Redefining Growth in the AI Era: Wasatch Core Growth Fund's Strategic Shifts for Post-Recession Compounding

In the aftermath of a prolonged economic downturn, the investment landscape is ripe for reinvention. The Wasatch Core Growth Fund (WGROX) has emerged as a trailblazer, redefining what it means to select growth stocks in an era where artificial intelligence (AI) and energy infrastructure are reshaping global markets. The Q2 2025 Commentary from the fund reveals a bold strategy: to capitalize on undervalued, high-quality companies that align with the twin megatrends of AI-driven innovation and energy transition. This approach not only addresses the scars of the recent recession but positions investors for long-term compounding in a world where traditional metrics are being upended.

Valuation Discipline: The New Guardrail for Growth

The fund's Q2 2025 Commentary underscores a critical shift in valuation discipline. Historically, growth investing has often prioritized revenue potential over profitability, leading to speculative bubbles. But in a post-recession environment, Wasatch is doubling down on companies with strong balance sheets, defensible business models, and sustainable competitive advantages. The fund's focus on U.S. small-cap stocks with market caps under $7 billion at purchase reflects a commitment to identifying “hidden gems” that are undervalued relative to their long-term potential.

For example, the fund highlights a company in the energy infrastructure sector that is debt-free, holds a significant cash reserve, and owns critical assets in nuclear energy and LNG exports. This company, trading at less than 7 times earnings, is positioned to benefit from both the AI-driven energy boom and the onshoring of manufacturing under Trump-era policies. By prioritizing valuation discipline, Wasatch avoids the pitfalls of overpriced AI tickers and instead targets firms with real cash flows and tangible assets.

Market Positioning: Small-Cap Resilience in a Fragmented World

The fund's concentrated portfolio of 40–60 positions is a deliberate move to harness the agility of small-cap companies. In a post-recessionary climate, where macroeconomic uncertainty persists, small-cap stocks often outperform due to their ability to adapt quickly to changing conditions. Wasatch's strategy leverages this dynamic by focusing on firms with niche expertise in sectors like AI infrastructure, renewable fuels, and industrial engineering.

A key insight from the commentary is the fund's alignment with the “America First” energy doctrine. By investing in companies deeply embedded in U.S. LNG exports and energy independence initiatives, the fund taps into geopolitical tailwinds. For instance, the energy infrastructure company mentioned earlier is not only a “toll booth operator” in the AI energy boom but also a beneficiary of tariffs driving domestic manufacturing. This dual exposure creates a compounding effect, where macroeconomic trends and technological innovation reinforce each other.

Sector Allocation: AI as the Ultimate Disruptor

The Q2 2025 Commentary frames AI as the defining investment opportunity of the 21st century. However, rather than chasing high-valuation AI pure plays, the fund is investing in the infrastructure that powers AI's growth. This includes energy providers, engineering firms, and companies involved in data center construction. The fund's lead portfolio managers, Paul Lambert and Mike Valentine, emphasize that AI's success hinges on reliable, scalable energy solutions—a sector that has been historically undervalued but is now critical to global competitiveness.

One standout example is the fund's indirect exposure to AI through its equity stake in a high-growth AI play. This layered approach allows investors to benefit from multiple AI-related growth engines without paying premium valuations. Additionally, the fund's focus on nuclear energy—a clean, reliable power source—positions it to capitalize on the decarbonization imperative while meeting AI's insatiable energy demands.

The Path Forward: Strategic Patience and Conviction

The Wasatch Core Growth Fund's strategy is a masterclass in balancing short-term pragmatism with long-term vision. By prioritizing valuation discipline, small-cap resilience, and infrastructure-driven AI growth, the fund is building a portfolio that thrives in both volatile and stable markets. For investors seeking to navigate the post-recession landscape, the key takeaway is clear: the future belongs to companies that can deliver real value through innovation and operational excellence.

As the commentary notes, AI is not just a technological revolution—it's an economic and geopolitical force. By investing in the foundational infrastructure that enables AI's expansion, Wasatch is positioning its investors to ride the next wave of compounding growth. The question is no longer whether AI will reshape the world, but who will profit most from its rise.

Investment Advice: For those seeking to align with the fund's strategy, consider allocating to small-cap energy and infrastructure firms with strong balance sheets and exposure to AI-driven demand. Diversify across sectors but maintain a focus on companies with durable competitive advantages. In a post-recession world, the winners will be those who build for the future, not just react to the present.