Though it is true that our portfolios and the characteristics of our portfolio companies have not changed dramatically in the AI market, that framing greatly underestimates the upside potential of our strategically positioned, adaptable holdings across every part of the economy.

Start with the AI buildout, the current epicenter of the equity market. We are not spectators to the AI buildout, but we are highly selective. Recently, undiscerning themes like “infrastructure” and “picks and shovels” have flattened supply chains with dramatically different competitive structures into a single strategy. Rather than simply chasing a theme, we own capital-intensive businesses where we believe capital is the moat and avoid those where we believe it is the trap. A substantial portion of our largest portfolios is invested in the cloud computing providers, accelerated computing platforms, leading-edge manufacturers, and electrical and analog engineering firms that are building the necessary physical capacity, while possessing scale and expertise that is nearly impossible to replicate.

Machine intelligence arrived in software first, and most of the AI conversation has remained in that domain. We believe this is shortsighted. The industrial revolution did not culminate in better looms; it culminated in a physical economy reorganized around cheap energy. For machine intelligence to drive a transformation of that order, its largest effects must land where work is physical, regulated, credentialed, and expensive.

Examples abound, but one rightly identified area of anticipated AI delivery is health care and life sciences. At Riverbridge, we agree with this identification, but we believe the current conversation is too narrow. Machine intelligence can compress timelines and increase efficacy for drug discovery. It cannot compress trials, manufacturing, distribution, or delivery. Faster discovery floods a physical pipeline with finite capacity and few qualified suppliers. We invest in many parts of that pipeline: bioprocessing and the instruments supporting it, drug containment and delivery, clinical research execution, diagnostics, and robotic surgery. We also own shares in the regulated systems of record on which the industry runs and care delivery. In care delivery, demand is set by demographics and supply is constrained by licensure. Should the next decade produce a step change in the number of medicines that reach patients, the opportunity across the health care value chain will be robust, and we believe our portfolios will participate across nearly every link in the chain.

We believe we are standing near the beginning of one of the most productive stretches in economic history. We believe its benefits will show up in rapid medicine discovery and manufacturing, in factories that run better, in power systems that finally get built, and in care that reaches more people at lower cost. And we believe the companies that convert cheap intelligence into real outcomes will capture the durable value of this transformational period.