly expected to favour deregulation, lower taxes, higher tariffs and be aggressively pro-business. To that end, he also announced his intention to establish a Department of Government Efficiency (DOGE) led by Elon Musk and Vivek Ramaswamy, which may potentially lead to the abolition of several Federal departments. US government bond yields had risen sharply into the election but retraced much of this move as the potential for lower government spending offset concerns around tax cuts and the growing deficit. The announcement of the nomination of Scott Bessent as Treasury Secretary was also well received given his reputation as a relative pragmatist on tariffs and commitment to tackling the deficit as part of his ‘3-3-3’ policy (cut budget deficit to 3%; target 3% GDP growth via deregulation; producing an additional three million barrels of oil).

The US economy remained strong with initial jobless claims continuing to move lower while early December saw November employment numbers grow 227,000 (versus 220,000 consensus), bouncing back as expected from an unusually low 36,000 reading in October (an anomaly due to strikes and hurricanes). Meanwhile, the unemployment rate ticked up to 4.2% (from 4.1% prior) and average hourly earnings of 4% were slightly ahead of expectations.

Despite sticky wages and the lagged effect of rent reviews, inflation is still slowly making its way back towards the Federal Reserve’s (Fed) 2% target, with core personal consumption expenditure (PCE) at a seven-month high in October at +0.27%. Fed Chair Jerome Powell therefore understandably cautioned investors that the Fed was not rushing to cut interest rates. As a result, the dollar strengthened by +1.3% against sterling over the month after climbing +3.7% in October.

Geopolitical tensions remain elevated. Encouragingly, in the Middle East a ceasefire agreement was reached between Israel and Hezbollah, leading oil prices lower. Meanwhile, there is growing optimism that President-elect Trump will work to negotiate an end to the Russia/Ukraine conflict. With respect to tariffs, Trump announced a 25% tariff on Mexico and Canada and an additional 10% on China, although the latter was somewhat lower than previous expectations, suggesting that some of the earlier election rhetoric might have been part of a wider negotiating stance.

Technology review

The technology sector performed in line with the broader market in November, the Dow Jones Global Technology Net Total Return Index (W1TECN) rallying 4.9%.

The Republican clean sweep spurred a notable rotation into US assets (the Dow Jones World Excluding US Technology Index (W2TEC) underperformed by 3.8%. Likewise, small and mid-cap stocks materially outperformed their large-cap peers as they are considered more directly impacted by potential pro-business policies from the incoming US government; the Russell 2000 Technology Index (small cap) and the Russell 1000 Technology Index (large cap) returned +15.8% and +5.6%, respectively.

The NASDAQ Internet and Bloomberg Americas Software indices returned +10.4% and +10.5% respectively, but the Philadelphia Semiconductor Index (SOX) materially underperformed, returning +0.7%. Ahead of NVIDIA’s earnings, the semiconductor sector was relatively weak due to continued cyclical headwinds in non-artificial intelligence (AI) related areas, which worsened in the industrial and automotive markets. Memory pricing also softened and the sector may be negatively impacted by incremental tariffs and restrictions on trade with China under the Trump administration.

Q3 earnings results continued positively. NVIDIA reported another set of impressive results with revenue +94% year-over-year (y/y) driven by robust compute demand for generative-AI (GenAI) applications in data centres. Networking revenue only grew +20% y/y due to a temporary shortage of components from suppliers. Management expect a significant improvement next quarter as production of the new Blackwell architecture ramps up, having already shipped 13,000 Blackwell graphics processing units (GPU) to customers (including OpenAI). They also expect demand to continue to exceed supply for several quarters into FY26 and characterised demand as “staggering”. We share their enthusiasm following our own meetings with Asian suppliers/partners of NVIDIA and the larger hyperscalers (developing their own ASIC (application-specific integrated circuit) AI silicon), and constructive US company meetings suggesting a robust demand outlook for 2025.

Astera Labs, a global leader in connectivity solutions for AI and cloud infrastructure reported very strong results (revenue +206% y/y), with broad-based strength including third-party GPU platforms (NVIDIA) and AI accelerators internally developed by multiple hyperscalers. Management reiterated they have more content per GPU on Blackwell platforms and noted that their visibility is high, issuing next-quarter guidance well above expectations (allaying fears of content loss at NVIDIA).

Cloudflare, a leading connectivity cloud and security service provider, reported a solid Q3, with revenue growing +28% y/y, despite a few deals in North America slipping out of the quarter. They also called out a deal with a “fast-growing AI company” using Cloudflare’s Workers AI product as their inferencing platform. In general, conversations are shifting away from training to inference, and the company expect to see more of these deals next year and a likely tailwind from Apple Intelligence (their internal AI offering) on Apple devices.

We are particularly encouraged by the speed of AI adoption among the next generation of leaders, with an Alphabet survey finding that 93% of Gen Z knowledge workers use two or more AI tools every week.

In the cybersecurity subsector, identity security and access management provider CyberArk Software reported better than expected revenue and free cashflow. Next-quarter revenue guidance was ahead of expectations, mostly due to the inclusion of the Venafi acquisition, while organic revenue was in line with market expectations.

Several stocks, including Tesla, received a boost from the Republican party clean sweep with Elon Musk a vocal supporter of the Trump campaign and a key adviser in DOGE. The expectation is that he will be a positive influence on policy decisions that impact Tesla, although Trump has indicated he intends to repeal supportive elements of the Inflation Reduction Act, such as the $7,500 electric vehicle (EV) tax credit. This could indirectly benefit Tesla as one of the few EV makers who make a profit from unsubsidised sales, so a lack of subsidies for cheaper EVs puts pressure on their competitors.

Law enforcement technology solutions provider Axon Enterprise reported robust top and bottom-line results and raised full-year guidance. Management is expecting record bookings next quarter based on the strength of the pipeline and announced a pricing strategy for the company’s GenAI products such as Draft One (which automatically provides a first draft of written incident reports based on bodycam audio recordings work by police) giving confidence in this key future growth driver.

In the internet sector, Shopify reported impressive results, surprising to the upside both in terms of revenue growth (European strength) and profitability (benefiting from restrained marketing spending). Management commented that new business formation remains healthy and issued better than expected next-quarter guidance, with revenue forecast to grow mid-high 20%, raising investor expectations for 2025.

A relatively new position in AppLovin was the strongest performer in the month. AppLovin provides a platform that enables developers to market, monetise, analyse and publish their apps and delivered another strong set of results. In the quarter, ad network revenue grew +17% quarter on quarter (q/q) and +66% y/y driven by improvements to the machine-learning algorithm which were described as a "step change" that management expects to see periodically going forward.

Outlook

The market appears to have embraced Trump’s pro-business/lower tax/deregulation agenda with the potential for higher economic growth. Meanwhile, the nominations of Bessent and Musk’s high-profile role in the new administration led investors to be more sanguine about inflationary tariffs, expanding deficits and/or geopolitical instability.

US equities saw c$141bn worth of inflows during the month following the election result, the largest monthly inflows on record, while ex-US saw outflows of c$8bn, according to Goldman Sachs. We are hopeful that Musk’s influence combined with pro-business policies from a Trump/Republican government will ensure the US remains at the forefront of GenAI development and regulation does not get in the way.

However, a more permissive regulatory environment may not extend to mega-caps and the so-called Magnificent Seven¹. In the first of two antitrust cases, the Department of Justice (DoJ) recently found Alphabet (Google) guilty of abusing its monopoly position with c$26bn of annual payments to Apple to be the default search engine on its browsers. The DoJ has requested various remedies, including an end to these payments and/or potentially more material changes.

In addition, the second DoJ case (which relates to AdTech) is still ongoing. Increased scrutiny comes at a more challenging time for Alphabet as it appears to be facing a classic ‘incumbents’ dilemma’ in its core search business due to the growing usage of GenAI. While this is a normal feature of new technology cycles, where a change in compute architecture presages new leadership, Google still has its own competitive large language model (Gemini) and strongly performing cloud business (GCP). It also boasts several exciting ‘other bets’ including Waymo (driverless taxis) and Willow (recently announced quantum computing chip). However, we remain underweight given the risk posed by both regulation and AI to Alphabet’s ‘natural monopoly’ status.

More importantly for investors, AI progress remains rapid. Microsoft’s CEO Satya Nadella recently reiterated his view that while Moore’s Law indicated a doubling in performance every 18 months, with AI we see a doubling “every six months or so”. Executives from NVIDIA and Amazon also expressed their belief that there is no slowdown in the pace of AI model improvement.

We are particularly encouraged by the speed of AI adoption among the next generation of leaders, with an Alphabet survey finding that 93% of Gen Z (aged 22-27) knowledge workers use two or more AI tools every week, and 79% of millennials (28-39) reporting the same. Corporate investment seems to be alive to this: McKinsey found corporates spent $15bn on GenAI solutions in 2023 and predicts that spending could reach $175-250bn by 2027. Venture capitalist Vinod Khosla believes AI will do 65% of jobs in 20 years, but an increase in annual GDP growth from c2% to 5% will lead to an era of abundance.

Gartner has raised its IT budget forecast for 2025, projecting spending to reach $5.7trn – a 9.5% y/y increase, the highest annual growth rate since 2011. This is anticipated to follow 7.2% growth this year, marking the strongest back-to-back increase in annual IT spending expected so far this century.

Non-technology AI infrastructure investments also continue to ramp up to support the extraordinary potential of the technology. A recent Morgan Stanley report suggests spending on data centre construction and power generation is expected to be $1.5trn globally by 2025-27, half of which will be in the US, which could add 40bps² to US GDP growth in 2025-26.

We expect accelerating AI adoption during 2025 with productivity benefits becoming more obvious to all, supporting continued investment.

Indeed, our own adoption of GenAI continues to increase and quickly evolve, enhancing team workflows with a range of AI tools and providers. We have built custom prompts to search through company presentations, assess the content and tone of earnings calls and conference transcripts, and analyse qualitative changes in public filings over multiple periods. We use bespoke AI screening tools to find stocks with hidden AI exposure, discover newly trending technology concepts and use broker research summary prompts to compare broker estimates and assumptions. We are very excited by the opportunity to enhance our collection of AI use-cases as the underlying AI tools continue to improve.

All this is before we even consider the possibility of Artificial General Intelligence (AGI), when AI is as capable as all humans across almost all areas of intelligence. Until two years ago, this was considered decades away but according to Sam Altman (CEO of OpenAI) in a recent interview for Y Combinator, advances in AI are so rapid that AGI could be achieved by the end of 2025, adding “We actually know what to do… it’s just an engineering problem”. If AGI is achieved, the potential productivity gains and implications for the economy (disinflationary growth) and national security are significant. Microsoft AI CEO Mustafa Suleyman believes AI with “near-infinite” memory that “just doesn't forget” will arrive in 2025, and this will serve as an inflection point in AI engagement as AI begins to organise how people live their lives.

As in the early stages of any new technology cycle, valuations remain a bone of contention. Encouragingly the technology sector’s relative premium to the market multiple has retraced from almost 50% in mid-2024 to a more palatable c36% premium, compared to a c26% average historical premium, according to Bernstein. Technology/AI winners are, however, certainly not cheap in absolute terms (nor is the market) but once adjusted for both scarcity value and superior growth (which we believe should surprise to the upside in 2025) the risk/reward remains attractive to us. The global technology sector’s PEG³ ratio is also in line with the market, according to Goldman Sachs.

While we are cognisant of parallels with the late 1990s, we see the current period as more akin to 1995-96. Recent research from Bank of America found that the technology bubble saw the NASDAQ rise 11x with rising volatility and drawdown rising over five years, whereas the AI bull market (2022-?) has seen relatively muted gains, drawdown and volatility by comparison. The Trust also retains NDX (NASDAQ 100) put protection in the interests of efficient portfolio management to help ameliorate the excess downside beta of the Trust, that comes with our growth-centric investment style, in the event of a sharp market drawdown (it is important to note, this is not to protect absolute returns, just to soften the beta impact).

Even though the year-to-date rally in the S&P 500 has been one of the strongest in history, according to Goldman Sachs, there remains significant potential for another Roaring 20s’ melt-up scenario where growth, productivity and markets trend higher enabled by a combination of government policy and the significant coincident deflationary productivity tailwind of GenAI.

We expect accelerating AI adoption during 2025 with productivity benefits becoming more obvious to all, supporting continued investment. Strong demand for NVIDIA’s Blackwell, with supply ramping up significantly as each quarter progresses, as well as high-profile GenAI model upgrades/product releases should continue to support interest in AI-exposed stocks. That said, early stages of new technology cycles are likely to be punctuated by periods of significant volatility and investors need to be able to tolerate these periods to reap the rewards. We believe it will also become more obvious that GenAI represents a rare moment of discontinuous technology progress that we expect to reshape most industries.

1. Apple, Microsoft, Alphabet, Amazon, NVIDIA, Meta Platforms and Tesla

2. A common unit of measure for interest rates and other percentages in finance. One basis point equals 0.01%

3. Price/earnings-to-growth ratio. A PEG ratio of 1 indicates a company's market value is in line with its expected growth