5 Top AI Investing Picks From the Alger Focus Equity Fund

The Alger Focus Equity Fund, up 4% in 2025, is heavily invested in AI across various sectors, identifying it as a major secular trend. Key holdings include AppLovin and Meta, which have demonstrated tangible returns from AI-driven ad targeting, while Pinterest's AI investments have underperformed due to its reliance on consumer staples advertisers. The fund also sees opportunity in Talen Energy, benefiting from increased electricity demand from AI data centers, and Nebius Group, an AI-focused data center business backed by Nvidia, offering exposure to AI infrastructure.

Analysis

The Alger Focus Equity Fund (ALZFX) has demonstrated strong performance, reporting a 4% gain in 2025, significantly outpacing the 1.1% average loss for its large-cap growth Morningstar Category, driven by a strategic emphasis on artificial intelligence as a pivotal, economy-spanning trend. Fund managers Ankur Crawford and Patrick Kelly highlight AI's transformative potential, focusing on companies undergoing substantial AI-driven changes. This strategy has proven successful with investments like AppLovin (APP), which saw its stock rise over 350% in the past year due to AI-enhanced advertising technology and an expansion into e-commerce ad sales in 2024. Similarly, Meta Platforms (META) stock increased 34% over the past 12 months, leveraging AI in ad-targeting to exhibit resilience against economic slowdowns, outperforming peers like Alphabet (GOOG) and Microsoft (MSFT). However, not all AI bets have yielded immediate returns; Pinterest (PIN) stock declined nearly 25% in the past year, attributed to its advertisers' concentration in the struggling consumer staples sector and impacts from trade disputes affecting China-produced goods, though management remains committed to its AI deployment. The fund also identifies opportunities in AI's supporting infrastructure, exemplified by Talen Energy (TLN), whose stock more than doubled in the past year. Talen benefits from rising electricity demand fueled by AI data centers, reshoring, and electric vehicles, with its status as an independent power producer with nuclear assets and long-term contracts enhancing its outlook. Another notable holding is Nebius Group (NBIS), a relatively unknown entity with a $9.5 billion market capitalization, which emerged from Yandex's restructuring and focuses on AI data centers. Nebius has secured backing from Nvidia, including a supply of Blackwell GPUs and an equity stake, and is considered potentially undervalued compared to firms like CoreWeave (CRWV), given its experienced team and diverse assets, including the Avride autonomous vehicle business. The broader AI sector's strength is underscored by the Morningstar Global Next Generation Artificial Intelligence index's 4.3% year-to-date gain.

Key Decisions for Investors

• Investors should consider diversifying AI exposure beyond widely-held mega-cap technology stocks by evaluating companies like AppLovin (APP) that demonstrate tangible AI-driven revenue growth and market expansion in specific niches such as advertising technology.
• Opportunities within AI infrastructure, particularly independent power producers like Talen Energy (TLN) that benefit from the escalating energy demands of data centers and offer potentially more predictable returns through long-term contracts and strategic assets like nuclear power, warrant thorough investigation.
• For investors with a higher risk tolerance, exploring potentially undervalued or lesser-known AI-centric companies such as Nebius Group (NBIS), especially those with strong technological foundations, experienced management, and significant strategic partnerships like Nvidia's backing, could present upside, though careful due diligence on firms with complex histories or recent major restructurings is essential.
• It is prudent to monitor the progress of AI investments in companies like Pinterest (PIN) where AI adoption is still maturing, recognizing that sector-specific headwinds, advertiser concentration, or limitations in scale can delay the realization of benefits from AI initiatives despite management's strategic focus.