From the Desk of Jay Mastronardi: Finding Opportunities Beyond the Megacaps in the AI & Data Center Boom

The myth: the only way to play the AI theme is through the megacaps tech stocks like Microsoft and Nvidia.

The reality: No doubt there are a handful of mega-caps that benefit directly from the development and implementation of AI technologies. But from an investment perspective, we believe that the AI opportunity is not confined to a few tech giants. We see the growth of AI fueling a multi-year boom in data center construction and technology spend. It also seems to be accelerating demand for electric power and high-speed connectivity. This can create opportunities across many industries, where a number of well-positioned small and mid-cap companies stand to benefit. Many of these companies offer more attractive valuations, and we think that the market has yet to fully appreciate the improvement in their outlooks.

How can SMCO have exposure?

Even before AI caught the world’s attention, we identified both physical and digital infrastructure as possible fertile areas for investment. The underlying trends that drew our attention remain in place, but AI has turbocharged some aspects of both themes. When we identify a trend or theme, we seek exposure across sectors and industries. The AI theme spans a wide range, including software, semiconductors, construction, industrial technologies, cooling, power generation and beyond. In our portfolio, related holdings extend across Industrials, Energy, Healthcare, Technology, Utility and Consumer companies.

What names are we talking about?*

AI Infrastructure & Data Center Buildout:

• EMCOR Group (EME): Builds large-scale electrical and mechanical systems, with strong exposure to AI data centers. These are complex technical buildings and EME addresses construction, heavy power needs, cooling and complex fire protection systems.
• nVent Electric (NVT): Provides several key data center subsystems and components including enclosures, electrical connectivity solutions and the liquid cooling required for high-density AI workloads.
• Primoris (PRIM): Executes several activities related to data centers, from construction to site prep and supporting infrastructure needs. In addition, Primoris is a leading provider of both wind and gas power generation installations which will be part of the solution to increasing electricity demand.

AI Enablers & Software

• MACOM (MTSI): Designs and manufactures components for high-speed AI server interconnects, as well many components involved in high-speed optical data transmission.
• Entegris (ENTG) and MKS Instruments (MKSI): Provide equipment, materials, consumables and services critical to the production of advanced logic and memory chips.
• Ciena (CIEN): Produces optical networking gear and software that help address massive AI-driven bandwidth needs.

Beneficiaries of the Rising Energy Demand:

• EQT Corp (EQT): Supplies natural gas and related infrastructure and will benefit from increased electricity needs, especially as we start to see data-center specific power generation capacity additions.
• BWX Technologies (BWXT): Offers nuclear technology for baseload, carbon-free power to support 24/7 AI workloads.
• IDACORP (IDA): Embarking on significant capex to address climbing electricity demand in their region driven partly by data center and high-tech facility development.
• CMS Energy (CMS): Investing in generation capacity, recently increased due to AI-specific Data Center needs.

Leveraging AI for Competitive advantage, increased efficiency or both:

• Jacobs Solutions (J): Implementing AI to improve its engineering, smart infrastructure, and environmental modeling capabilities. Also designs high-tech facilities, from data centers to semiconductor fabs.
• YETI Holdings (YETI), Burlington Stores (BURL), Sprouts Farmers Market (SFM): using AI for forecasting, personalization, and supply chain optimization.
• RadNet (RDNT): Utilizing AI to more accurately analyze medical scans and detect issues earlier. Additionally, using AI to streamline claims submission and other business processes.

* The securities described above were included as they are current holdings in the AI/Data Center Space. They do not represent all securities in the SMCO strategy, and it should not be assumed that any of the securities will remain in the strategy or will be profitable. A full list of securities for the strategy is available upon request.

The bottom-line

We believe that AI may prove to be the most significant technological development in decades, perhaps ever. Its rapid adoption is creating investment opportunities that reach far beyond the direct beneficiaries. As technology leaders commit massive sums to its development and corporations use AI to improve their results, new avenues for profit are opening. By investing in the companies that benefit from this spending, the SMCO portfolio hopes to capture the entire value chain, ranging from semiconductors and data center construction to utilities and industrials.

Important Disclosures:

Hilton Capital Management, LLC (“HCM”) is a Registered Investment Advisor with the US Securities Exchange Commission. The firm only transacts business in states where it is properly notice-filed or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability.

This piece is not intended to offer or deliver investment advice in any way. Information regarding the strategy and securities are provided solely to gain an understanding of our investment philosophy, our strategies and to be able to contact us for further information. Recipients should not rely on material in marking any investment decisions. Except where otherwise indicated, the information contained in this presentation is based on holdings and views as they exist as of the date of preparation and not as of the date of distribution or any future date.

Additional Important Disclosures may be found in the HCM Form ADV Part 2A, which can be found at https://adviserinfo.sec.gov/firm/summary/116357.