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Needham Growth Fund – 1Q25 Commentary

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Market Review & Macro Observations

  • In 1Q25, the Russell Midcap Growth Index declined by -7.12%, the S&P MidCap 400 fell -6.10%, and the Russell 3000 was down -4.72%. The indices were positive in January and part of February but declined significantly in March.
  • Inflation continued to ease, with the Consumer Price Index rising just 2.4% in March—the lowest level since 2021. Meanwhile, the unemployment rate remained low at 4.1%1 in February. The Atlanta Fed’s GDPNow model projected1Q25 GDP growth—adjusted for gold imports—at -0.5%.2
  • Tariff threats and trade policy dominated headlines during the quarter, introducing uncertainty into both markets andbusiness outlooks. Following the pullback, we believe valuations for companies providing “picks and shovels” for U.S.infrastructure appear increasingly attractive.

Impacts on Portfolio Performance

  • In 1Q25, the Fund’s Institutional (NEEIX) and Retail (NEEGX) share classes returned -16.06% and -16.16%, respectively,underperforming the benchmarks.
  • Top Contributors:
    • Super Micro Computer, Inc. (SMCI) filed its delayed financials on time in February. The delay stemmed from agovernance disagreement with its auditor, not accounting issues.
    • Nova Ltd. (NVMI) is a metrology equipment provider for the semiconductor industry that posted a strong quarter.Although the stock declined on broader concerns about semiconductors and China, it was a top contributor due toour partial exit at higher prices.
    • Gilead Sciences, Inc. (GILD) reported strong results for its HIV treatment, Biktarvy.
  • Top Detractors:
    • The Trade Desk, Inc. (TTD) missed expectations for the first time in 33 quarters. TTD operates a leading ad-buying platform for streaming media. We’ve held the stock since its 2015 IPO.
    • Parsons Corp. (PSN) is a leader in critical infrastructure and federal cybersecurity solutions, Parsons was negatively impacted by contract reviews under the new administration.
    • PDF Solutions, Inc. (PDFS) is a semiconductor data analytics leader. Despite solid 4Q24 results and guidance, concerns around Intel (INTC) as a key customer weighed on the stock.

Portfolio Changes

  • The Fund remained fully invested at quarter-end and initiated a new position in Camtek Ltd. (CAMT), a provider of advanced semiconductor packaging inspection systems.
  • The Fund exited Altair Engineering, Inc. (ALTR) upon its pending acquisition by Siemens Corp. (SIEGY), as well as Badger Meter, Inc. (BMI), Cognex Corp. (CGNX), and Carter’s, Inc. (CRI). We viewed Carter’s as the leader in baby clothing, which we thought to be a durable category, selling at an attractive stock price. We were wrong, as even its lower income consumers suffered due to inflation. We took the tax loss.

Opportunities & Looking Forward

  • Our core investment theme remains focused on U.S. infrastructure—specifically, the underappreciated providers of the tools and technologies that enable it. Our portfolio companies support data centers, life sciences labs, semiconductor fabs, manufacturing facilities, transportation hubs, and energy systems. After decades of underinvestment, we believe the U.S. is poised for a multi-year tailwind in these areas.
  • Four areas present throughout our investments:
    • Semiconductor manufacturing
    • Data Centers/AI processing
    • U.S. Manufacturing
    • Defense technology
  • We believe the AI buildout is still in an early stage. Economic returns on AI projects could be a big deal for productivity and the economy. We are hearing from companies about increases in sales from the application of AI.
Next Insight

[1] https://www.bls.gov/news.release/cpi.t02.htm
[2] https://www.atlantafed.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf

The information presented in this commentary is not intended as personalized investment advice and does not constitute a recommendation to buy or sell a particular security or other investments. This message is not an offer of the Needham Growth Fund, the Needham Aggressive Growth Fund or the Needham Small Cap Growth Fund (each a “Fund” and collectively, the “Funds”). Shares are sold only through the currently effective prospectus, which must precede or accompany this report. Please read the prospectus or summary prospectus and carefully consider the investment objectives, risks and charges and expenses of the Funds before you invest. To obtain a copy of the Fund’s current prospectus, please visit www.needhamfunds.com or contact the Fund’s transfer agent, U.S. Bancorp Fund Services, LLC at 1-800-625-7071.

All three of the Needham Funds have substantial exposure to small and micro capitalized companies. Funds holding smaller capitalized companies are subject to greater price fluctuation than those of larger companies. Portfolio holdings are subject to change. Needham Growth Fund’s ownership as a percentage of net assets in the stated securities as of March 31, 2025: SMCI: 7.29%, NVMI: 3.57%, GILD: 0.59%, TTD: 1.96%, PSN: 3.74%, PDFS: 4.23%, INTC: 0.00%, CAMT: 0.21%, ALTR: 0.00%, SIEGY: 0.00%, BMI: 0.00%, CGNX: 0.00% and CRI: 0.00%.

The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS is a service mark of MSCI and S&P and has been licensed for use by U.S. Bancorp FundServices, LLC. The S&P 500 Index and the S&P 400 Index are both broad unmanaged measures of the U.S. stock market.

The Russell 3000® Index measures the performance of the largest 3,000 US companies representing approximately 96% of the investable US equity market, as of the most recent reconstitution. The Russell 3000 Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are included. The Russell Midcap® Growth Index measures the performance of the midcap growth segment of the US equity universe. The Russell Midcap Growth Index includes those Russell Midcap Index companies with relatively higher price-to-book ratios and higher forecasted growth values. An investor cannot invest directly in an index. Needham & Company, LLC is a wholly owned subsidiary of The Needham Group, Inc. Needham & Company, LLC, member FINRA/SIPC, is the distributor of The Needham Funds, Inc. ‘

The source of the data for each of the Russell Midcap Growth Index and the Russell 3000 Index (together, the “Indexes”) is the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2025. All rights in the Indexes vest in the relevant LSE Group company which owns the Index. The Indexes are calculated by or on behalf of FTSE International Limited or its affiliate, agent or partner. Neither the LSE Group nor its licensors accept any liability for any errors or omissions in the Indexes; no party may rely on the Index returns shown; and the LSE Group makes no claim, prediction, warranty or representation about the Fund or the suitability of the Indexes with respect to the Fund. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group is not connected to the Fund and does not promote, sponsor or endorse the Fund or the content of this prospectus.