Structural Shifts in Global Equity Markets: How the Wasatch Global Select Fund is Positioning for AI-Driven Growth and Energy Transition

The global equity markets are undergoing a seismic transformation, driven by the convergence of artificial intelligence (AI) and the energy transition. As the Wasatch Global Select Fund's Q2 2025 Commentary reveals, the fund is strategically navigating these structural shifts by targeting undervalued U.S. small-cap companies that form the backbone of the AI ecosystem and the energy infrastructure required to power it. This approach diverges sharply from the speculative frenzy of past growth investing, instead prioritizing durable value creation in sectors poised to benefit from long-term macroeconomic tailwinds.

AI Infrastructure: Beyond the Hype, Into the Real Economy

The commentary underscores a critical insight: AI's true economic impact lies not in the speculative “pure plays” that dominated headlines in the 2020s, but in the infrastructure that enables its growth. Wasatch is capitalizing on this by investing in firms that supply the energy, engineering, and physical assets required to build and sustain AI's expansion. For example, the fund highlights a debt-free energy infrastructure company with a cash reserve of $200 million and ownership of critical assets in nuclear energy and LNG exports. This firm trades at a mere 7x earnings, a stark contrast to the stratospheric valuations of AI software companies.

The fund's rationale is clear: AI's insatiable demand for energy—driven by data centers, cloud computing, and machine learning—will require a reimagined energy grid. Nuclear energy, in particular, is positioned as a dual-purpose solution, addressing both decarbonization goals and the baseload power needs of AI infrastructure. By allocating to firms with tangible assets and strong balance sheets, Wasatch is avoiding the volatility of speculative tech stocks while capturing the upside of AI's infrastructure-driven growth.

Energy Transition: The “America First” Megatrend

The fund's alignment with the U.S. energy transition is another cornerstone of its strategy. The commentary emphasizes investments in LNG infrastructure and energy independence initiatives, which are directly tied to the Biden administration's onshoring policies and the global shift away from fossil fuels. For instance, a portfolio company involved in LNG export terminals is benefiting from tariffs on foreign energy and the U.S. push to become a net energy exporter. This firm's revenue has grown 30% year-over-year, driven by contracts with European clients seeking alternatives to Russian gas.

The fund's focus on energy transition is not limited to LNG. It also includes industrial engineering firms that specialize in retrofitting legacy infrastructure for AI-driven automation. These companies are leveraging U.S. manufacturing revival policies to secure government contracts, creating a flywheel of demand from both the public and private sectors. By targeting firms with exposure to these “America First” policies, Wasatch is positioning itself to benefit from geopolitical tailwinds that are reshaping global energy markets.

Valuation Discipline: A New Paradigm for Growth Investing

One of the most striking aspects of the Q2 2025 Commentary is its emphasis on valuation discipline—a departure from the “growth at any cost” mentality that defined the 2020s. The fund is actively seeking small-cap companies with strong cash reserves, low debt, and earnings visibility. For example, a portfolio company in the data center construction sector has a debt-to-equity ratio of 0.2x and a 12-month order backlog of $500 million, yet trades at a 40% discount to its intrinsic value. This focus on fundamentals ensures that the fund is not merely chasing AI-related buzzwords but investing in companies with durable competitive advantages and strong cash flow generation.

This disciplined approach is particularly relevant in a post-recessionary environment, where liquidity constraints and rising interest rates have made high-valuation stocks vulnerable to volatility. By prioritizing companies with tangible assets and conservative balance sheets, the fund is building a portfolio that can weather macroeconomic headwinds while compounding value over the long term.

Strategic Patience: Compounding in a Fragmented Market

The commentary concludes with a call for strategic patience, urging investors to avoid the noise of short-term market fluctuations and focus on the compounding power of innovation-driven sectors. Wasatch's concentrated portfolio of 40–60 positions allows it to capitalize on the agility of small-cap stocks while maintaining sector diversification. For example, a nuclear engineering firm in the portfolio has seen its earnings per share grow at a 25% CAGR over the past three years, driven by its role in developing next-generation reactor designs.

This long-term perspective is critical in a market where structural shifts—such as AI's energy demands and the U.S. energy transition—are playing out over decades. By maintaining conviction in its thesis and avoiding the temptation to overreact to quarterly earnings reports, the fund is positioning itself to outperform as these trends mature.

Conclusion: A Blueprint for the Future

The Wasatch Global Select Fund's Q2 2025 Commentary offers a compelling blueprint for navigating the structural shifts reshaping global equity markets. By focusing on AI infrastructure, energy transition, and valuation discipline, the fund is capturing the upside of innovation-driven growth without the risks associated with speculative investing. For investors seeking to align with the next phase of economic evolution, the key takeaway is clear: allocate to small-cap energy and infrastructure firms with strong balance sheets and exposure to AI-driven demand, while maintaining a long-term horizon and a focus on durable competitive advantages.