Concentration in our highest-conviction ideas

On Tuesday, we made trades in our Offshore strategy in service of running a more concentrated portfolio while investing capital into what we believe to be are our highest conviction ideas over the next 18-24 months. 

The results of the trade saw us add to our uranium thesis by sizing up Cameco (CCJ) and Sprott Uranium Miners ETF (URNM), while also adding to some of our highest conviction ideas including Vista Energy (VIST), Marvell Technologies (MRVL), and MercadoLibre (MELI). 

We added to these holdings by trimming Oracle (ORCL) following a strong year-to-date run and exiting L’Oreal (LRLCY), Suncor (SU), and Veren (VRN). 

Let’s dive in.

Sizing up uranium

When we initially invested in uranium in 2021, we likely would have called you crazy if you were to tell us that artificial intelligence would serve as an industry-defining tailwind for the spot price of the commodity. 

Fast forward to today and that’s exactly what’s happening: the proliferation of AI and data center growth has led to a generational surge in the need for electrical power. Uranium and nuclear power now sit at the center of this energy transition.

For context: we estimate that power demand for U.S. data centers is growing at a ~15% compounded annual growth rate with the potential to reach ~8% of total power used by 2030 (context: it’s less than 3% today). Given this, the second-order impacts of data center growth remain firmly underpinned by nuclear power given it’s one of the only sources of clean, safe, and reliable baseload power generation.

The biggest tech companies seem to agree: Amazon signed a new agreement for nuclear energy, Three Mile Island will reopen thanks to Microsoft, and Google is aggressively moving towards nuclear energy as an alternative source of power. 

The uranium industry’s supply/demand imbalance continues to accelerate, and the reopening of nuclear power plants across the U.S. to serve the data center market should only amplify this trend. We added to Cameco Corp (CCJ) and Sprott Uranium Miners ETF (URNM) with strong conviction given that our thesis continues to track well ahead of our current expectations.

Concentration in our best ideas

Vista Energy (VIST) has been one of Offshore’s best performers year-to-date (+62% YTD), and their recent earnings results didn’t disappoint. Management’s consistent execution was on full display as the company exceeded both production and cost targets. With an acute focus shifting towards operational efficiency, we believe it sets the company up to generate lucrative capital returns upside through 2026. A compelling risk/reward opportunity leads us to add with confidence. 

Our thesis for Marvell Technologies (MRVL) centered around a strong acceleration in their data centers unit and their recent earnings print highlighted exactly this. With a strong bookings backlog and a healthy recovery in their more cyclical businesses, we believe the fabless semiconductor company should be able to deliver above-consensus earnings growth leading us to add to the position.

MercadoLibre (MELI) was unfairly punished after the earnings, in our eyes, and we’ve used the weakness as an opportunity to add to a company that’s tracking well ahead of our initial expectations. We believe that the company continues to invest in initiatives that should provide growth from here and we’ve used the decline as an opportunity to size up the position. 

In an effort to add to our highest conviction ideas, we used several of our Offshore holdings as a source of funds for the trades:

Following a +80% rally year-to-date, we elected to trim Oracle (ORCL). Our original thesis surrounding the reacceleration of Oracle Cloud Infrastructure and earning its place as the fourth largest cloud service provider appears to be tracking nicely, but the company’s valuation has expanded materially too, reducing its go-forward return prospects. Hence we elected to take some chips off the table after the solid run higher.

With more attractive risk / reward opportunities across the strategy, we elected to exit L’Oreal (LRLCY), Suncor (SU), and Veren (VRN).

The results of these trades should be viewed as us playing offense following the presidential election: leaning into our highest-conviction ideas in an effort to drive potentially higher returns over the long run.

As always, let us know if you have any questions about the recent trades; we’re happy to assist.

– Your Titan Team

Disclosures:

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