- April saw a return to company-specific fundamentals driving share prices, moving away from broader economic influences.
- DeepSeek-R1, a new open-source AI model using advanced reasoning, has drastically increased demand for computing power and reshaped spending plans among major tech firms.
- Cloud providers now face capacity limits, admitting AI growth could have been higher with more computing hardware.
- Leading firms like Microsoft, Amazon, and Alphabet are investing heavily in new areas as traditional revenue streams face growing competition.
- Preference is given to suppliers of AI infrastructure (hardware, software, components) over front-end players battling for consumer dominance.
After eight weeks of difficult market conditions, April ended with fundamentals finally prising share-price movements away from the wider macro noise. During the preceding three months, two debates dominated investor attention, and events over the past week have delivered clear answers.
First, DeepSeek-R1 – the first open-source model to employ chain-of-thought reasoning and therefore to require roughly 200× more compute than first-generation systems – has transformed both compute demand and hyperscalers’ capital expenditure plans. Although DeepSeek is arguably cheaper to train than its closed-source rival, OpenAI’s o1, and remains less costly to run, the shift to ‘thinking’ models still entails vastly greater compute requirements than earlier, non-reasoning versions. Every major cloud provider now admits to capacity constraints and concedes that AI revenue would have been higher had more accelerated-computing hardware been available. The net result is a broader range of practical AI use-cases and a structurally higher level of aggregate compute demand.
The second question is whether the winners of the past decade will dominate the next cycle. Microsoft and Amazon both met or beat expectations for the quarter, yet their management teams were at pains to stress the need for fresh investment as core franchises – Office, Windows, and e-commerce – face rising competition for the first time in decades. Alphabet, Amazon and Microsoft are each pouring capital into new growth vectors, making it difficult to imagine an industry landscape in which they do not clash head-to-head over profit pools such as cloud computing and digital advertising.
In such an environment, we would rather back the firms selling the ‘arms’ – the hardware, components and software – than those engaged in an increasingly expensive fight for end-market dominance.
Global Innovation Fund
Spotify (Global Innovation – 1.9%; Global Technology – 2.0%)
Spotify’s first-quarter figures confirm that the platform can grow rapidly while tightening its cost base. Paying subscribers rose by 12% year-over-year (yoy) to 268 million, the strongest Q1 intake since the pandemic rebound and well ahead of management’s plan. Two-thirds of the upside came from Latin America and Asia-Pacific, underlining the appeal of Premium even in price-sensitive markets. Group revenue reached €4.2 billion, up 15% in constant currency, with subscription sales 16 % higher as July’s price rises flowed through. Advertising grew a modest 5%, but – excluding one-off effects linked to licensed podcasts and the Spotify Partner Programme – underlying growth was in the low double digits.
Crucially, the income statement is beginning to mirror the top-line progress. Gross margin expanded four percentage points to 31.6%, driven by better music-licence terms, improving podcast economics and early returns from audiobooks. Operating profit came in at €509 million; stripping out non-forecast social-security charges, results beat guidance by €18 million.
Management’s focus on “accelerated execution” is already visible. Internal AI tools have cut the time needed to roll out upgrades across 2,000 partner devices by a factor of ten, helping video-podcast viewing hours jump 44% yoy (up 81% among Gen Z). Automated ad-buying features attracted more than 10,000 advertisers in the quarter – a 21% increase and the first time Q1 has beaten the seasonally strong Q4 – suggesting that the unified ad stack is beginning to pay off. Meanwhile, the Partner Programme paid out over $100 million to podcasters, demonstrating a viable alternative to the ad-only model and reinforcing Spotify’s hold on creator mind-share.
The outlook remains positive. For Q2 the company guides to 273 million subscribers, 689 million monthly active users and a 31.5% gross margin, absorbing a €100 million forex headwind. Full-year margins should again improve, albeit at a slower cadence than 2024’s exceptional gains, with the customary year-end spike in Q4. Price increases are now an established lever – churn has stayed “modest” – and further segmentation (for example a higher-priced super-fan tier) offers optional upside. With engagement, retention and cash generation all moving in the right direction, Spotify is entering its twentieth year not as a maturing streamer but as a platform still widening its addressable market – and still finding new ways to monetise the time listeners spend in its app.
Alnylam (Global Innovation – 1.2%)
Alnylam’s first-quarter report shows a company that is gathering momentum. From January to March it sold almost $470 million worth of medicines – about a third more than in the same period last year. Most of that growth came from two long-standing drugs that treat a rare nerve disorder called hereditary ATTR amyloidosis; in the United States alone its sales jumped 45%.
Because revenue rose much faster than spending, Alnylam moved into the black at an operating level, earning a profit of about $75 million after posting a loss a year earlier. The balance sheet remains comfortable, with cash and short-term investments of $2.6 billion, and management says that recently announced trade tariffs should have little impact on costs.
The company’s newest opportunity is the same drug – AMVUTTRA – approved in March for a heart-related form of the disease. Within four weeks more than half of the big American hospital systems that handle these patients had added the medicine to their internal formularies, which means doctors can prescribe it. Physicians are already treating cardiomyopathy patients, and most of them face no out-of-pocket bills – a sign that insurers are willing to cover the therapy. Alnylam therefore expects a noticeable lift in sales during the second half of the year.
Several milestones lie ahead: results from a mid-stage study of zilebesiran, a twice-yearly injection being tested for high blood pressure, should arrive later in 2025; and two large outcome trials for an upgraded version of AMVUTTRA will also begin before year-end. Meanwhile Sanofi, a long-time partner, has just secured US approval for fitusiran, the sixth Alnylam-discovered RNA medicine to reach the market. Taken together, these developments suggest that Alnylam has not only begun to translate its science into steady profits but is also building the pipeline needed to keep that growth coming.
Moderna (Global Innovation – 1.1%)
Moderna has been a challenging stock to own over the past year, as falling Covid 19 vaccination volumes open a revenue gap that new products must eventually fill. First quarter results were hardly spectacular – revenue and earnings came in just ahead of expectations – but guidance was reaffirmed and several encouraging signals emerged.
Management is doing precisely what we hope for during this transition: maintaining strict financial discipline. The quarter marked a third straight period of double digit year on year declines in operating expenses, a rarity in the pharmaceutical sector renowned for R&D bloat and inefficiency. With the major respiratory Phase III trials now behind it, Moderna can dial back spend, and early AI initiatives are already lifting productivity.
Indeed, Moderna sits in a select group of drug makers deploying AI at scale and recording tangible gains. In partnership with OpenAI the company has rolled out some 750 custom GPTs, whose benefits should compound over time. By removing bottlenecks in mRNA sequence design and accelerating patent drafting, AI extends Moderna’s intellectual property edge; platform economics then amplify every incremental improvement.
That late stage IP is the chief reason we believe the shares remain undervalued. Over the next three years we expect at least ten product approvals – spanning respiratory viruses and oncology therapies – with two or three possible as early as 2025. Because mRNA is modular and already proven clinically, the regulatory path for these assets is far less risky than for traditional modalities.
The precise timing of approvals is unknowable and management therefore excludes them from 2025 guidance; any wins present pure upside.
Global Dividend Fund
Apollo (Global Dividend – 2.7%)
Apollo’s first-quarter scorecard shows why scale, origination clout and a long‐term balance-sheet mindset still win in volatile credit markets. Fee-related earnings reached a record $559 million – up 21% year-on-year – driven by 18% growth in management fees and tight cost control that expanded fee-related earnings margin by roughly 200 basis points (bps). Spread-related earnings, stripped of one-offs, were $826 million; net spread slipped 8 bps sequentially as Apollo deliberately stockpiled cash, treasuries and agencies rather than chase narrow retail-annuity spreads. Adjusted net income rose to $1.1 billion and the quarterly dividend was lifted 10% to $0.51, comfortably funded by $24 billion of distributable earnings generated over the past year.
Athene’s engine keeps revving: organic inflows hit an all-time high of $26 billion, part of a record $43 billion firm-wide that pushed total assets under management to $785 billion (+17%). Retail annuities, flow reinsurance and a voracious funding agreement bid all contributed, while April saw another $10 billion of inflows and $25 billion of widespread asset purchases as public-market dislocation finally presented ‘fat-pitch’ opportunities. Apollo’s own origination machine did $56 billion of volume at 200-250 bps excess spread to similarly rated corporates, underlining the advantage of proprietary channels.
Management has trimmed 2025 spread-related earnings growth expectations to the mid-single digits, reflecting 1½ additional Fed cuts, competitive retail pricing and higher pre-payments on legacy high-coupon assets. Yet the firm enters the rest of the year spring-loaded: $64 billion of dry powder, half-levered balance-sheet funds, a swelling global wealth franchise (nearly $5 billion raised in Q1) and new traditional manager tie-ups with State Street and Lord Abbett. In short, Apollo is passing on late-cycle yield scraps and waiting to feast when liquidity evaporates – a strategy that has compounded book value at 15%-plus for two decades and, on this showing, remains intact.
Brookfield Infrastructure Partners (Global Dividend – 3.1%; Global Innovation – 1.9%)
Brookfield Renewable’s Q1 print was a reminder that scale still matters in clean power. Funds from operations rose 15% yoy on a normalised basis (7% all-in) despite lapping record hydro inflows, while EBITDA benefited from 800 megawatt (MW) of fresh capacity and the first contributions from Neoen and Ørsted stakes. Management recycled $200 million of mature assets at ~2× cost and redeployed $500 million net into National Grid Renewables and the Neoen take-private, expanding the development pipeline to 45 gigawatt (GW) and locking in a visible 8GW of projects for 2025 commissioning.
Tariff noise looks containable – engineering, procurement, and construction (EPC) contracts are fixed-price and domestic sourcing now dominates – as global diversification is lowering input costs in non-US markets.
Strategically, the Microsoft framework (10.5GW minimum) is proving a magnet for other hyperscalers, and management expects further umbrella power purchase agreements this year. Private-market appetite for de-risked assets remains robust, allowing Brookfield to arbitrage the public-private valuation gap, while Westinghouse’s orderbook is running ahead of plan as nuclear regains policy favour.
In short, a strong operational quarter, disciplined capital rotation and a still-underappreciated optionality on both supply-chain dislocation and data-centre demand.
Eli Lilly (Global Dividend – 3.0%; Global Innovation – 2.0%)
Lilly’s shares fell c.10 % on the day it reported results, and we took the opportunity to top up our position. The numbers were undeniably strong: revenue grew 45% year on year, while earnings rose 29%, both ahead of what Wall Street had pencilled in. Management did, however, trim full year EPS guidance because of a one off charge related to the acquisition of an oral cancer programme from Scorpion Therapeutics. On the same day, CVS announced an exclusive agreement with competitor Novo Nordisk. Neither development alters our investment thesis.
Today, GLP 1 penetration in obesity stands at > 1%, even though roughly two thirds of U.S. adults are overweight or obese. The total addressable market for GLP 1s for weight loss is expected to approach US $100 billion by 2030. Over the past year Lilly has taken share and driven most of the category’s growth; losing a single distribution channel is therefore unlikely to dent momentum while the overall market is expanding so rapidly. In addition, Lilly’s direct self pay vial strategy is gaining traction – already responsible for c.25 % of new U.S. prescriptions – which sidesteps restrictive formularies and preserves margins.
Looking forward, we believe Lilly’s oral GLP 1 portfolio will be the real game changer. Orforglipron, the company’s once daily pill, delivered very positive Phase III data in type 2 diabetes, and a raft of late stage trials is under way across indications ranging from obesity to sleep apnoea. Pipeline catalysts are plentiful in 2025, and no competitor has yet matched Lilly’s weight loss efficacy in an oral format. Pills not only eliminate needle aversion; they are easier to manufacture and require no cold chain logistics, further lowering Lilly’s cost base.
Global Technology Fund
Cadence Design Systems (Global Technology – 2.8%; Global Innovation – 2.7%)
Cadence delivered another exceptional quarter, comfortably beating guidance across every key metric. Revenue grew 23% yoy, while EPS advanced 34%. Momentum remains strong because the company’s software enables chip designers to produce silicon that is smaller, faster and more energy efficient. Structural growth drivers – hyperscale computing, 5G and autonomous systems, all powered by the AI megatrend – continue to work in Cadence’s favour.
Although end-consumer demand has yet to re-accelerate, customers are investing heavily in next-generation designs, recognising that today’s R&D underwrites tomorrow’s breakthrough products.
Unlike many enterprise-software peers, Cadence has pursued an AI-first strategy for years, and the rapidly evolving landscape now magnifies its opportunity set. The Cadence AI portfolio delivers unparalleled price, performance, productivity and time-to-market advantages, making it increasingly central to the chip-development workflow. At Nvidia’s recent GTC conference the two firms deepened their collaboration around the new Grace Blackwell architecture; Cadence tools running on this platform can achieve up to an eighty-fold speed-up. The partnership also encompasses a joint effort to create a full-stack, agentic-AI solution for engineering and scientific workloads built on the latest Llama Nemotron reasoning models.
Crucially, Cadence eats its own cooking. It deploys AI extensively across its operations and was among the first adopters of Nvidia’s Omniverse blueprint for AI-factory digital twins, which is already improving data-centre design and operational efficiency. With a pivotal position in the semiconductor value chain, strong business momentum and an unrelenting focus on innovation, Cadence is executing at scale and looks well placed to sustain its leadership in the years ahead.
For investors still questioning the return on investment (ROI) in artificial intelligence, Meta’s latest results offer a forceful rebuttal. In the six months to March 2025, upgraded AI recommendation systems lifted time spent by 7 % on Facebook, 6 % on Instagram and 35 % on Threads – the same aggregate uplift achieved in the whole of 2024, but in half the time. This acceleration matches what our recent Silicon Valley research trips have highlighted: the pace of innovation is doubling.
The advertising side tells an equally compelling story. A new AI driven ads recommendation system for Reels raised conversion rates by 5%, while the share of advertisers using Meta’s generative creative tools jumped 30 % year on year. Crucially, average ad prices climbed 10% – clear evidence that AI is matching inventory with higher value impressions the company can monetise.
Two structural advantages underpin this momentum. First, Meta is building a world class compute infrastructure. By end 2025 it expects to operate the equivalent of 1.3 million GPUs and is building a 2 GW data centre campus in Louisiana. Management’s increased 2025 capex guide of $64 – 72 billion shows that scaling laws are alive and well. Second, distribution remains unmatched, an advantage that grows in importance as we move to inference deployment at scale. Roughly 3.4 billion people use at least one Meta app every day, furnishing both the data corpus and the user interface for ever more personalised AI models – any edge competitors will struggle to replicate. We added to our position during the share price volatility around “Liberation Day” because the valuation ignored Meta’s improving fundamentals. Far from slowing, as the 34% February to March peak-to-trough would indicate, earnings power is in fact accelerating: first quarter revenue grew 20 %, EPS beat consensus by 20% and operating margin reached 41%, up from 20% two years ago. Meta’s AI investment is already translating into higher engagement, better ad yield and expanding margins – exactly the ROI sceptics said was missing.
Apple (Global Technology – 3.5%; Global Dividend – 3.7%)
Apple’s quarterly numbers to end-March show a company still able to grow briskly even as it lifts investment and wrestles with trade friction. Revenue rose 5% yoy to $95.4 billion, the upper end of guidance, despite a 2.5-point foreign-exchange drag. Diluted EPS advanced 8% to a quarterly record of $1.65, helped by a 20bps rise in gross margin to 47.1 %. Services once again did the heavy lifting: turnover climbed 12% to an all-time high of $26.6 billion and now contributes more than a quarter of group sales, with well over one billion paid subscriptions on the platform.
Hardware was hardly sluggish: iPhone revenue edged up 2% to $46.8 billion, outpacing the smartphone market as the early-cycle iPhone 16 family found favour; Mac sales added 7%; and iPad a striking 15% thanks to M-series refreshes. Only wearables slipped (-5%), reflecting tough comparisons with last year’s Vision Pro and Watch Ultra launches. Crucially, the installed base of every product category reached a fresh peak, and customer-satisfaction scores remain in the mid-90s.
Management continues to pair operational discipline with shareholder largesse. Operating cash flow hit $24 billion; net cash stays healthy at $35 billion even after returning $29 billion through buybacks and dividends. A new $100 billion repurchase authorisation and a 4% dividend increase underscore confidence in future cash generation. Meanwhile Apple is committing $500 billion over four years to expand US manufacturing, chip sourcing and data-centre capacity – spending that should bolster supply-chain resilience and meet the rising compute needs of generative-AI services such as Apple Intelligence.
The one cloud is tariffs. Apple estimates an extra $900 million of cost in the June quarter, chiefly from iPhones whose country of origin remains China, though half of US-bound units are now assembled in India and most Macs, iPads and AirPods come from Vietnam. Even after absorbing that hit, Apple guides to low-to-mid-single-digit revenue growth and a still-robust 45.5-46.5% gross-margin range. In other words, the world’s most valuable company is demonstrating that it can offset geopolitical headwinds with a blend of pricing power, supply-chain agility and a services engine that keeps revving higher.
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.
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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.
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