Quarterly Commentary

1Q 2023


  • In 1Q23, the Russell 2000 Growth returned 6.07% and the S&P 500 returned 7.50%. Despite the worry, the markets have been positive over the last nine months.
  • As anticipated, the Federal Reserve raised interest rates by 25 bps to 4.50% – 4.75% on February 1. General consensus of the Fed predicts another 25 bps increase before the end of the year.1



  • In early March, the market’s focus shifted to a banking crisis. Silicon Valley Bank (SVB) and Signature Bank (SBNY) failed and, consequently, were seized by the FDIC. SVB was brought down by the classic failure of mismatched assets and liabilities. SVB had invested in 10-year Treasuries but was funded with overnight, uninsured deposits. With the Fed rate hikes, the Treasuries lost value, and corporate clients with deposits over the insured limit of $250,000 rapidly withdrew funds, creating a bank run. The Federal Reserve, Treasury Department, and FDIC issued a joint statement insuring all deposits of SVB, and SVB reopened under new management after a long weekend.2 Pressure on the banking system persists as deposits flow to the largest banks.


  • The Fund’s Institutional (NEAIX) and Retail (NEAGX) classes returned 9.21% and 9.05%, respectively, in 1Q23, outperforming the Russell 2000 Growth’s 6.07% return.
  • Just as in 4Q22, PDF Solutions, Inc. (PDFS) and Super Micro Computer, Inc. (SMCI) were the Fund’s top contributors. PDF Solutions remains the largest position in the Fund at 9.82% of net assets. Once again, PDF Solutions saw strong orders for its Exensio® big data analytics software. Exensio® helps customers across the electronics manufacturing industry improve manufacturing yield. PDF Solutions is benefitting from the resurgence of activity in building semiconductor manufacturing plants in the United States.
  • Super Micro designs and manufactures servers. It reported strong 4Q results sustained by growth from the large internet companies that operate their own data centers. We believe Artificial Intelligence (AI) training and inference applications are a reason for Super Micro’s strong growth.
  • The ChatGPT AI product had its public release in November 2022. Within five days, over one million users tried it. In the first quarter, the world became aware of AI’s potential impact when Microsoft Corp. (MSFT) invested $10 billion in OpenAI, the company behind ChatGPT. Microsoft plans to utilize ChatGPT as the engine behind Bing search and as a key part of its cloud, consumer and corporate products. Alphabet, Inc. (GOOGL) and others followed with significant announcements about AI initiatives. We discussed AI and its potential impact on the Needham Aggressive Growth Fund in Growth Factor 36, AI and Needham Funds’ Investments.3
  • Nova, Ltd. (NVMI) was also a top contributor. Nova makes metrology equipment used to measure parameters throughout the semiconductor manufacturing process. It expects to gain market share in 2023 based on new optical, materials, and chemical metrology products.
  • Aspen Aerogels, Inc. (ASPN) was the Fund’s top detractor in 1Q23. The company’s aerogel insulation is used to insulate pipelines and refinery pipes. The aerogel also prevents thermal runaway in lithium-ion batteries, a major cause of fires in electric vehicles (EVs). Aspen has agreements with General Motors Co. (GM), Toyota Motor Corp. (TM), and other EV makers to supply its thermal barriers for use in EV batteries. The EV battery market has the potential to increase Aspen’s revenues from $100 million to over $1 billion. Aspen is building a plant in Statesboro, GA to meet this potential increase in demand. The first products are expected off the production lines in 2024. We believe the stock was weak because Aspen may not achieve profitability for a few years.
  • With 9% turnover, the Fund does not rotate into or out of sectors but invests in companies we believe can outperform over the long term.


  • The Fund added four new positions in 1Q23. Northern Technologies International Corp. (NTIC) was the largest. Northern Technologies supplies specialty materials for corrosion management in the oil and gas and other heavy industries. It also manufactures bio-based and compostable plastics intended to replace conventional petroleum-based plastics.
  • We highlight two large additions to existing holdings:
    • ESI Group SA (ESI-FR) is a leader in virtual prototyping computer-aided design (CAD) software for the automotive, aerospace, defense, and heavy machinery industries. Dr. Cristel de Rouvray succeeded her father as CEO in 2019. She is simplifying operations and expanding margins while introducing new products to drive revenue growth. ESI trades at a discount to peers, including Dassault Systemes SA (DASTY), ANSYS, Inc. (ANSS), and Altair Engineering, Inc. (ALTR).
    • Unisys Corp. (UIS) is the renaissance of the old-line computer company with roots back to Sperry Corporation, Burroughs Corporation, and Remington Typewriter. Unisys provides digital workplace solutions, cloud & infrastructure, and enterprise computing. We believe ClearPath Forward, Unisys’ high-volume transaction processing operating system, alone could be worth multiples of the current stock price.
  • The Fund exited six small positions. Q2 Holdings, Inc. (QTWO) was the most significant. We bought Q2 in its 2013 IPO. We believe its small bank customer base may be challenged to fund digital initiatives.


  • We continue to see opportunities in the reshoring of manufacturing in the United States. We recommend reading The Titanium Economy: How Industrial Technology Can Create a Better, Faster and Stronger America by Asutosh Padhi, Gaurav Batra, and Nick Santhaman of McKinsey and Company.4 Portfolio holding Clean Harbors, Inc. (CLH) is featured in the book. Over half of the Fund’s top contributors in 4Q22 are part of the industrial technology universe.
  • Many of our largest portfolio holdings have made multi-year investments that we believe positions them to deliver growth and positive returns over the next few years. We believe if these investments succeed, they could provide a hedge against macroeconomic factors, such as inflation.