Q3 2024 LP Letter
Dear Partner,
As of the end of Q3, the fund returned 23.92%, outperforming the S&P 500* (+12.76%) by 11.16% and the NASDAQ* (+5.92%) by 18%. As expected, the fund’s relative outperformance has moderated with the slowing momentum of semiconductor stocks, while other sectors are finally showing signs of real growth. Though we may lose some bragging rights in the short term, this is a positive development for our portfolio. A broadly improving economy will likely accelerate and stabilize demand for early AI products, which should accelerate returns for many of our core holdings.
Since my last letter, there have been several notable developments in AI-related equities. First, NVIDIA announced that its Blackwell chips are sold out for the next year. The broader market seemed to have anticipated this, as the stock price surged before the news and remained largely unchanged afterward.
Second, ASML, which manufactures the machines used to produce high-end chips, saw its stock price fall sharply following its Q3 earnings report, which projected weaker demand. NVIDIA’s stock also dipped, as some analysts mistakenly interpreted ASML’s outlook as signaling long-term demand issues for high-end products like NVIDIA’s. However, ASML was clear that the forecasted weakness stemmed from factors such as softer demand for lower-end semiconductors and customers deferring purchases until ASML’s next-generation equipment is available—something that should have surprised no one, especially not ASML’s analysts.
Lastly, Microsoft and its partner, Quantinuum, achieved a major milestone in quantum computing by significantly reducing the resources needed to maintain the accuracy of a quantum computer. Quantum computers are notoriously unstable due to the extreme physical conditions required for their operation. Currently, stability is achieved through two primary methods: making them colder (which is nearly impossible, as they already operate within a degree of absolute zero) or using valuable resources to continuously recheck calculations. Microsoft’s partnership has developed a more stable system that requires less than half the resources previously needed for this rechecking process. This is significant because current quantum computers are resource-constrained—they are incredibly expensive to build and operate but offer immense computational power with limited resources.
The progress in quantum computing is highly relevant to our tech-heavy portfolio. Its potential to drastically reduce the cost of solving complex problems could reshape the economics of numerous industries. In fields like physical sciences, pharmaceuticals, and materials, we could see innovation on a scale that dwarfs the breakthroughs of the computing age. At the same time, information technology may face unprecedented disruption.
We are excited about the opportunities ahead as innovation continues to reshape industries at an accelerating pace. Our portfolio is well-positioned to benefit from these advancements, and we remain confident in our ability to navigate both challenges and opportunities in the evolving market landscape. Thank you for your continued trust and partnership.
Sincerely,
Nicholas Carpenter
Manager, NJC Capital Management LLC
https://www.njchorizon.com/