After three years of capitalizing on the electrification and decarbonization sectors, portfolio manager Grace Su has notably reduced her exposure to industrial companies tied to data center growth. Su, who manages approximately $220 million across ClearBridge Investments’ international value fund and a focused global value improvers fund, has trimmed or exited holdings in firms such as Vertiv, Nexans, Hitachi, Siemens, Johnson Controls, and completely exited Siemens Energy.
Instead, Su has shifted her largest equity positions toward major technology companies, with Microsoft now the top holding alongside stakes in Alphabet (Google) and Meta. She explains that if investors are optimistic about artificial intelligence (AI), they should engage more directly with the technology sector, where companies generally demonstrate higher margins and greater pricing power.
Several factors underpin this strategic reallocation. Rising inflation, particularly transport costs, has begun to weigh more heavily on industrial firms compared to large technology companies. Moreover, recent public and political resistance to data centers is casting doubt on the sustainability of AI-related infrastructure investments. The pullback follows disappointing initial public offerings (IPOs) from data center companies such as Firmus and Airtrunk. Political opposition is particularly evident in the United States, where some state governors, initially supportive of data center projects, have become more cautious with midterm elections approaching.
Global AI infrastructure spending is estimated at $750 billion to $800 billion this year, with some projections for 2027 exceeding $1 trillion. Yet, Su warns local permitting challenges and community pushback may constrain the anticipated growth in data center capacity. Despite this, demand for computing power remains robust. Rental prices for Nvidia’s latest-generation graphics processing units have risen sharply, and industry leaders such as Amazon CEO Andy Jassy have indicated that compute capacity for 2027 and parts of 2028 is largely sold out.
This environment benefits established "hyperscalers" like Microsoft, Alphabet, and Meta, which have the financial resources to fund their own data center expansions, contrasting with smaller operators reliant on external financing. Su is cautious about the IPO valuations in this space, specifically noting a lack of margin of safety in Anthropic’s forthcoming public offering.
Funding costs are also a growing concern amid rising bond yields. Notably, SpaceX’s record $857.5 billion IPO in June has set a high bar, while Meta recently announced plans to raise $95 billion through equity issuance. Anthropic aims to raise up to $100 billion, and OpenAI has delayed its own IPO until 2027 or later while securing private funding of up to $30 billion.
Microsoft’s CEO Satya Nadella has repositioned the company, accelerating investment in the Azure cloud business while offsetting costs via measures such as a voluntary retirement program affecting about a quarter of its workforce. Su highlights Microsoft’s corporate software suite and its Copilot product as potential competitive advantages, describing Copilot as a "traffic director" that could steer queries to the most appropriate AI models.
Despite challenges in the latest quarter, including index rebalancing around leading growth stocks, Su remains committed to her “value improver” investment approach. This strategy focuses on companies with low valuations that demonstrate meaningful structural improvements, such as European banks benefiting from rising interest rates or consumer goods firms like Unilever following strategic demergers.
As geopolitical uncertainties persist, including the U.S. midterms, European budget discussions, and ongoing global conflicts, Su maintains a “barbell” portfolio strategy. This consists of a mix of confident growth names balanced against deeply undervalued businesses, positioning for potential shifts in market sentiment.