The London Company Large Cap Q1 2026 Portfolio Review

The London Company Large Cap portfolio returned 2.6% (2.4% net) for the quarter, outperforming the Russell 1000 Index, which fell 4.2%. Entegris was a top contributor, helped by improving fab utilization and accelerating AI-driven semiconductor demand, while Visa lagged on weaker consumer confidence, lower spending expectations, and concern that AI could pressure payment-business moats. Overall tone is mixed, with AI-linked industrial strength offset by caution around consumer and fintech exposure.

Analysis

ENTG’s relative strength looks less like a single-quarter cyclical pop and more like an operating leverage inflection: if fab utilization keeps improving, the mix shifts toward higher-throughput consumables and process materials, which should expand margins faster than revenue. The second-order winner is the semi equipment/materials ecosystem, especially names exposed to advanced-node capex and AI server buildouts; suppliers with mission-critical qualification status should see less pricing pressure than the broader hardware chain.

The bigger signal is that AI demand is now pulling through the semiconductor supply chain in a way that can offset some legacy handset/PC weakness. That means the market may be underestimating the duration of the current upcycle: if AI-driven capacity additions persist, the earnings upgrade cycle for specialty materials can run multiple quarters, not just a single beat. The risk is that utilization is a lagging indicator—if hyperscaler ordering pauses or memory pricing softens, ENTG can retrace quickly because the market is currently paying for sustained volume recovery.

V’s underperformance is more interesting because the concern is less about near-term transaction growth than about narrative erosion around moat durability. AI can compress payment economics over years rather than months by enabling account-to-account rails, embedded finance, and merchant disintermediation, but that requires distribution and regulatory approval to matter at scale. In the next 1-2 quarters, weaker consumer confidence and spending expectations are the more immediate headwinds; if they stabilize, the market could reverse part of the drawdown, because the AI threat is still largely a long-dated multiple issue rather than a current cash flow issue.

Consensus likely overstates the immediacy of AI disruption to Visa and understates the cyclicality of sentiment-driven spending. The cleaner read is that V is vulnerable to multiple compression if growth slows even modestly, while ENTG deserves a premium for being levered to a structural capex cycle with clearer near-term monetization. If the market starts separating 'AI narrative risk' from 'AI revenue exposure,' ENTG should stay bid while V becomes a better relative short only on signs of consumer data deterioration.

Key Decisions for Investors

• Long ENTG on pullbacks over the next 2-6 weeks; target a 10-15% upside rerating if fab utilization and AI-related semi demand hold, with a stop if semi capex commentary rolls over.
• Pair trade: long ENTG / short V for 1-3 months to express cyclical AI beneficiaries vs. moat-risk incumbents; this offers cleaner exposure than outright index longs if growth data remain mixed.
• Do not short V aggressively here; wait for 2 consecutive months of softer spending/consumer indicators before adding. The better setup is a tactical put spread only if management guides to slower TPV growth.
• For V, consider a 3-6 month put spread financed by a smaller call sale if you want to express multiple compression risk without paying full implied vol; risk/reward improves if the market reprices AI threat more seriously.
• Watch for semi supply-chain confirmation in the next earnings cycle; if peers cite improving utilization and AI backlog, add to ENTG rather than chasing after the move.