- Amphenol delivered an exceptional 58% earnings jump and 133% YoY datacom growth, proving AI infrastructure demand is accelerating. Vertiv, also powering the AI shift, raised revenue guidance as its cooling tech becomes indispensable for high-density AI racks, benefiting from first-mover advantage and Nvidia integration.
- Netflix delivered record 31.7% margins and surged $2.7 billion in FCF, with its ads and live content strategy unlocking new TAM and doubling ad revenue. ServiceNow saw AI deal volume quadruple and hit 48% FCF margins, as its enterprise workflow platform becomes the default AI runtime layer across sectors.
- GE Vernova reported a $123 billion backlog and re-affirmed guidance, benefiting from surging global electrification and long-cycle orders. Tesla underwhelmed on earnings but confirmed its innovation roadmap, with robotaxi launches and energy storage deployments (+154% YoY) highlighting its evolving growth engine.
In times of market uncertainty, fundamentals are almost the only thing that matter – because these are the only things we can be certain of.
The volatility provoked by Donald Trump's 'Liberation Day’ was unprecedented – the first week of April was the fifth worst selloff we have witnessed in 75 years and saw the VIX (volatility index) climb to levels not seen since Covid, when the economy was shut down, and the Global Financial Crisis. July to August 2024 saw a similar bout of volatility injected into markets, driven by a growth scare. Then, as we have seen in recent weeks, indiscriminate selling ensues and the companies that have done best get sold off hardest. We believe this dynamic will soon reverse – indeed, last week saw the start of this trend – because in a potentially slower macro environment, companies delivering decent earnings growth become scarce. Secular growth fuelled by innovation is where we want to be invested amid macro-uncertainty – in companies whose earnings growth momentum can be sustained.
Uncertainty remains around trade policy, but tariffs are likely to cause some upwards pressure on inflation. Here, we want to be invested in companies that have pricing power and high gross margins – this is the hallmark of our innovators and the direct impact of tariffs for the majority of our companies is minimal, since they can pass on incremental costs. We are already hearing this from our early reporters this earnings season, which are maintaining or raising guidance despite tariff uncertainty. This is across sectors ranging from Danaher and Thermo Fisher in healthcare, Amphenol, LAM Research and TSMC in tech to L’Oréal in consumer.
Arguably more important are the second-order implications of tariffs (i.e. demand erosion), so companies facing inelastic demand owing to demand/supply imbalances are in a strong position. This is really where our innovators excel, since they are offering the lowest cost or highest quality innovation on the market. A couple of notable comments from CEOs in the past week on earnings calls include those from TSMC, which is sold out well into this year and seeing no change in consumer behaviour, GE Vernova, whose order book stretches into 2029, and Amphenol, which would ship more to customers if it could. We expect this phenomenon to play out more broadly across the funds as earnings season progresses, since many of our companies are supply constrained not demand constrained.
Finally and most importantly, the disconnect between our holdings’ fundamentals vs. their share price action is acute. This is why we remain highly confident in the funds’ prospects for 2025 and this earnings season so far is bolstering that confidence. Earnings power for our companies has changed little, or even strengthened, since the start of the year, yet share prices for many have moved in the opposite direction.
Liontrust Global Innovation Fund
GE Vernova (Global Innovation: 3.9%)
To put today's electrification investment super cycle into perspective in terms of energy needs and decarbonisation, the scale of load growth we're seeing in North America is the most significant since the post-World War II industrial buildout, but unlike then the growth is global.
We have talked at length before about the breakout in electricity consumption we are witnessing following two decades of zero growth, mostly in terms of the burgeoning energy requirements of data centres fit for AI-purpose, which are 10x more power intensive than traditional CPU data centres. When demand suddenly spikes like this, it is installed base champions that benefit most directly, since they can service this demand in quick order (the lead time for installing any sort of power generation from gas to renewables is in the three to seven year ballpark range). GE Vernova's installed base (mostly consisting of high efficiency gas turbines) already powers a third of the world’s electricity and, as we learnt last week, its backlog for gas turbines now stretches into 2029. Its electrification backlog, providing software to enhance grid efficiency, similarly ballooned. In total, the backlog now stands at $123 billion. Talk about being supply constrained.
When you are placing orders five years out, customers do not cede their place in the queue, nor do they pushback on pricing. This is secular growth and pricing power coming to fruition at its very finest, and we saw this translate into phenomenal Q1 results for the company, with accelerating revenue, margin and free cash flow. Guidance was unsurprisingly re-affirmed, which can easily engulf an estimated $300-400 million tariff cost impact.
The key surprise for us from management on the call was that data centre orders for GE Vernova’s gas turbines is not yet tangibly coming through in the company’s reported backlog (orders here are negligible today) – this growth is still to come, evidenced by data centre orders comprising 1/3 of slot reservation agreements already paid for, that are yet to make their way into the backlog. To us, this illustrates the durable growth characteristics of the business, whose hefty service component (60% of the backlog) provides both visibility and the promise of continued margin accretion over the next three years.
Netflix (Global Innovation 3.1%; Global Technology: 2.1%)
The streaming wars may have entered middle-age, yet global appetite for first-rate, on-demand entertainment is accelerating again as new price tiers, advertising and live events expand total addressable hours. In Q1, Netflix’s revenue advanced 13% year-on-year to $10.5 billion, while operating income leapt 27% and the margin hit a record 31.7% – marks last seen only in mature software franchises, not Hollywood studios. Free cash flow of $2.7 billion (up 25%) comfortably covered a further $3.5 billion of share buybacks, underlining the company’s transition from cash burner to cash compounder. Management held full-year guidance for 29% margins and $43.5 - 44.5 billion of revenue, implying another step-change in profitability despite a stronger US dollar.
With more than 300 million paying households – representing an audience of ~700 million people – Netflix already commands the industry’s deepest installed base, but its “backlog” is increasing too. Advance advertising commitments have grown sharply since the in-house “Netflix Ads Suite” launched in the US on 1 April and will roll out to all ad markets by midsummer; management expects ad sales to double this year even though they remain a single-digit share of revenue today. At the same time, the content pipeline is bursting: Squid Game S3 lands in June, Taylor vs. Serrano 3 streams live in July and Netflix has secured exclusive rights to two NFL Christmas Day fixtures in each of the next two seasons – events that drew a combined 65 million US viewers last year.
Customers’ willingness to pay for this slate is clear. Autumn price rises in the US, UK and Argentina have stuck, with churn steady and viewing minutes per subscriber still climbing. Because programming amortisation trails commissioning by 12-24 months, today’s higher average revenue per user (ARPU) flows almost straight to profit; each US$1 of incremental revenue now creates roughly $0.30 of operating income – evidence of formidable pricing power.
The market has yet to credit the optionality that lies ahead. Neither the ad tier (available in just 12 territories) nor the fledgling games division is material in reported numbers, and live sport is still classified as ‘promotional’ spend. Yet one-third of the upfront inventory for 2026 has already been pre-reserved by blue-chip advertisers, and early data suggest that live NFL games drive both record engagement and a step up in ad yield. With visibility high, cash generation surging and $13.6 billion still authorised for buy-backs, we view Netflix as a durable, margin-accretive compounder.
Vertiv (Global Innovation: 2.3%)
Vertiv epitomises the type of company whose fundamentals are benefiting from such strong momentum that it can absorb any tariff impacts with ease – revenue guidance was raised while operating margin came down slightly, but the net effect is unchanged earnings guidance.
Data centres need to be repurposed for AI to solve the power density problem: AI racks are driving densities of 50-100KW but most colocation data centres today are not ready for rack densities above 20KW per rack. This is where Vertiv comes in, providing direct-to-chip liquid cooling solutions and rear door heat exchangers to enable rack-scale AI servers to be deployed at scale. The company has a first-mover advantage and the leading technology – as such, they are designed into Nvidia’s Grace-Blackwell reference architecture (GB200 NVL72) and will enjoy mutual benefits as Nvidia ramps its Blackwell compute architecture through 2025.
Management’s discussion on tariffs was one of the most insightful we have encountered. The takeaways are threefold: 1) Q2 will mark the peak of tariff impacts – Vertiv can then adapt its supply chain and take mitigating pricing action to offset higher costs. In other words, innovators who are nimble and adaptable can neutralise the inflationary effects of tariffs – by the end of the year the company expects to be ‘tariff neutral’. 2) Supply chain rebalancing is the first tool in a company’s arsenal – expansive yet localised supply chains across the globe are an advantage, similar to Amphenol. 3) Pricing is the second tool – companies need to have high gross margins to start with, accompanied by expanding operating margins due to volume leverage and productivity gains on an ex-tariff basis. Only then can they eat incremental costs.
Liontrust Global Dividend Fund
Morgan Stanley (Global Dividend: 2.6%)
Five consecutive “clean” quarters have shown that Ted Pick’s Morgan Stanley can compound earnings even while macro headlines ricochet between tariffs, sticky inflation prints and AI euphoria. Q1 25 revenues of $17.7 billion, EPS of $2.60 and a 23% return on average tangible common shareholders' equity (ROTCE) set fresh records, driven by a $4.1 billion equity trading haul (-45 % YoY) and a further $94 billion of net new assets into Wealth Management. Crucially, these numbers were achieved while the firm added $2 billion to capital, lifting its CET1 ratio to a notably conservative 15.3 % – well above peer averages and already calibrated for Basel-end-game tweaks.
The standout message from the earnings report was durability. Management stress-tested the revenue mix against a variety of “higher-volatility” scenarios and concluded that only a full risk-off episode (deal windows sealed shut, equity leverage slashed) would derail the run-rate. That is not today’s backdrop. Prime balances remain solid, clients are turning over stock at record clip and Asia – where Morgan Stanley & MUFG alliance gives rare local reach – produced its best quarter in seven years.
The wealth engine looks equally supply-constrained. Total client assets now stand at $7.7 trillion; fee-based penetration keeps grinding higher (Q2 migration from workplace schemes added another ~$20 billion) and cash sweep balances have rebounded since quarter-end despite April’s market wobble. With only ~5 % of qualified assets in private alternatives against a 15% Global Investment Committee target, management sees a long runway for higher-margin product penetration.
Finally, the investment banking “backlog” – remains intact, eagerly awaiting a change in sentiment. Sponsor activity is already back, while corporates are postponing rather than cancelling mandates until tariff contours become clearer. If policy uncertainty finds a floor, shareholders effectively own free upside: the advisory and underwriting cycle will restart with a capital-light cost base that has just been trimmed by a further 3% of headcount. In short, Morgan Stanley is emerging from a difficult period with both earnings momentum and balance sheet fire power to spare.
Danaher (Global Dividend: 2.5%, Global Innovation 2.4%)
Numbers landed softer than we would normally stomach, yet when management spent half the earnings call dissecting a theoretical $350 million tariff hit, it tells you the gloom is already priced in. We have had meaningful exposure to Danaher across both Global Dividend and Global Innovation Funds that has been a material drag on performance for over two years as the life sciences sector has lacked a cyclical upturn or material catalyst.
The quarter itself was hardly sparkling: core revenues flat, Life-Sciences instruments and Diagnostics each negative, and margin down 50 basis points. Even so, EPS of $1.88 beat consensus by 15%, bioprocessing grew 7% and the book-to-bill sat comfortably above one, the seventh straight sequential rise. Crucially, management nudged full-year bioprocess guidance to high-single digits and left the group revenue outlook untouched at +3%. Investors rewarded the pragmatism; the stock closed up 4% on the day.
Bioprocessing is back in gear – large-pharma and CDMO consumables jumped low-double digits while equipment funnels are rebuilding. With $2 billion of new US capacity (single-use, filters, media, soon resins) online, Cytiva can service any reshoring rush sparked by tariffs. Tariff risk looks containable – roughly half of the forecast duty bill relates to US-China assay flows, the rest to kit shipped from Europe. Danaher’s regionalised supply chain means surcharges, footprint tweaks and DBS cost outs should neutralise most of the P&L drag; CFO Matt McGrew even suggested incremental cost saves are “on the table” if policy worsens.
And lastly, cash and optionality – free-cash conversion topped 110% and net leverage sits at 1× EBITDA, giving Rainer Blair dry powder precisely as valuations deflate. Management’s M&A bias remains intact; past down-cycles (think 2009, 2020) show how quickly Danaher can pounce when quality assets need a new home. Sentiment has swung from ‘Code Red’ to cautious optimism, yet the shares still trade on barely 22x mid-range FY25 EPS – a multiple we have not seen here since pre-Covid. Provided bioprocess orders keep climbing and Washington-Beijing sabre-rattling stays rhetorical, we see room for a return to earnings growth over the next 12 months as the business bottoms and returns to structural growth.
L’Oréal (Global Dividend: 2.1%)
In an earnings season so far characterised by dismal results for consumer staples, L’Oréal’s strong organic growth beat bucked the trend, and shares have climbed 12% since reporting. We have heard from CEOs of Proctor & Gamble, Unilever, Nestle and PepsiCo this past week to name a few, all calling out the difficulty of passing on inflated input costs without denting volumes.
L’Oréal sells ‘affordable luxuries’, which consumers stick with in bad times as well as good – indeed the ‘lipstick effect’, a term coined in the GFC, describes the economic phenomenon whereby beauty tends to outperform when consumers are hit by tough macro environments. The CEO expects the global beauty market to grow 4% in 2025, and L’Oréal to outperform. Tariff headwinds can be mitigated through the company’s pricing power,
What is most important to us is that L’Oréal continues to take market share, even in the one geography that is weakening as a whole: the US. Share gains are particularly prominent in China (Northern Asia grew 7% in Q1), which appears to be turning the corner as government stimulus takes hold and we expect to act as a tailwind throughout the year.
What is driving these share gains? Innovation. Global leader L’Oréal is the poster child of sustaining innovation, investing more in R&D every year than its closed 3 competitors combined – as a result, 10-15% revenue every year is derived from new product innovation. In the quarter, L’Oréal’s accelerated innovation ‘beauty stimulus plan’ got off to a promising start with strong contributions from new launches such as Kérastase Gloss Absolu and YSL Make Me Blush. The impact of the plan will grow throughout the year as we see further launches.
Innovation at L’Oréal stretched beyond product, as the original pioneer of ‘beauty tech’. The company’s digital strength is becoming an increasingly important asset, with online growth outpacing offline. The beauty of this (no pun intended) is that data gathered from digital sales feeds back into the R&D process, creating better and more personalised products. We think this flywheel will garner momentum as L’Oréal’s AI-powered beauty concierge makes further inroads.
Liontrust Global Technology Fund
Amphenol (Global Technology: 3.6%, Global Innovation: 3.2%, Global Dividend 4.2%)
For us, the crown of Q1 earnings season thus far, without a shadow of a doubt, gets bestowed on Amphenol, which delivered a monster 20% earnings beat matched by a 20% guidance raise. Earnings grew by 58% yoy, and orders by the same magnitude – underpinning durable and visible revenue streams well into next year. Amphenol has been one of our key top-ups across all three funds amid the past two months’ volatility.
As the leading supplier of high-tech interconnects globally, Amphenol is an essential component of the electric backbone of the economy, enabling electrification across every industry from defence to industrials to autos to data centres. Growth was broad-based, but the latter is where we have seen continued outsized growth for five quarters, with no slowdown in sight.
There has been much speculation and commentary around a looming digestion in data centre spend – Amphenol's results prove otherwise. Datacom growth for the company accelerated to 133% yoy in Q1 (up from 76% yoy growth in Q4), but the most astonishing number was sequential quarter-on-quarter growth of 34%. As the company’s CEO explained, its customers would buy more interconnect if Amphenol could ship more. It is supply constrained, not demand constrained. This is not digestion, this is acceleration – we believe the market has overly fixated and misinterpreted reports of Microsoft cancelling data centre leases, which we view as idiosyncratic (Azure is ceding competitive ground to Oracle as the cloud of choice for AI workloads).
Amphenol is like the Constellation Software of electronics – margins are software-esque but this is a hardware company; de-centralisation is at the core of the business model, whilst accretive M&A reflects the Amphenol’s status as the preferred consolidator in this space. As such, the impact of tariffs is expected to be negligible: Amphenol has pricing power, faces a demand/supply imbalance, and has a devolved and high localised business structure purpose-built to adjust supply chains and manufacturing.
Tesla (Global Technology: 3.5%, Global Innovation: 3%)
Numbers were even worse than expected, but when you have analysts issuing reports titled ‘code red’ into earnings, it's a sign that sentiment has hit rock bottom. We had sizeable positions in Tesla in both the Global Technology and Innovation Funds coming into Q4 last year but halved our positions in the wake of the stock’s momentous post-election bounce, commensurate with our valuation discipline. Coming into the Q1 print, we topped up marginally.
Declining deliveries, partly induced by the Model Y refresh (and changing over production lines across all factories), had been pre-announced to the market, so operating de-leverage and a short-term profitability hit were not surprising.
For us, there were three key bright spots:
Firstly, Tesla's Innovation roadmap is loaded and intact: a low-cost vehicle is still coming this year despite rumours of a delay; the launch of the robotaxi (FSD unsupervised) in Austin in June is still happening, and lastly, we will see Optimus production by the end of 2025. Of these, the robotaxi launch is the key catalyst, where Tesla’s end-to-end neural networking and vision-only approach to autonomous driving has potential to gain proof of concept.
We believe that Tesla’s unique approach to autonomy using neural networking is a distinct competitive advantage – the improvement we are seeing in FSD capabilities is exponential and this is what we think is being lost by the street, which is notoriously poor at modelling exponentials. Having pivoted two years ago from using hardcoded deterministic software to neural networks, we are now seeing a 5-10x improvement in Tesla’s autonomous driving capabilities every two months vs. a prior c.2-4x improvement per year. Having tested both Tesla’s FSD v12 in June last year and FSD 13 more recently in March, we have personally experienced the leap forward in intuition each software update brings.
Secondly, momentum in the energy business – on both the top and bottom line – is strengthening above our expectations. In Q1, Tesla deployed 4.1GQ of energy storage, +154% yoy, resulting in 56% revenue growth. We think in five years' time Tesla’s energy business could well eclipse its car business – megapacks are emerging as a key energy source to stabilise the grid during peak power shifts and provide data centres with power 24/7.
Finally, Musk is re-engaging with Tesla and scaling back DOGE time commitments from May. This is what the market was calling for, and this is what we got.
ServiceNow (Global Technology: 2.5%, Global Innovation: 2.1%)
We have re-established positions in both funds after ServiceNow’s shares fell about 40% from their 52-week highs. The move illustrates why active portfolio management matters. We first bought during the technology rout of 2022, exited in the fourth quarter of 2024 when the shares met our price target, and rebuilt the stake after the post-“Liberation Day” wobble restored our required 100% 5-year upside hurdle required to make an investment. The first-quarter results – and the sharp rebound that followed – show how the market can mis-price great companies only briefly.
In the quarter, subscription revenue rose 20% yoy in constant currency to $3 billion, the operating margin reached 31% and free cash flow margin jumped to a record 48%. Current remaining performance obligations increased 22% to $22 billion. Despite this strength, management trimmed full-year 2025 guidance by a token $5 million, resetting expectations while signalling that execution remains solid.
The pre-earnings sell-off was driven by broker fears of a tariff-induced pause in US federal IT spending and a potential White House “DOGE” cost cap. Those worries marked the trough in sentiment, and the results swiftly dispelled them. Three forces now underpin the growth story. First, AI agents are gaining traction: Now Assist “Pro Plus” deals quadrupled year on year and featured in fifteen of the twenty largest transactions, with average annual contract value per AI deal up by one-third quarter on quarter. Early adopters are seeing sixteen-fold faster lead-to-sale conversion and 86% ticket deflection, demonstrating that ServiceNow’s workflow layer is becoming the default runtime for enterprise AI.
Secondly, the public-sector flywheel is accelerating. Instead of freezing, net-new US federal annual contract value grew 30% yoy, adding six agency logos and eleven expansions above $1 million. Even the mooted DOGE spending ceiling is proving helpful as agencies replace hundreds of ageing COBOL systems (a high-level, procedural programming language designed for business data processing) with a single cloud-native stack. Finally, the company is unlocking front-office total addressable market. Customer-relationship-management and industry workflows now deliver a third of new contract value and are growing by more than 50% in EMEA and Japan. The pending acquisitions of Moveworks and Logik.ai will add conversational search and AI-native configure-price-quote capabilities, rounding out a sales-to-service suite that can be deployed in weeks rather than quarters.
ServiceNow enables clients to cut costs during today’s efficiency cycle while opening fresh revenue channels for the coming AI super-cycle. With valuation risk reduced, record cash generation and a chief executive who notes that “someone else must lose for us to keep winning”, we see ServiceNow as a durable compounder hiding in plain sight.
KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
The Funds managed by the Global Innovation team:
- May consider environmental, social and governance ("ESG") characteristics of issuers when selecting investments for the Funds.
- May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund.
- May have a concentrated portfolio, i.e. hold a limited number of investments or have significant sector or factor exposures. If one of these investments or sectors / factors fall in value this can have a greater impact on the Fund's value than if it held a larger number of investments across a more diversified portfolio.
- May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
- Outside of normal conditions, may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
- Do not guarantee a level of income.
The risks detailed above are reflective of the full range of Funds managed by the Global Innovation team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
DISCLAIMER
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.com or direct from Liontrust. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
