Alger Capital Appreciation Fund Q1 2026 Portfolio Update

The Alger Capital Appreciation Fund underperformed the Russell 1000 Growth Index in Q1 2026, with performance helped by Western Digital, Nebius Group, and Vertiv Holdings Co. Key detractors included Microsoft, AppLovin Class A, and NVIDIA, suggesting a mixed stock-selection environment rather than a single catalyst-driven event. The update is portfolio-performance focused and unlikely to move markets broadly.

Analysis

The pattern here is less about broad growth-beta and more about a quiet rotation toward infrastructure and “picks-and-shovels” AI exposure. Names tied to storage, networking, and data-center buildout are being rewarded while the mega-cap model owners are being treated as crowded, capital-intensive, and increasingly self-funded. That implies the market is preferring revenue visibility from physical bottlenecks over optionality embedded in platform narratives.

The second-order effect is that the supply chain beneficiaries may be the better trade than the obvious AI leaders. If compute demand stays strong, vendors with shorter backlog-to-cash conversion and tighter capacity can reprice faster than hyperscalers, whose returns are delayed by heavy capex and tougher comparisons. This also creates a relative-value opportunity versus semis and software: the market may be underestimating how much AI spend leaks into storage, power, and datacenter cooling rather than only into chip shipments.

The risk to the winners is that this is likely a flow-sensitive move, not a clean fundamentals re-rating. If AI capex expectations flatten over the next 1-2 quarters, the “infrastructure scarcity” premium can unwind quickly because these names tend to trade on momentum and order-book extrapolation. Conversely, the losers could stabilize if earnings revisions for the mega-caps remain intact; in that case, underperformance may be more about positioning reset than thesis breakage.

The contrarian read is that the market may be over-penalizing the largest AI beneficiaries precisely because their spend is visible. Microsoft and NVIDIA may be closer to monetizing the full ecosystem than the current tape suggests, while the smaller winners are pricing in a very smooth buildout path. If AI deployment becomes more uneven or delayed, the higher-beta enablers could give back more than the platform leaders.

Key Decisions for Investors

• Go long VRT / short NVDA as a 3-6 month pair trade: express the view that AI capex is being re-priced toward infrastructure winners; target 8-12% relative outperformance if data-center spend stays firm.
• Add to WDC on pullbacks for a 1-3 month tactical long: storage is a cleaner second-order beneficiary of AI data growth, with better near-term earnings sensitivity than the large platform names.
• Use MSFT weakness to buy downside protection only if capex guidance accelerates again: 3-6 month put spreads can hedge the risk that rising AI spend compresses near-term free cash flow and sentiment.
• Fade overcrowded AI momentum via a basket short in NVDA/MSFT against long NBIS/VRT if positioning remains extended: best risk/reward if the market stays flow-driven rather than fundamental.
• If the group re-accelerates, take profits on the winners first: VRT/NBIS are more likely to be crowded and therefore more vulnerable to a 5-10% drawdown on any sign of order normalization.