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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"FMI is avoiding the AI bubble and buying overlooked quality businesses at compelling valuations. Semiconductor and AI infrastructure stocks have reached dot-com-level excess with unsustainable ROI dynamics, while traditional businesses with durable advantages trade at historic discounts."
Fiduciary Management views the current AI-driven market rally as speculative excess comparable to the dot-com bubble. Semiconductor stocks posted their best quarter ever with the Philadelphia Stock Exchange Semiconductor Index gaining 88%, while valuations reached all-time highs over four standard deviations above historical averages. The five largest hyperscalers are projected to spend over $725 billion on AI capex in 2026, yet ROI analysis suggests only Amazon would generate positive returns under zero operating cost assumptions. Meanwhile, Quality Compounders fell 1% year-to-date, creating a historic valuation gap. The manager is actively avoiding AI infrastructure stocks and instead positioning in overlooked businesses with durable competitive advantages, high returns on capital, and conservative balance sheets trading at meaningful discounts. Portfolio companies like FTI Consulting, Capital One, and Fluidra are positioned to benefit from AI on the cost side through productivity gains rather than selling into the investment cycle. The manager expects this setup to generate strong returns over a 3-5 year horizon as the AI bubble deflates and traditional businesses compound quietly, similar to the post-dot-com period when their small cap strategy outperformed the Nasdaq by over 127 percentage points.
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