Needham Aggressive Growth Fund – 3Q26

Market Review & Macro Observations

• In 3Q26, the Russell 2000 Growth and Russell 3000 returned -9.39%, and 1.41%, respectively. The
  small-cap Information Technology sector significantly underperformed, after a very strong 1H26.
• Entering 3Q26, we had hoped that the U.S.-Iran Memorandum of Understanding could stabilize the oil
  market and lead to broader peace in the Middle East. However, the ceasefire collapsed in early July.
• Inflation remains above the Federal Reserve’s 2.0% target. The Fed’s preferred inflation measure is
  the Core PCE (Personal Consumption Expenditures), which excludes food and energy because they
  are seen as volatile. Year-over-year core PCE inflation held at 3.0% in July and August and
  accelerated to 3.1% in September.^[1]
• The Bureau of Labor Statistics reported unemployment rates of 4.2% in June, 4.1% in July and 4.1% in
  August, consistent with the level of the last 18 months.^[2]
• Real GDP grew at a 2.2% annual rate in 2Q26, revised up from 1.5% in both the advance and second
  estimates.^[3] The Atlanta Fed’s GDPNow model pointed to even stronger growth for 3Q26: its estimate
  reached 5.1% in mid-September before ending the month at a solid 3.7%. Growth near 5%, if
  sustained, would ease many macroeconomic pressures.^[4]
• At its September 2026 meeting, the Fed Open Market Committee raised interest rates to 3.75 –
  4.00%, The updated Federal Reserve “dot plot” of future expectations shows one more 25bps
  increase by the end of 2026.
• 10-year interest rates rose to 5.3% from 4.4% at the beginning of the quarter. 5.3% was the highest
  since May 2002.^[5] Small caps are often under pressure when rates rise. We believe that 5% is a very
  normal interest rate compared to the very low and zero-interest rate policies of recent years.
• In July and August, semiconductor and AI-related stocks fell. In July, The Wall Street Journal reported
  that NVIDIA was in talks to guarantee $250B of financing for OpenAI to lease a $500 billion data
  center project in southern Ohio, igniting concern over circular financing and debt funding of data
  centers and neoclouds.^[6] These stocks rebounded in September.
• The large, leveraged AI hedge fund, Situational Awareness LP, blew up in late July. It had almost no
  direct overlap with our portfolio’s holdings. However, its collapse pressured any stocks related to AI.

Portfolio Performance

• Our mission is to create wealth for long-term investors. The Fund’s investment strategy is to find
  companies when they are Hidden Compounders and hold them until they become Quality
  Compounders.^[7]
• In 3Q26, the Fund’s Institutional (NEAIX) and Retail (NEAGX) classes returned -24.19% and -24.27%
  respectively. The same holdings that outperformed in 1H26 significantly underperformed in 3Q26.
  Most of the companies suffered from multiple compression as their businesses produced strong
  results.
• The Fund’s top contributors for 3Q26:
  • Super Micro Computer, Inc. (SMCI), which reported $60 billion in new orders during the quarter
    ending June 30, and $39 billion of revenue for the fiscal year ending June 30, 2026. Importantly,
    Super Micro also reported high double-digit gross margins, well above the last few quarters.
  • 908 Devices, Inc. (MASS) makes handheld chemical analysis devices used in public health, safety,
    and defense. Its devices identify trace levels of opioids, explosives, chemical agents, and other
    unknown substances.
  • CRA International, Inc. (CRAI) provides consulting services to law firms, corporations, accounting
    firms, and governments around the world. Legal and regulatory work is a significant portion of its
    revenue. CRA International, Inc. was a detractor in 1H26 on fears of AI disruption and rebounded in
    3Q26.
• The Fund’s top detractors for 3Q26:
  • Arteris, Inc. (AIP) is a leading supplier of network-on-chip (NoC) interconnect IP, which manages
    data flow between the processors, memory, and other functional blocks on a system-on-chip
    (SoC). It reported strong bookings, revenue and earnings in the quarter and raised guidance.
  • nLight, Inc. (LASR), makes high-power lasers and laser systems for defense and industrial
    markets. nLight reported strong 2Q results, but guided 3Q lower as China’s increased scrutiny of
    dual-use exports delayed deliveries of optics and other commodity materials, pushing roughly $17
    million of expected 3Q product shipments into later quarters. Management said the affected parts
    are not complex, and it is working on other sources.
  • Vishay Intertechnology, Inc. (VSH) makes passive components and semiconductors used across
    industrial, automotive, computing, and other end markets. The Fund first invested in 2024, as CEO
    Joel Smejkal rolled out Vishay 3.0^[9], a growth strategy built around expanding capacity to serve
    high-growth markets. 2Q26 results showed strong revenue, earnings, and guidance, bolstered by a
    1.32 book-to-bill ratio.

Portfolio Changes

• With 6% trailing 12-month turnover, the Fund does not rotate into or out of sectors but invests in
  companies we believe may outperform over the long term.
• The Fund ended the quarter with a 3.4% cash position. New investments included AeroVironment, Inc.
  (AVAV), SCHMID Group N.V. (SHMD), and Wix.com Ltd. (WIX).
• Among the largest additions to established positions were nLight, Inc. (LASR), TETRA Technologies,
  Inc. (TTI), Twin Disc, Inc. (TWIN), and Vishay Intertechnology, Inc. (VSH).
• Among the positions exited were Blackline Safety (formerly BLN-CA) upon its acquisition by Francisco
  Partners, Red Cat Holdings Inc. (RCAT), and Transcat, Inc (TRNS).
• Among the largest sales of positions still in the Fund were Bruker Corp. (BRKR) and Vital Farms, Inc.
  (VITL).

Investment Opportunities

• Our major investment theme remains the importance of U.S. infrastructure – the lesser-known “pick
  and shovel” providers. Our portfolio companies sell into data centers, life sciences labs,
  semiconductor and other manufacturing plants, roads, airports, power plants, and more. Despite the
  current uncertainty, the U.S. has underinvested in these areas, so there may be long tailwinds. We
  continue to believe there may be compelling valuations in our small cap “picks and shovels” universe.
• Five areas present throughout our investments:
  1. Semiconductor manufacturing
  2. Data Centers/AI processing
  3. U.S. Manufacturing
  4. Defense technology
  5. Public safety