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Needham Growth Fund – 2Q25 Commentary

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Market Review & Macro Observations

  • In 2Q25, the Russell Midcap Growth Index returned 18.20%, the S&P MidCap 400 returned 6.71% and the Russell 3000 returned 10.99%.
  • The market was rocked by President Trump’s tariff pronouncements. While the daily volatility was painful, if you had looked only at your month-end statements and ignored the daily news, you would have no idea there were any issues. There is a lesson for all of us.
  • The President announced tariffs on April 2 after the market close. The market fell April 3 and bottomed April 7. We tried to determine the impact of the proposed tariffs and concluded that our portfolio companies are adaptable and tariffs may have little impact.
  • Economic data and Federal Reserve announcements faded from importance in the face of trade policy discussions.
  • We believe it is important to follow Treasury Secretary Scott Bessent’s public comments. He has discussed targets of 3% GDP growth, 3% deficit to GDP, and increasing oil production by three million barrels per day. He has also emphasized that his priority is to grow the U.S. economy faster than its debt, and that reshoring U.S. manufacturing, even if it requires dollar devaluation, is a matter of strategic security. The One Big Beautiful Bill Act supports this agenda by offering accelerated depreciation for manufacturing facilities and allowing companies to expense research and development costs, providing incentives for companies, domestic and abroad, to increase investment in the United States.
  • Many of our investments are focused on infrastructure broadly defined and could benefit from accelerated reshoring of manufacturing.

Impacts on Performance

  • In 2Q25, the Fund’s Institutional (NEEIX) and Retail (NEEGX) share classes returned 13.27% and 13.12%, respectively.
  • Top Contributors:
    • Super Micro Computer, Inc. (SMCI) reported an in-line quarter with disappointing guidance. However, the stock rallied on the announcement of a $20 billion deal with Data Volt, a Saudi customer, and the prospect of growth and gross margin expansion when NVIDIA Corp.’s (NVDA) Blackwell is widely available.
    • Nova, Ltd. (NVMI) is a metrology equipment provider for the semiconductor industry that once again posted strong quarterly results.
    • Vertiv Holdings Co. (VRT) manufactures electrical and cooling equipment for data centers. It reported strong revenue, bookings, and guidance.
  • Top Detractors:
    • Thermo Fisher Scientific, Inc. (TMO) supplies products and services to the life sciences industry. The stock suffered due to concerns about cuts in government funding for academic research and the impact of tariffs on the company’s China business. China represents about 10% of Thermo Fisher’s revenue.
    • Becton, Dickinson and Co. (BDX) manufactures and sells medical supplies and lab and diagnostics equipment. The quarter and guidance were negatively impacted by its China business and tariffs.
    • CarMax, Inc. (KMX) reported an earnings and revenue miss in its quarter ending February 2025 and improved results in the quarter ending May 2025. The stock fell over the market’s perceived macro uncertainty and concern for affordability and consumer spending on used cars.

Portfolio Changes

  • The Fund ended the quarter with 4.3% cash . We added a new position in Circle Internet Group, Inc. (CRCL) on its IPO. The Fund added to its positions in a few investments, including ASML Holding NV (ASML) and Equinix, Inc. (EQIX).
  • The Fund exited Camtek Ltd. (CAMT), Datadog, Inc. Class A (DDOG), Everus Construction Group, Inc. (ECG), nLight, Inc. (LASR), and Lineage, Inc. (LINE). The Fund’s largest reductions were to Akamai Technologies, Inc. (AKAM), Nova Ltd., Trade Desk, Inc. (TTD) and Vicor Corp. (VICR).

Opportunities & Looking Forward

  • We believe that to achieve our mission of creating wealth for long-term investors, we must assume that, a few years out, the U.S. economy will be largely fine. It’s interesting to consider the news and the bear cases, but to create wealth over time requires one to be an optimist at heart.
  • The Trump Administration’s economic development strategy has a goal of revitalizing manufacturing in the United States. 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. After this market pull-back, we believe there may be compelling valuations in our small-cap “picks and shovels” universe.
  • 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.
  • For additional information, please see The Growth Factor Vol. 44, “The Tariff Tantrum and Opportunities,” which we published during the quarter.

[1] https://www.needhamfunds.com/growth-factor/the-tariff-tantrum-and-opportunities/

Next Insight

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. Please read the prospectus carefully and consider the investment objectives, risks, and charges and expenses of the Fund carefully before you invest. The prospectus contains this and other information about the Fund.

 

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 June 30, 2025: SMCI: 9.50%, NVDA: 0.00%, NVMI: 3.95%, VRT: 2.03%, TMO: 3.57%, BDX: 1.88%, KMX: 2.85%, CRCL: 0.13%, ASML: 1.44%, EQIX: 1.30%, CAMT: 0.00%, DDOG: 0.00%, ECG: 0.00%, LASR: 0.00%, LINE: 0.00%, AKAM: 3.17%, TTD: 1.76% and VICR: 2.63%.

 

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 2024. 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