Summitry Select

10/9/2025

Summitry Select Portfolio Update – Q3 2025

During the third quarter of 2025, the Summitry Select composite increased +6.0% (+5.7%, net). The Composite has returned +31.1% (+29.5%, net) annualized over the past 3 years and +12.9% (+12.4%, net) annualized since inception.

The talk of the quarter was about the staggering level of AI-related investment planned by major cloud companies including Google, Microsoft, Amazon, Meta, Oracle, and Coreweave. These companies alone plan to invest hundreds of billions of dollars per year building data center capacity to meet expected demand for AI chatbots, agents, video generation, and more. On one hand, generative AI is a revolutionary technology that we believe is still in the early stages of adoption. On the other hand, we are beginning to see signs of risky financial behavior. While companies with highly profitable core businesses like those in our portfolio can self-finance their AI capacity investments, others like Oracle and Coreweave require debt and equity financing. Additionally, much of this capacity expansion is intended to be leased by OpenAI, which is itself unprofitable. Some capacity expansion deals have even included related party transactions, such as Nvidia acquiring equity in OpenAI in exchange for GPU purchase commitments. Some have compared this deal to vendor financing schemes during the dotcom era that eventually brought down companies like Cisco. We don’t agree with that analogy, but these types of transactions still tend to make us nervous. We will keep an open mind and adjust our thinking as we learn more.

Notable Portfolio Activity

We took advantage of the strong market for AI-related securities during the quarter to reduce our investment in META. We continue to believe META has opportunities to both grow the time users spend on their platforms and drive better monetization from advertisers. However, the rapid adoption of generative AI has created additional uncertainty about the returns we can expect on the company’s data center investments, and with the shares near all-time highs, we decided the prospective returns we forecast warranted a smaller position.

Investment Performance

Our best performers during the quarter were GOOGL (+37.9%), TSM (+23.3%), and ULTA (+16.9%).

• GOOGL shares benefitted from strong financial performance during Q2, which the company reported in July. That quarter saw both paid clicks and Search revenue growth accelerate, suggesting OpenAI’s ChatGPT is not having as much of an impact on Search as some have feared. Additionally, the company received a favorable decision from Judge Mehta in the remedies phase of the company’s DOJ anti-trust trial. The decision allows Alphabet to continue paying Apple and others a share of Google Search revenue generated on their devices, which remains a significant barrier for competitors. However, new competitors continue to make inroads, as evidenced by the rapid growth of OpenAI and ChatGPT. We believe that Google’s AI model capabilities compare favorably to OpenAI, and Google management is making the right moves to defend the Search business with Gemini, and by making AI Mode broadly available across Google Search. We will continue to balance the impact of increased competition with Google’s competitive advantages and valuation when we consider our position sizing.
• TSMC continues to benefit from surging demand for semiconductors that power artificial intelligence globally. Revenue growth in local currency was greater than 36% year-over-year through the first nine months of 2025, and we expect increasing demand for TSMC’s services to persist for several years. Additionally, TSMC’s hard earned monopoly position at the leading edge provides the company with pricing power to mitigate margin pressures from escalating fab construction and operating costs, a weaker US dollar, and any potential tariffs levied by the Trump administration on Taiwanese exports, or semiconductors more broadly.
• We believe Ulta is now emerging from a period of heightened competition with Sephora. Comparable sales growth in the most recent quarter accelerated to +7% year-over-year (+4% from transactions), and management raised their full-year outlook for both revenue and profit. As we explained in our January letter, not only do we believe the beauty category is remarkably resilient, and Ulta’s unique business model should continue to earn attractive returns, but we also expect the remainder of 2025 will see less competitive intensity now that Sephora has completed their roll out to Kohl’s locations. We are also encouraged by the appointment of Kecia Steelman as CEO in January. Steelman is an Ulta veteran with a successful track record improving store operations, and she is off to a strong start as CEO.

Our worst performers during the quarter were UNVGY (-11.9%), NTDOY (-10.2%), and SBUX (-7.7%).

• We attribute the weak share price performance of Universal Music Group (UNVGY) to uncertainty surrounding Cyrille Bolloré’s decision to resign from the company’s Board of Directors in July. French financial regulators have ordered Bolloré to make a public takeover offer to minority shareholders of Vivendi, and many expect Bolloré to fund the offer in part by selling the roughly 20% stake in UMG held by Bolloré and affiliates. We do not believe this dynamic will have material impact on the fundamental outlook for UMG’s business. Earlier this year, UMG renegotiated its agreements with Spotify and other distributors, so we expect pricing will provide a tailwind for growth in the coming quarters.
• Nintendo’s Switch 2 console launch has been a success, selling 5.8mm units and driving +132% year-over-year revenue growth during the company’s fiscal first quarter. Perhaps NTDOY shares were a victim of their own earlier success, as the stock appreciated 39.9% in Q2 and ended Q3 up +47.4% since the beginning of the year.
• Starbucks (SBUX) remains a work in progress. Our research suggests that Starbucks is a tremendous brand with a loyal following that can support materially higher sales per location, and we are confident CEO Brian Niccol will figure out how to best unlock that opportunity. Niccol has now been in charge of the coffee chain for the past 12 months, over which time he has updated the menu, streamlined workflows, and begun to refresh the format of Starbucks cafes. We expect to learn more about progress made to date and future plans at the company’s investor day early next year. As we noted last quarter, we believe it is too early to tell whether Niccol’s turnaround is working, but we are willing to be patient because of his success reigniting growth at Taco Bell and Chipotle Mexican Grill.

Concluding Thoughts

Our cash balance is now elevated and many of our top holdings have seen significant price appreciation, suggesting the future rate of return for our portfolio will be lower than we have experienced over the past few years. However, the companies in our portfolio, and their return profiles, are not set in stone. We will keep hunting for opportunities to improve the expected return of our portfolio without lowering the quality of the businesses we own.

As always, thank you for placing your trust in us to search for those opportunities on your behalf. Please do not hesitate to reach out with any questions.

Sincerely,

The Summitry Select Team

Note: This commentary reflects the opinions of Summitry, LLC and is for informational purposes only. Nothing herein constitutes investment advice or any recommendation that any particular strategy or security is suitable for any specific person. Past performance does not guarantee future returns. Investing involves risk and possible loss of principal capital. An index is a hypothetical portfolio of securities representing a particular market or market segment used as an indicator of the change in the securities market. Indexes are unmanaged, do not incur fees and expenses and cannot be invested in directly. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable.