Sustainable Growth Advisers (SGA), an esteemed investment management firm, recently published its second-quarter 2026 investor letter for its Global Growth Strategy. The report revealed that the SGA Global Growth Portfolio generated a gross return of 7.4% and a net return of 7.2%, contrasting with 14.9% for the MSCI ACWI and 19.8% for the MSCI ACWI Growth Index. The market's upward trajectory was largely fueled by AI infrastructure advancements and the enthusiasm surrounding them, with significant contributions from semiconductor, memory, and hardware companies. Despite the portfolio's exposure to AI beneficiaries, its broader holdings did not fully capture the market's momentum, even as median revenue and EPS growth reached 12% and 14% respectively, with over 60% of holdings surpassing expectations. SGA interprets this valuation compression as a reflection of market sentiment rather than a decline in business quality, positioning the portfolio at one of its deepest discounts to the market since its inception. The firm maintains its focus on resilient compounders, projecting 16% revenue growth and 20% earnings growth over the next three years.
Among the leading contributors highlighted in SGA's second-quarter 2026 investor letter was Arm Holdings plc (NASDAQ:ARM). This UK-based technology giant specializes in designing and licensing central processing unit architectures and associated technologies for semiconductor manufacturers and original equipment manufacturers. As of August 21, 2026, Arm Holdings plc (NASDAQ:ARM) closed at $243.32 per share, reflecting a one-month return of -8.64% but an impressive 76.60% gain over the past 52 weeks. The company boasts a substantial market capitalization of $259.87 billion. SGA Global Growth Strategy lauded Arm Holdings plc (NASDAQ:ARM) for its strong quarterly results, noting a 20% revenue growth and 12% profit growth. This performance was underpinned by robust licensing activity and consistent royalty expansion, even against a challenging comparative period. Management's guidance reaffirmed confidence in sustaining approximately 20% revenue growth, propelled by increasing demand for Arm-based CPUs and expanding adoption in data center and AI workloads, which helped mitigate anticipated weaknesses in the handset markets. This confidence is further supported by evidence of strong CPU demand, increasing market share against x86 architectures, and growing customer engagement, including an expanding list of signed partners and management's assurance in meeting long-term revenue objectives. Given its substantial pricing power, highly predictable recurring revenues, and expanding royalty rates as Arm captures greater value across the compute stack, SGA continues to view the company as a high-quality, long-term compounder poised to benefit from the widespread adoption of AI and energy-efficient computing. However, due to valuation considerations following the stock's significant performance, SGA has reduced its position to a below-average weight.
While Arm Holdings plc (NASDAQ:ARM) exhibits considerable potential, it is currently not featured on our list of the 40 Most Popular Stocks Among Hedge Funds. Our data indicates that 46 hedge fund portfolios held Arm Holdings plc (NASDAQ:ARM) at the end of the first quarter, an increase from 33 in the preceding quarter. While acknowledging the investment potential of Arm Holdings plc (NASDAQ:ARM), we believe that certain other AI stocks offer superior upside potential with reduced downside risk. For investors seeking an exceptionally undervalued AI stock that also stands to gain significantly from future economic trends and domestic manufacturing shifts, we recommend exploring our comprehensive analysis of top short-term AI investment opportunities.
