Alger Focus Equity Fund Q1 2026 Portfolio Update

The composition of winners suggests this was less a broad factor rally and more a selective reassessment of where AI spend is converting into cash flow. The clearest second-order effect is that infrastructure-enablers are being rewarded over the most crowded “model layer” names: that tends to help the semiconductor supply chain and adjacent memory/storage vendors, while pressuring mega-cap AI beneficiaries whose multiples already embed aggressive capex monetization. If that rotation persists, it likely reflects investors preferring tangible demand visibility over narrative exposure.

The underperformance in large-cap software/AI darlings also hints at position-squaring rather than fundamental deterioration; that matters because de-risking can overshoot over days to weeks. If portfolio managers are trimming crowded winners to fund higher-conviction hardware beneficiaries, the unwind can create temporary dislocations in the biggest index weights even when long-term fundamentals remain intact. The key tell will be whether relative strength in suppliers extends beyond one quarter into the next earnings cycle.

The contrarian view is that the market may be overpaying for near-term AI infrastructure certainty while underestimating concentration risk: once hyperscaler capex growth normalizes, the relative earnings inflection for the enablers can flatten quickly. Western Digital and similar beneficiaries are more cyclical than the market tends to price during momentum phases, so a demand air pocket or inventory digestion could reverse gains sharply over 1-2 quarters. That makes the current setup attractive for tactical longs, but only with tight time horizons and explicit exits if AI spend guidance softens.